Every year, the US drops billions of dollars into the Medicare Advantage (MA) quality bonus program, which rewards health plans based on their performance on a five-star rating system.
Sounds straightforward, right? Reward the best, nudge the rest.
“The demonstration rewards high performers more than low performers, creating an incentive for all performers to improve,” then-administrator Donald Berwick said in a press release in 2010, when the Centers for Medicare and Medicaid Services (CMS) launched the program following passage of the Affordable Care Act.
But fast forward to 2024: KFF predicted last month that most of this year’s bonus payments will go to plans from insurance giants like UnitedHealthcare, which is projected to get about $3.4 billion, amounting to 30% of the total bonus payment spend. Some experts, including Berwick, aren’t convinced these star ratings truly separate the good from the bad, and a study from 2021 found there’s insufficient evidence to prove these hefty bonuses improve care for the 32.8 million people enrolled in MA.
“The difference between a one-star rating and a five-star rating is very narrow and maybe not clinically meaningful,” Laura Skopec, senior research associate at think tank the Urban Institute, told Healthcare Brew.
Fourteen years after his endorsement of the bonus program, Berwick also shared similar concerns in a March interview with clinical news site MedPage Today.
“The quality bonus system needs a big overhaul,” he told the outlet. “It now has been pretty thoroughly gamed by MA plans. They focus on the scored variables, not overall better care—’teaching to the test,’ as it were.”
Where’s the payoff?
A July Urban Institute report aggregated data suggesting that even as star ratings—and thus, bonuses—have increased over the last few years, clinical quality, population health, and administrative effectiveness have not kept up.
“In essence, the increases in star ratings over time appear to have no relationship to quality improvement despite the substantial increase in spending,” the researchers wrote.
And spending has indeed soared to starry heights. MA quality bonus payments will reach $11.8+ billion in 2024, KFF projected in its report last month.
That’s less than 3% of the Congressional Budget Office’s $462 billion projected spending on MA this year, but it’s a big jump from 2015, when plans got $3 billion total in bonuses, Jeannie Fuglesten Biniek, one of the report’s authors and associate director of the Medicare policy program at KFF, previously told Healthcare Brew.
In a March report to Congress, the nonpartisan, independent Medicare Payment Advisory Commission (MedPAC) estimated that Medicare payments to MA plans in 2024 will be $83 billion higher than if enrollees had traditional, fee-for-service Medicare, in part due to the quality bonus program.
MedPAC says, ‘I told you so’
MedPAC has repeatedly told Congress in annual reports that MA plans are being paid too much in bonuses.
In June 2019 and June 2020, MedPAC recommended the quality bonus program be overhauled and replaced with a new value incentive program.
Navigate the healthcare industry
Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.
One problem targeted in the proposed overhaul: how the bonuses are funded.
“Unlike nearly all of Medicare’s [fee-for-service] quality incentive programs, these quality bonuses are not budget neutral but are instead financed by added program dollars and beneficiary premiums,” MedPAC’s March report read.
MedPAC instead proposed giving penalties to low-performing plans to pay for payments for high-performing plans.
This would be “one of the easiest ways to fix this,” Skopec said.
Disproportionate rewards
There’s also evidence the program isn’t properly accounting for social risk factors, MedPAC found.
KFF’s 2024 report echoed this sentiment, finding that special needs plans designed for people with disabilities or people who have been institutionalized are set to receive less in bonus payments per person this year compared to employer-sponsored plans, which typically have more higher-income white enrollees.
The July 2024 Urban Institute report noted that bonus money can fund additional benefits such as lower premiums and cost-sharing, so paying special needs plans less “can exacerbate health disparities.”
Change needed
MedPAC also contended there are too many measures—over 40—that go into adjusting bonus payments, and not all of them reflect quality.
The commission recommended focusing on a smaller set of measures that reflect clinical outcomes and patient experiences, such as rehospitalizations or uptake of annual cancer screenings and vaccines.
Skopec agreed that the criteria should be changed.
“The bonus program is really not focused on the kinds of problems we hear about in Medicare Advantage,” Skopec said.
A 2022 Department of Health and Human Services study, for instance, found that MA organizations are less likely to reimburse providers or provide prior authorization compared to traditional Medicare.
A CMS spokesperson told Healthcare Brew that the agency “regularly updates star ratings” and “continues to make improvements to the star ratings program by finalizing new methodological enhancements to further drive quality improvement for all enrollees.”
“CMS has taken steps to advance health equity and drive quality in health coverage by establishing a health equity index in the star ratings program that will reward Medicare Advantage and Medicare Part D plans that provide excellent care for underserved populations,” the spokesperson added.
A bigger problem?
The program needs more than just tweaks here and there, however, Skopec wrote in a March research report with colleague Robert Berenson for the Urban Institute.
The authors concluded the problem is a symptom of larger flaws in the pay-for-performance system.
The paper criticized the validity of some of the quality-measuring metrics such as rehospitalization rates, which evidence suggests can be manipulated. The authors would prefer a new system that increases CMS oversight and enforcement and encourages “continuous quality improvement.”
“MedPAC’s suggested replacement has merit, but we would prefer focusing accountability on protecting beneficiaries from poor plan administration rather than attempting to measure MA contracts’ effects on clinical quality,” the authors wrote.