MedPAC: Overhaul inflated MA star ratings to save $6 billion annually

The influential Medicare Payment Advisory Commission is pointing to what its staff sees as major flaws in the Medicare Advantage star-rating system as it calls for a complete overhaul of the program in an attempt to cut $6 billion annually in excess spending.

MedPAC proposed that the current MA star-ratings system, called the quality bonus program, be replaced with another dubbed the value incentive program, according to its annual 473-page June report to Congress.

MedPAC claims that the MA star ratings need a revamp considering its design enables health plans to fluff up their performance, adding about $6 billion a year to Medicare spending.

“For the past several years, the commission has pointed out the flaws of the Medicare Advantage quality bonus program in terms of its complexity, inequities in distributing financial rewards, and opportunities for organizations to obtain unwarranted bonuses by consolidating contracts,” the report said.

The proposed new program would change several key areas that determine star ratings for health plans including its bonus-only structure, performance targets, number of quality measures used and the risk adjustment.

MedPAC noted that the current structure allows many health plans to manipulate the system to improve their quality scores and achieve bonuses.

While the MedPAC report is merely advisory, and neither Congress nor the CMS are required to follow the report’s proposals, lawmakers and the industry pay attention to the commission’s findings.

But there are doubts the suggestions will be taken seriously. Medicare Advantage is extremely popular and membership is only growing. The Trump administration wouldn’t want to do anything to anger seniors like potentially changing benefits in their MA plans, said Richard Lieberman, chief data scientist at Mile High Healthcare Analytics, a consultancy.

“One of the problems with the MedPAC proposal is although it’s academically rigorous and makes sense, it doesn’t have a stakeholder that is going to be behind it. Everybody loses,” he said.

A CMS spokesman said in a statement that the agency “appreciates” the work from MedPAC and “will consider their input for any potential future policymaking.”

Health plans opposed most of MedPAC’s suggested changes, particularly the call to make the star ratings budget-neutral.

Right now, health plans that earn four stars or higher receive a 5% boost to their monthly per-member payments from Medicare. Plans with lower star ratings aren’t on the hook for any penalties but Medicare can kick out consistently low performers.

About 52% of Medicare Advantage plans that offer prescription drug coverage received a bonus in 2019 and roughly 74% of MA members with prescription drug coverage are in plans with four or five stars.

This differs from  how stars are distributed in the hospital star-ratings program run by the CMS. Although hospitals don’t receive bonuses for a higher number of stars, the majority receive three or four stars. Just 293 hospitals received five stars in February 2019.

So many MA health plans are able to achieve four stars or higher because they have found ways to play the system, Lieberman said. For instance, large health plans can consolidate contracts, allowing lower-rated health contracts to take the rating of higher-rated contracts. Legislation attempted to address this and starting in 2020, the rating of large health plans will be determined by weighing the average star rating of the combined contracts. But there are still concerns that the new method will allow lower-rated contracts to receive a bonus-level rating.

MedPAC argues changing the program to a budget-neutral structure can solve some of the problems. To achieve this, MedPAC suggested plans be assigned to peer groups based on members’ dual-eligibility status. This attempts to address the issue that low-income members are more likely to be in lower-rated plans. Then, a “small” share of benefit payments will be used to create a pool of dollars that are redistributed. Plans would receive rewards or penalties based on their performance, according to MedPAC.

Insurance industry lobbying group America’s Health Insurance Plans came out strongly against the recommendation. In a statement, AHIP said the change “would significantly reduce Medicare Advantage program funding and consequently lead to fewer benefits and higher premiums for seniors and individuals with disabilities.”

Health plans that receive bonuses are thought to use the extra money to offer more benefits to members in order to boost enrollment. But MedPAC argued that doesn’t always happen. Because plans aren’t mandated to use the bonuses to offer extra benefits, they are sometimes used to increase profit, pay providers more or on administrative costs, the commission argues.

Even so, penalties could lead to weaker benefits for members, said Melissa Smith, senior vice president at the Gorman Health Group, a consultancy. “A financial penalty applied to a low-performing plan just makes it more likely that members in that low-performing plan will be underserved because it takes resources out of the plan’s hands that would have funded benefits,” she said.

Medicare Advantage insurer Clover Health, which is a three-star plan and therefore wasn’t eligible for bonuses, supported the change, seeing it as an opportunity to improve. “The Medicare Advantage program should strive to be as good as, if not better than, the fee-for-service program both in terms of outcomes as well as costs,” said Gia Lee, general counsel at Clover Health.

In addition to changing the program to budget-neutral, MedPAC wants to reduce the number of measures used to assign star ratings.

There are currently up to 46 measures that MA plans can report on to determine their star rating. MedPAC found that the number of measures allows health plans to report a high rating even if they don’t perform well on all the measures. For instance, of the 376 MA contracts that receive star ratings, 71 average 4½ stars or higher but their performance on outcomes measures averages less than 3½ stars.

“The proliferation of measures … gives plans several avenues to achieve a bonus-level overall rating,” the commission said.

MedPAC suggests reducing the number of measures to focus only on those that are outcomes-driven, such as readmissions, patient experience and patient-reported outcomes.

Smith said she expects immense opposition to the proposal considering how some plans have strategically focused their performance on process measures to achieve high ratings. It also removes all the measures from the Healthcare Effectiveness Data and Information Set, or HEDIS. The organization that develops the measures, the National Committee for Quality Assurance, will likely lobby hard against that, she added.

Indeed, Jordan Erp, senior vice president and chief integration officer of Presbyterian Health Plan, which has a 3½-star rating, said he’s “not totally on board” with the idea of eliminating all measures except the outcome measures.

“If you reduce the scope of what is measured it could potentially reduce quality on those things,” he said.

Health plans did support the proposal from MedPAC to change performance targets so they are prospectively set.

Currently, performance targets are determined by how each plan’s performance compares to the others. That setup doesn’t allow insurers to plan where to focus improvement efforts because they don’t know how their peers are going to perform, MedPAC argues.

The change “will remove some of the random variation that is seen because of unprecedented changes in measure targets or because of unexpected shifts in population,” Erp said.

But there is some concern that prospectively setting targets would reduce the motivation to do well.

“There is the positive impact of having competition. Health plans are constantly raising the bar and it’s creating a market effect around improvement,” said Nate Akers, an associate director at consultancy Navigant.