Medicare Advantage Star Bonuses

On November 10, 2010, the Centers for Medicare and Medicaid Services (CMS) released a Fact Sheet on the “stars” quality bonus payments for Medicare Advantage (MA) plans. Beginning in 2012, quality bonuses are paid to MA plans that earn 3 or more stars*. Five-star plans will receive a higher quality bonus payment than 4-star plans … 4-star higher than 3.5-star plans … 3.5-star higher than 3-star plans. Plans with less than 3 stars get no bonus and are eventually labeled as “low performers” on the web-based Medicare Plan Finder tool.

The regulations are different than methodology prescribed in the Patient Protection and Affordable Care Act and the Health Care Education and Reconciliation Act of 2010 (ACA). CMS will test an alternative method for bonus payments to understand whether providing scaled bonuses will lead to more rapid and larger year-to-year quality improvements compared to the ACA bonus structure. Essentially, there are two major changes:

1. Four rating levels (3-star, 3.5-star, 4-star, and 5-star plans) instead of two under ACA law (only 4-star and 5-star plans).
2. Increases bonus payments (e.g. 1.5% to 5% for 5-star plans in 2012).

I have two thoughts on the changes to the stars bonus system presented by CMS.

First, I applaud the increase in percentage of bonuses applied to the payment benchmarks. CMS has raised the bonus level for 5-star plans to the maximum allowed by previous federal regulation that applies to state payments to health plans (42 CFR 438.6(c)(5)(iii)). As suggested by Rosenthal, et al. (2006) in their work on provider performance payments, small bonus payments not be enough to effect results in incentive-based contracts (Rosenthal, 2006).

Second, I scratch my head at the inclusion on 3-star health plans bonus payments. While ACA provides NO BONUS for 3-star plans, the new star system gives them 3% starting in 2012. CMS defines 3-stars as “average performance.” This means that even average plans are rewarded. Using 14 months performance history, among the 560 MA plans 84.6% would receive at least a 3% bonus on the benchmark in qualifying counties. This reminds me of giving medals to all of the kids that participate in a competition.

Is CMS rewarding mediocrity? Will this create a sense of entitlement among MA plans? Will it strengthen CMS’ ability to distinguish between high and low performers? Thoughts?

* The quality assessment categories are:

• Staying Healthy: Screenings, Tests and Vaccines
• Managing Chronic (Long-Lasting) Conditions
• Ratings of Health Plan Responsiveness and Care
• Health Plan Member Complaints and Appeals
• Health Plan Telephone Customer Service