MA star-rating policy must be improved

June 1, 2012

Medicare Advantage's star rating program includes overly ambitious benchmarks.

There are provisions of the Patient Protection and Affordable Care Act (PPACA) that have appeal from all sides of the political spectrum. The Medicare Advantage (MA) star-rating program, for example, was intended to infuse the system with higher-quality care.

MA harnesses private sector competition in the largest entitlement program as a way to boost quality and restrain cost. But as the law is currently written, the rating system cannot achieve these broadly supported goals.

There is a straightforward logic to creating such a system: 1) set up a schedule of rewards as incentives; 2) treat the MA beneficiaries; 3) verify outcomes; and 4) send bonuses to good performing MA plans.

With the practical implementation of the program, it is impossible for health plans to adapt to achieve better performance and achieve the star-rating incentives. For example, CMS published criteria in October 2011 to be applied to plan performance between January 2010 and June 2011. Clearly, an MA plan cannot adjust its plan offerings or increase its performance retrospectively. It's an unanswered question.

Under the current system, MA star bonuses paid in 2013 will be based on the performance in 2010 and 2011. A plan that earns a high star rating based on 2010 performance could adjust its bids, service areas and marketing strategy for the 2013 plan year in order to increase enrollment in counties with the highest bonuses and rebates. It's been noted that the higher-rated plans are in more affluent counties, while lower-rated plans serve the less affluent.

In order for any type of performance incentive system to be effective, MA providers must know or be able to determine the criteria upon which evaluation will be based. Under the current star-rating system, criteria are not announced until after the end of the period for which performance is evaluated. By the time the criteria are issued, it is too late for a plan to adjust its performance to improve its rating. So current ratings of the plans could be significantly mischaracterized since they are based on outdated performance data.

In addition, the total amount of bonus depends on the enrollment, but the enrollment numbers being used are from the current year, not the time period in which the care was delivered. Instead of knowing the rules and delivering good care, firms instead will use financial incentives to boost enrollment in the high-rated plans.

Further, consider that the average rate of all-cause readmissions within 30 days is 19.6% for traditional Medicare and significantly better-just 15%-for MA member populations. Despite this, CMS issued criteria in October 2011 requiring plans to achieve readmission rates below 5% to earn the top five-star rating.

If the unrealistic policy on readmission rates is left in its present form, no MA plans will receive the full five-star bonuses. Without good bonuses, Medicare Advantage may not be able to compete or be sustainable, thus depriving plans of members.

Unless the star-rating program is fixed, it will threaten the quality of and access to care for Medicare patients. The star-rating program is an example of a promising product that falls short in practice.

Douglas Holtz-Eakin is president of The American Action Forum