The Kaiser Family Foundation (KFF) recently released a report titled “Spending on Medicare Advantage Quality Bonus Payments Will Reach at Least $12.8 Billion in 2023” by Jeannie Fuglesten Biniek, Anthony Damico, and Tricia Neuman (August 9, 2023); also see accompanying Press Release (8/9/23) “Medicare Advantage Insurers Will Collect at Least $12.8 Billion in Federal Bonus Payments in 2023—a Nearly 30% Increase from 2022”.
As described in the report, “[t]o encourage Medicare Advantage plans to compete for enrollees based on quality, the Affordable Care Act (ACA) established a quality bonus program that increases payments to plans based on a five-star rating system.” Plans that receive at least 4 (out of 5) stars are eligible for increased payment.
The report outlines several “Key takeaways:
- Federal spending on Medicare Advantage bonus payments has increased every year since 2015 and will reach at least $12.8 billion in 2023, an increase of nearly 30% ($2.8 billion) since 2022.
- Most Medicare Advantage enrollees (85%) are in plans that are receiving bonus payments in 2023.
- The average bonus payment per enrollee is highest for employer- or union-sponsored Medicare Advantage plans ($460) and lowest for special needs plans ($374).
- Bonus payments vary substantially across firms, with UnitedHealthcare receiving the largest total payments ($3.9 billion) and Kaiser Permanente receiving the highest payment per enrollee ($523).”
The report notes that estimated bonus payments “have increased sharply, more than quadrupling from $3.0 billion in 2015 to $12.8 billion in 2023” and “[s]pending on bonus payments has grown faster than enrollment in Medicare Advantage plans.” Such growth, the authors note, “is driven by an increasing share of Medicare Advantage enrollment in plans with at least a 4-star quality rating, explained in part by a larger number of plans receiving ratings at or above this threshold.”
Star Ratings and Bonuses are Fundamentally Flawed
As noted in Politico Pulse (Aug. 10, 2023), the KFF report highlights that MA bonus payments have “skyrocketed” despite such bonuses being “based on the star rating system, a system that the Medicare Payment Advisory Commission [MedPAC] recommended overhauling in 2020, arguing that the system doesn’t adequately measure plan quality.”
As the Center has repeatedly highlighted (see, e.g., Special Report (Oct. 2021), Special Report (Oct. 2022)), independent analysts in addition to MedPAC have raised concerns about the star rating and bonus payment system. For example, in December 2021, Health Affairs published an article titled “The Medicare Advantage Quality Bonus Program Has Not Improved Plan Quality” by Adam A. Markovitz, John Z. Ayanian, Devraj Sukul, and Andrew M. Ryan (Vol. 40, No. 12), which found that “the quality bonus program did not produce the intended improvement in overall quality performance of MA plans.”
With respect to beneficiaries using the quality ratings as a means to meaningfully compare plans, an October 2022 article in JAMA Forum titled “The Lake Wobegon Effect—Where Every Medicare Advantage Plan Is ‘Above Average’” by Joan M. Teno and Claire Ankuda (Oct. 20, 2022), states that
The current system for rating the quality of MA plans does not allow consumers to make meaningful comparisons. The millions of US seniors faced with choosing an MA plan deserve to know if a given plan is truly above average—or if a favorable rating might be a fictional entity, not unlike Lake Wobegon’s ubiquitously above-average children. [Emphasis added]
More recently, the Urban Institute published a report titled “The Medicare Advantage Quality Bonus Program – High Cost for Uncertain Gain” by Laura Skopec and Robert A. Berenson (June 26, 2023). Among the report’s findings are that: “measures of beneficiary experience do not permit meaningful distinctions across MA contracts” and “administrative effectiveness measures do not target important deficiencies regulators have identified within MA organizations.”
Further, “The star rating system and the QBP suffer from many problems, including the following:
- score inflation, which results in overly generous bonuses
- limitations in underlying data sets, which lead to measures focused on the needs of younger and healthier beneficiaries rather than beneficiaries facing serious illnesses
- performance is not measured at the plan or local level, limiting the usefulness of star ratings for beneficiaries’ choice”
Most damning, perhaps, is the finding that: “Despite the 10-year commitment to paying MA plans substantial bonuses to support successful quality improvement, the preponderance of research does not demonstrate that beneficiaries, on average, receive higher quality care in MA than they would in the traditional Medicare program” [emphasis added].
The authors of the report state: “Although policymakers’ attention to overpayments has focused mostly on gaming of the risk adjustment system, the [quality bonus program] contributes substantially to overpayment and needs reform.”
Flawed Bonus Payments are In Addition to Wasteful “Upcoding”
The Center regularly focuses on current overpayments to MA plans based on such gaming of the risk adjustment payment system – see, e.g., a recent CMA Alert (June 22, 2023) highlighting a USC Schaeffer Center for Health Policy & Economics paper stating that current MA overpayments could exceed $75 billion in 2023.
More recently, The Boston Globe published an op-ed titled “How Medicare Can Save $500 Billion” by Brown University professors Andrew Ryan and David Meyers (Aug. 18, 2023). The authors state:
So-called “upcoding” for Medicare Advantage (MA) beneficiaries costs the federal government an estimated $10 billion to $50 billion each year. But upcoding and other forms of fraud are just a small slice of the waste happening in MA, a privately managed, publicly funded alternative to traditional Medicare for older Americans. Over the next decade, taxpayers stand to lose hundreds of billions of dollars due to faulty rules that overpay MA plans and providers. Some rules are baked into Medicare and will require congressional action to change. But according to our latest research, the Centers for Medicare & Medicaid Services (CMS) has immediate authority to save $500 billion over the next decade by adjusting the way it estimates MA patients’ health risks. On the whole, MA beneficiaries are less sick than plans claim and healthier than people in regular Medicare, meaning CMS can cut costs without cutting care [emphasis added].
While noting some of the upsides of MA plans for enrollees, the authors continue:
The privatization of public health under MA promised gains in innovation and efficiency that have largely failed to materialize. Improvements in health outcomes and efficiency that were found earlier appear to be dwindling. Instead, plans demonstrate their greatest creativity in figuring out how to squeeze more money out of the government.
The authors then outline steps that CMS can take to reduce wasteful payments, including: reject or set limits on patient diagnoses that come from chart reviews or home assessments; shifting additional resources towards enforcement, including auditing; and “perhaps most important, CMS must account for the fact that the MA patient population is, on the whole, healthier than the pool of traditional Medicare beneficiaries: Sicker beneficiaries tend to favor traditional Medicare because it has fewer restrictions on care.” Since payment to MA plans is based on traditional Medicare spending, which has a risk pool of individuals who are more sick, the payment formula is skewed.
August 24, 2023 – D. Lipschutz