Medicare Star Ratings Could Drop with Focus on Equity | PBMI 2024

Recent methodology changes to the Star rating system for Medicare Advantage and Part D plans will make it harder to maintain higher ratings, according to speakers during a session at the Pharmacy Benefit Management Institute’s National Conference.

The changes for 2025, which the Centers for Medicare and Medicaid Services (CMS) released in April 2024, impact the measures for the Health Equity Index (HEI) and risk adjustment and how these are weighted. CMS in its release said the aim of the change is “to advance health equity; drive comprehensive, person-centered care; and promote affordability and the sustainability of the Medicare program.”

Phil Nelson

But the overall impact will be to make it more difficult to maintain Star ratings and could potentially reduce revenue for Medicare Advantage plans, Phil Nelson, consulting actuary, Milliman, said during the session.

“A methodology change is going to completely change the Health Equity Index reward factor,” he said. “This will decrease payments to Medicare Advantage organizations.”

Medicare uses a Star rating system to measure how well Medicare Advantage and Part D plans perform. It measures plans in several categories, including quality of care and member experience. Ratings range from one to five stars, with five being the highest.

Jay Blomquist

The ratings were initially introduced in 2007 to help beneficiaries when choosing plans, and later CMS added financial incentives to reward Medicare Advantage Part C plans that provide high-quality care, Jay Blomquist, pharmacy management consultant, Milliman, said.

The 2024 Star rating used in 2025 bids includes nine domains comprised of 42 measures, of which 12 are for assessing Part D prescription drug plans. Blomquist said this is based largely on performance from 2022.

Part C plans were rated based on measures such as health screening and testing, managing long-term conditions, member experience with the plan, health plan customer service, and handling customer complaints. Part D plans were rated based on similar measures, as well as drug safety and accuracy of drug pricing.

“About 10% of Medicare contracts are three-star rating or below and about 6% of five stars,” Blomquist said.

The Star ratings that will be published in October 2024 for calendar year 2026 bids will likely impact plan revenue in 2027 and 2028, Nelson said. The impact, he said, will be on Medicare Advantage plans, but not the Part D Prescription Drug Plans, Nelson said.

“The Star rating program, and company’s ability to achieve higher ratings, has a substantial impact on the financial viability of a Medicare Advantage organization,” he said. “I tell my clients to be viable, you need four stars.”

Currently CMS focuses on patient engagement, but how that is weighted in the Star calculation is changing, which will impact 2027 payments. For three years, CMS had used a 4-times weight on patient engagement but is returning to 2-times weight.

Nelson suggested that plans should shift their resources based on this change, which could result in a $3.3 billion savings over 10 years.

But he said the changes to the Health Equity Index and the risk-adjusted adherence measures will have the largest impact on plans. In 2026, CMS will assess plans based on a new measure of health equity.

CMS’s goal is to improve care for enrollees with social risk factors, including low-income, dual-eligible or disabled, and officials are working to address health disparities. CMS has outlined several priorities for this effort, including expanding the collection and analysis of data, assessing the causes of disparities with policies to close gaps, increasing accessibility, and building capacity with healthcare organizations.

“Currently , the reward factor favors plans with high Star ratings and with consistent high Star rates across all 40 measures. Essentially, these are the plans getting four- or five-Star ratings across the board,” Nelson said. “This is changing. The methodology will evaluate the Star ratings for every measure, but just looking at a subset of a plan's population, specifically members with social risk factors.”

He said this is estimated to save CMS more than $5 billion over the next 10 years, about $500 million a year. For plans that plan have enrolled a large numbers of beneficiaries with social risk factors, CMS will add up to 0.4 points to a plan’s Star rating.

CMS is providing Star ratings both with and without the new HEI methodology. “Health plans and PBMs have essentially about two years to make sure that they look at that data try to implement any improvements that should be made before it’s actually measured for real in 2026,” he said.