A pair of health insurer lawsuits have revived the discussion of whether to fix or replace a flawed bonus payment program for Medicare managed care plans.
According to the Medicare Payment Advisory Commission, private Medicare Advantage insurers received approximately $16 billion in quality bonus payments in 2023. This is significantly higher than the $3 billion that was paid in 2015. These bonus payments are given to MA insurers that achieve at least four out of five stars on a list of quality measures.
Following alterations to the methodology for calculating the 2024 star ratings by the Biden administration, quality scores have decreased. As a result, program payouts are expected to decrease next year when the full impact of the 2024 changes is felt.
Two Medicare Advantage insurers, Elevance Health and SCAN Health, have filed lawsuits against the Department of Health and Human Services over their 2024 star ratings. Both companies claim the new calculations for the ratings are unlawful, arbitrary, and capricious, and should be nullified. Elevance estimates a revenue drop of $500 million in 2025 due to the lower ratings, while SCAN could lose $250 million, according to their lawsuit.
With billions of dollars in bonus payments at stake, these lawsuits will test the HHS and CMS’s ability to control a growing cost in the midst of increased financial scrutiny of the entire Medicare Advantage program. The legal dispute is the latest challenge for the MA star rating and bonus program. Its history of overpayments, inefficacy, and rising costs makes it a prime candidate for reform or elimination, say researchers and analysts.
Laura Skopec, a senior research associate at the Urban Institute, said, “If it were up to me, they would scrap this program entirely.”
In a January letter to the CMS, Sen. Elizabeth Warren and Rep. Pramila Jayapal said, “there is no evidence that quality bonus payments actually improve plan quality” and that the quality measurements are “highly flawed” because of a lack of plan performance data.
Lack of Penalties
As of October 2023, 32.6 million people, or 49% of the program’s 66.6 million beneficiaries, were enrolled in Medicare Advantage.
Unlike traditional fee-for-service Medicare, which pays for each medical service provided, Medicare Advantage plans receive a flat monthly payment to cover each beneficiary’s cost of care. Additionally, Medicare Advantage “quality bonuses aren’t budget neutral but are instead financed by added program dollars,” according to the commission.
Before 2020, some Medicare Advantage plans used contract consolidations to artificially increase star ratings, leading to unwarranted bonus payments. Plans in a low-performing contract could get a bonus payment if their contract was absorbed by another one rated four stars or higher. This activity coincided with a jump in the share of MA enrollees in four-star plans—from 60% in 2015 to 81% in 2020, and to 85% in 2023.
Since 2022, the bonus payments have increased $2.8 billion, or 28%, outpacing the 8% Medicare Advantage enrollment growth over the same period, according to KFF. And in 2023, 85% of MA enrollees were in plans that received a bonus.
MedPAC has recommended that Congress replace the MA bonus program with a budget-neutral incentive program. In the meantime, MA insurers will be fighting to keep the quality bonus payments flowing.
‘Almost Unlimited Discretion’
The Elevance and SCAN lawsuits, filed late last year in US District Court for the District of Columbia, argue that the companies’ 2024 star quality ratings were unfairly influenced by disputed results from “secret shopper” phone calls conducted by the CMS. SCAN’s lawsuit contends that “the call alone triggered a reduction in SCAN’s Star Ratings” and that “Without the call, SCAN’s Star Ratings would have been 4 stars.”
It has been suggested that the CMS has “almost unlimited discretion about how the stars get calculated and what the thresholds are.”
As a result, the star ratings have been “watered down by easy-to-achieve process measures, resulting in nearly 75 percent of MA consumers in a plan with 4 or more stars,” according to a blog co-authored by Ceci Connolly.
Warren and Jayapal have also expressed concerns that too many plans receive four- and five-star ratings.