What health execs should know about Medicare Star Ratings

The Medicare Star Ratings program is one way regulators are trying to improve outcomes while reducing costs, but what is really at stake for plans, and do consumers even care?

The Star Rating System was enacted nearly a decade ago to measure how well Medicare Advantage and its prescription drug plans perform for consumers. The current ratings are based on numerous factors, including clinical outcomes, patient experience, customer service, and access to care.

According to recent performance data released by CMS, 81 plans earned at least four stars for 2016. The average rating across the 369 private Medicare contracts last year was 4.03-a jump from the 3.92 average for 2015, according to a CMS spokesperson.

Plans with higher ratings are eligible for bonus payments, which equate to roughly 5% of monthly per-member payments, according to CMS.

PereiraMonisha Machado-Pereira, a principal at McKinsey & Co., says these incentives are in addition to medical cost savings resulting from better care if the ratings have their intended effect to improve care. “If managed in the right way, it can be quite a windfall,” she says.

The bonuses are effectively all or nothing, Machado-Pereira adds. Plans that achieve four stars receive an incentive amounting to about $500 per member per year. Those with under four stars get nothing, but there is also no additional financial incentive for plans that achieve five stars, resulting in a large increase in plans achieving four stars but a small fraction that have improved to five stars. The benefit for plans with five stars is a year-round enrollment period, she says.

The incentives provided through the Star Ratings program also help health plans make up for any losses that came from the implementation of the Affordable Care Act and the transition from fee-for-service to performance-based payments.

“It’s a way for health plans to continue to invest in certain areas,” says Machado-Pereira. “For a health plan that is looking at where to continue to maintain margins but also improve care, this is a way to continue to fund those initiatives.”

Next: Reinvigorated system

Reinvigorated system

McKeownRyan McKeown, vice president of strategy and business integration at Optum, says Medicare didn’t have any quality incentives for the Medicare Advantage program prior to the Stars system, which was initiated by former CMS interim administrator Don Berwick, MD, MPP, FRCP.

Berwick, former chief executive officer of the Institute of Healthcare Improvement, was also one of the individuals responsible for creating the Triple Aim. Triple Aim is a framework on which many healthcare reforms-including the Star ratings program-are based, and takes into account not only quality of care, but also a plan participant’s experience of their care and reductions in per capita healthcare costs.

While the Triple Aim and the initial Star Ratings system (prior to 2012) brought new direction to Medicare Advantage, it failed to produce the desired effect, McKeown says. “It was great, but still nobody really cared that much. Particularly payers, because there was no money tied to it,” he says.  

But that changed when financial benefits were tied to the program in 2012. “They started to put financial teeth inside of that performance,” McKeown says.

The overall rating covers five categories: keeping patients healthy through preventive care measures like screenings, tests, and preventive services; managing chronic conditions; member satisfaction with the plan’s services; member complaints or changes in the plan’s performance; and the health plan’s handling of member appeals.

Prescription plans are also judged on customer service and handling of appeals, member complaints and overall satisfaction in the plan’s offerings, and drug safety and pricing.

Data used to create the ratings is gleaned from a number of sources including the Healthcare Effectiveness Data and Information Set, and the Hospital Consumer Assessment of Healthcare Providers and Systems and Medicare Health Outcomes surveys.

“These have been a notoriously difficult grouping of measures for health plans,” McKeown notes. “But CMS believes these are the best survey tools they have to measure these elements from a member perspective.”

Next: Criticisms arise

Criticisms arise

The data from these measures is then analyzed by CMS to find performance clusters and ratings are given based on a bell curve, McKeown says. This system however, has led to some complaint.

“The complaint is then that we don’t have a goal that we can set that’s empirical,” McKeown says, adding that CMS might be hesitant to set a benchmark in order to see how high performance can go without a set limit. “CMS, I imagine is curious to see what is the max? What is the best quality outcome?”

Initially, the each measure had equal weight, but now CMS uses varying weights for different measures, Machado-Pereira says.

“They’ve been adding more outcomes-focused measures and dropping some of the process-based measures,” McKeown adds. “While you can debate the particular measures, I doubt CMS will come out with any measures that the industry says are perfect. CMS is philosophically migrating toward more outcome-based measures that really assess the coordination of care for their members and lower readmission rates. You can’t just focus on customer satisfaction or the clinical aspect. I think it’s a balance.”

Consumer questions

Currently, member experiences account for a fraction of the ratings that clinical aspects do, but McKeown says plans must take into consideration the effect customer service can have on clinical outcomes.

“Members that think their plan is rude or unhelpful are less likely to do the thing the health plans incents or reminds them to do,” McKeown says.

Looking beyond the dollars, though, do consumers really understand the ratings and consider them when making plan selections?

According to a

from McKinsey & Company on healthcare consumerism, only 21% of individuals enrolled in a Medicare Advantage plan knew their plan’s Star Ratings.

For those who paid attention to the ratings, however, the measurement did factor into their decision-making, and nearly all purchased a plan with three or more stars, according to the report.

Machado-Pereira says 71% of consumers are now enrolled in plans with four stars or higher.

“The total number of people who are actually aware is small, but of the people who are aware and seek it out, a disproportionate number of people will make their decision on it,” she says.

Next: Trickle-down effects

Trickle-down effects

Aside from financial bonuses, the Star Rating also offer high performers marketing benefits that impact consumers in terms of enrollment and access, McKeown says.

Star Ratings can be used as part of the bid process going forward to structure plan cost shares and benefits going into the next year, he says, and Star Ratings higher than four can charge higher base rates with lower premiums and offer supplemental benefits like vision or dental services to reduce cost shares and copayments, making the plans more attractive to consumers.

“I think just like any person approaches what type of insurance they buy for an automobile or any product, they start with what’s most important to them. I think most of the time we’ve seen that members are really sensitive about the premium cost,” McKeown says. “Can they afford it? Is their primary care physician in the network? Are their current specialists in the network? I’m not sure in a majority of instances that they look at the Star Rating and base their decision solely on that, but implicitly, because of the way the ratings and financial incentives play out, you see the plans with higher than four star ratings attract a greater number of members on the whole.”

In addition, more people, without realizing it, are attracted to higher Star plans because they usually have lower premiums and better services, McKeown says.

Plans on the low end of the ratings scale may even be dropped from a prospective members’ consideration, as CMS can terminate the contract of any program that falls below three stars for more than two years.

Despite weaknesses within the Star Rating program, McKeown believes it’s having an overall positive effect on the quality of healthcare, particularly in terms of readmission rates and healthcare costs.

Additionally, plans with more stars that are rewarded financially and are able to offer additional supplemental services like dental care are providing benefits in other ways, such as later medical cost avoidance through preventive care. Patients that receive appropriate dental care are less likely to develop more acute issues, such as an abscess, leading to medical cost avoidance and better member satisfaction, he says.

“Is it perfect? Absolutely not. But it’s constantly improving,” McKeown says. “The incentives really provided more parity in the conversation for stakeholders in senior leadership teams, and I think the Star Ratings might have hastened and provided focus in some areas.”

Machado-Pereira agrees.

“The intent of the Stars Program is noble. There are certain outcomes that are very hard to impact, but then on the flip side, I think there’s a sufficient number of measures and weights associated with things that are truly improving outcomes,” she says. “I think it could be bureaucratic is taken in isolation and used just as a way to hit a metric. There’s always going to be administrative burden from it, but if a plan looks at it holistically, if you look at the intent of Stars, and this becomes part of your regular way of doing business, the Stars program is the government’s way of reimbursing you for things you should have been doing anyway.”

Rachael Zimlich is a writer in Columbia Station, Ohio.