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Medicare Star Ratings: New Year and New Opportunities

As the healthcare industry continues its shift towards value-based care and Medicare Advantage (MA) continues to become a larger part of senior healthcare, the ability to measure quality of care remains critical. As a result, in 2007 the Centers for Medicare & Medicaid (CMS) developed the Medicare Star Ratings system (Star Ratings) (1-5, low to high) for private insurers providing beneficiaries a quantitative metric, beyond cost, for plan comparisons. Star Ratings are based upon 50+ metrics across 10+ audited datasets but can be summarized to the following 5 categories:
 

• Clinical quality standards
• Member satisfaction
• Complaints with plan
• Administrative performance
• Compliance standards

 
A higher Star Rating means a plan is not only providing higher quality care but also providing a better member experience. CMS also uses the Medicare Star Ratings system to ensure plans are providing high-quality benefits and a superb experience to their members by rewarding them through bonus payments and other benefits. As an example, plans that score at 4 or above in urban areas qualify for an additional ten percent in CMS payments. According to the Kaiser Family Foundation, the total quality bonuses in 2022 reached $10B, which doesn’t include the significant incremental benefit that comes from an increase in membership for health plans that are able to market a higher score.

Over the last three years (2019-2021) MA plans have scored well, averaging a Star Rating of 4.17. This relatively strong performance reflects changes made by CMS to avoid undue punishment as the healthcare world adapted to the challenges of COVID-19. During this period, CMS made temporary alterations to the Star Ratings methodology for the 2021 and 2022 plan year. CMS’ temporary scoring changes inflated Star Ratings through “best of” disaster provisions and lowering of cut points for a variety of metrics. The “best of” disaster provision enabled plans to choose the greater of the current or pre-pandemic historical rating for each metric. Meaning that, as the member experience worsened across a variety of metrics, plans were able to continue using rating statistics from prior years. This essentially placed a temporary floor on plans’ ratings. In addition to the “best of” provision, CMS generally decreased the cut point requirements for each star level. Since cut points are based on aggregate plan performance, as plan quality deteriorated over the pandemic, cut points slid down. Combined with the “best of” provision, MA plans saw their average ratings increase from 4.17 to 4.37 despite often displaying a constant level of quality performance. However, for the 2023 plan year, CMS is removing the “best of” disaster provision, implementing guardrails for non-CAHPS metrics’ cut points, and removing the Tukey Outlier Elimination method2, all of which will put significant pressure on ratings going forward. (CAHPS = Consumer Assessment of Healthcare Providers & Systems. CAHPS utilizes surveys to measures patient experiences.)

The 2023 rating approach represents both a regression to normalized Star Ratings and a change to future rating methodologies. McKinsey estimated that the disaster “best of” provision was utilized on 21% of contracts. By itself, this reversal should bring the average back towards pre-COVID levels and potentially lower due to deteriorating overall industry performance. Each of these 2023 rule changes were responsible for the average Star Rating dropping 0.22 points compared to the 2022 rating and 0.02 points from pre-pandemic levels for a final score of 4.15.
 

 
The changes to 2023 MA Star Ratings will be a significant headwind for years to come and has a number of plans, including the largest in the country, searching for solutions. In 2022 there were 74 plans at 5 stars, 96 at 4.5 stars, and 152 at 4 stars for a total of 322 plans at or above the bonus payment threshold. In 2023, there will only be 260 plans at or above 4 stars, a 19% decline compared to 2022. In addition, following the changes to guardrails, McKinsey predicts an annual $800M of lost revenue through 2024 across plans. During Q3 2022 earnings, most of the major payers saw material downward pressure to Star Ratings with analysts expecting a 3 - 8%+ hit on revenue.

To combat this headwind, plans are looking to supplement and enhance key quality metrics and do so quickly. More specifically, plans are acutely focused on increasing member experience and medication adherence due to its increased weighting and cost savings potential. For the 2023 Star Ratings the weight of patient experience/complaints doubled from 2 to 4, meaning that plans which continue improving their user-friendly virtual infrastructure will benefit greatly. Furthermore, medication adherence is increasingly becoming a major part of the American healthcare experience, and CMS has directly incorporated that into its Star Ratings. Nearly 9 in 10 adults 65 years or older in the US were prescribed at least one prescription medication. If adherence falls below 80%, additional medical costs run rampant through readmissions and ineffective treatment, which is estimated to cost the healthcare industry $500B in avoidable costs. A lack of strong medication adherence can significantly impact overall quality and cost of care. CMS ratings have addressed this by introducing two new metrics directly targeting medication adherence: Controlling Blood Pressure and Statin Use in Person with Diabetes. Currently, 52% of an MA plan's Star Ratings measure weight is based on medication-related measures. When including medical adherence’s intersection with CAHPS metrics, the combined influence reaches ~80%. The impact of medication adherence not only impacts Star Ratings, but also cut points. For 2023, some cut points for medication adherence rose as much as 4-5 points as opposed to the general decline of cut points, according to an article from FTI Consulting. Maintaining strong adherence and patient experience ratings going forward will be paramount in successfully managing MA Star Ratings headwinds in the years to come.

The Medicare Star Ratings system was designed to provide greater transparency for both members and health plans across a number of dimensions, including understanding the success of value-based care initiatives. For members, Star Ratings scores allow easier plan-to-plan comparisons. For plans, higher Star Ratings scores drive meaningful bottom line impact, with significantly larger payments for higher-rated plans. However, during the pandemic, temporary CMS initiatives led to deteriorating quality of care but with higher scores. As the pandemic-related measures get lifted, 2023 and beyond will be marked by significant headwinds and shifts in scoring methodology that plans will need to adjust to. As scoring methodology shifts and the industry adapts, plans that have strong historical processes and partnerships with leading third-party vendors, particularly around patient experience and medication adherence, will have a leg up on the competition. At TripleTree, we believe the upcoming change to the Star Ratings methodology presents tremendous opportunity for innovative and proven solutions that can deliver an impact across the five Star Ratings categories.