Quality measurement, quality incentives, and pay for performance are tools designed to increase value in our health care delivery system. They are mechanisms that demonstrably drive up quality and drive down costs.
Yet due to an unintended consequence of the law, some of the highest performing Medicare Advantage (MA) plans aren’t getting the incentive payments they earned. Collectively these plans actually stand to lose nearly half a billion dollars in quality incentive payments because of a cap on MA plan benchmarks.
The Secretary of the Department of Health and Human Services (HHS) or Congress should act quickly to fix this problem.
Quality Incentives
The Center for Medicare and Medicaid Services (CMS) has used quality measurements to adjust its payments to Medicare Advantage plans since 2012. The program, known as the Star Rating System, is intended to provide bonus payments to high quality plans. These bonuses allow plans to provide additional benefits that then attract more enrollees, increasing market penetration for those high performing plans. The impact is clear:
- Since Congress attached star ratings to payment, the average rating per contract has increased by almost 1.5 stars — from 2.56 in 2012 to 3.92 in 2015.
- Today, 60 percent of Medicare Advantage beneficiaries are enrolled in a 4+ star plan.
- Among first-time enrollees, there is a 5 percent increase in likelihood to enroll per 1 star increase in plan rating.
Capping Quality Incentives
The payment structure used for MA plans is a function of the relationship between the plan’s bid to CMS—based on estimated cost per enrollee—and its CMS-determined benchmark — based on a statutory formula related to local and national Medicare fee-for-service expenditures. Beginning in 2012, Congress also tied payment to Star Ratings. Plans with four or more stars receive quality incentive payments, which they can use to enhance benefit packages that then attract more enrollees to the higher quality of care they provide.
However, under a cap that is also part of the law, benchmarks cannot exceed the amount that would have been calculated under the previous methodology. CMS has interpreted this cap to include cuts to quality incentive payments despite clear congressional intent to establish a quality structure that rewards rather than penalizes high performing MA plans.
The resulting formula also falls more heavily on regions with efficient fee-for-service spending, where the CMS-determined benchmark is lower. Due to the cap, a top-rated 5 star plan in a region like this may not be getting the bonuses it has earned. Instead, in some cases, it is being paid the same as a 3 star plan that is delivering lower quality care. These high performing plans are thus not able to afford their enrollees the extra benefits that the bonuses were intended to provide. Without that leverage, high quality plans may not be able to increase their market share as intended.
Aligning Quality Incentives
Plans and beneficiaries alike suffer from the cap policy, which undermines the shift towards paying for quality and value. Individual high quality MA organizations like the Geisinger Health Plan are seeing revenue losses up to $14.3 million because of this unfair cap. And in high performing regions, the cap reduces or eliminates entirely the quality incentive payments the plans have worked so hard to earn. Capping the incentive in this way obstructs the insurance market, undermining congressional intent for quality and consumer choice to drive improvements across the broader health care landscape.
The Secretary of HHS may well have discretionary authority to remove the quality payment from the calculation of the cap. If not, Congress should act to afford more flexibility for the benchmarks. This flexibility would apply the cap in a manner more consistent with the intent behind the legislation.
Minimizing the impacts associated with the cap would protect the incentive for providing high quality, efficient care, and help beneficiaries keep the benefits they value.
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