Medicare Advantage Quality Bonus Program Needs Reform, Report Finds

July 11, 2023 - The Medicare Advantage quality bonus program overpays plans and does not effectively promote quality care, indicating that program reforms are needed, according to an Urban Institute report.

The quality bonus program uses the star rating system to measure performance across Medicare Advantage contracts. Contracts with high star ratings receive higher benchmarks and rebate percentages than other low-star contracts in the same area. The program does not financially penalize low-performing contracts.

Researchers reviewed 2023 Medicare Advantage star ratings and enrollment data to assess the quality bonus program and how it impacts the Medicare Advantage payment system. They discovered several problems with the program that contradict its goals.

First, they found that score inflation has led to overly high bonuses.

The average star rating across Medicare Advantage contracts increased from 3.86 in 2014 to 4.37 in 2022, when 68.4 percent of contracts had a rating of 4.0 or higher. The inflation decreased slightly in 2023, with an average rating of 4.15 and 51.3 percent of contracts with four stars or higher. The share of contracts with five stars has increased over time, from 11 contracts in 2014 to 57 contracts in 2023.

At the same time, few Medicare Advantage contracts have received low star ratings, both in 2014 and 2023. Only one contract was rated two stars and 16 were rated 2.5 stars in 2014. In 2023, four contracts were rated two stars, while 37 were rated 2.5 stars.

While more contracts are receiving higher star ratings and thus more bonuses, these changes are not tied to increases in plan performance in clinical quality, population health, and administrative effectiveness.

The average performance on 11 of 28 measures generated a 4-star rating in 2023, of which four measures are for administrative effectiveness, controlled by Medicare Advantage organizations, and heavily weighted in overall star ratings. Consequently, contracts are being rewarded for offering average services to beneficiaries, the report said.

The report also found that beneficiary experience measures in the quality bonus program do not accurately allow beneficiaries to compare contracts. When displayed to beneficiaries, these measures combine performance across multiple Consumer Assessment of Healthcare Providers and Systems (CAHPS) questions. In addition, performance ranges on the measures are narrow, with only a few percentage points between a 1-star performance and a 5-star performance.

The underlying data sources for quality and experience measures mainly focus on primary and secondary prevention measures, which may exclude issues for disabled and aging beneficiaries with chronic conditions and serious illnesses.

Additionally, the star rating system measures quality at the contract level instead of the plan level, leading insurers to increase enrollment in high-rate contracts. Medicare Advantage contracts have a broad geographic span, making it difficult for beneficiaries to gain useful information on their plan from star ratings.

Limiting contracts to a single state would help improve the usefulness of the star ratings and tie quality bonuses to specific practices within a plan, the report noted.

Although the quality bonus program aims to provide star ratings that help beneficiaries select a plan, researchers found that beneficiaries usually do not consider star ratings during enrollment decisions. Contract-level ratings and a combination of measures lead to unhelpful ratings for consumers.

“CMS has devoted considerable effort and resources to bring data precision to star ratings. However, the resulting system, while highly technical, may reflect false precision and may, in some ways, be counterproductive,” the researchers wrote. “As demonstrated over the past two decades, quality measurement cannot reliably and accurately distinguish between fair, good, and excellent care.”

According to the report, CMS should shift its focus to protecting beneficiaries from substandard plans by publicly reporting concrete measures of administrative effectiveness and sanctioning substandard plans if necessary.

The quality bonus program should also be reformed to avoid focusing on narrow performance distinctions that do not differentiate between plan selections. The program should rely on a smaller set of population health measures to determine plan quality at the local level. In addition, contracts should receive penalties for poor performance.