In response to the ongoing trend of plans moving Medicare Advantage enrollees to contracts receiving quality bonus payments under the star ratings system, CMS in a recent Medicare Advantage and Part D proposed rule (82 Fed. Reg. 56336, Nov. 28, 2017) suggested using an enrollment-weighted average to determine the star rating when contracts are consolidated. While the Medicare Payment Advisory Commission (MedPAC) has advocated for the use of an “averaging method” to calculate the ratings for a surviving contract, the commission during its latest public meeting considered a draft recommendation to calculate ratings by geographic area. This would more adequately level the playing field among competing organizations, argued one analyst.

MedPAC has repeatedly expressed concern about the rising number of MA sponsors that have consolidated contracts in order to boost quality bonus payments associated with ratings of 4 and above. The commission observed that in the past five years, there have been 140 contract consolidations, including 108 contracts moving from non-bonus to bonus status. Put another way, 4.1 million enrollees, or about 20% of total MA enrollment, have been moved to bonus status.

Proposal Addresses Gaming of the System

“Although the share of enrollment in bonus level plans is reported as being in the 70% range, the actual percentage is smaller because lower-rated contracts are being absorbed by higher-rated contracts through consolidation,” stated MedPAC analyst Carlos Zarabozo during a Dec. 8 presentation. And this has never been more prevalent than with “the current cycle,” with 17 contracts moved to bonus status after the release of the 2017 star ratings, affecting 1.4 million enrollees or about 8% of overall MA enrollment, he said.

While Zarabozo acknowledged that there are “good reasons” for plans to consolidate contracts (e.g., when one plan acquires another and they serve the same county), he observed that “more often than not, contract consolidations have been undertaken to obtain additional bonus payments.” And since a new bonus means a higher benchmark on which to base payments, the lag time between when star ratings are released each October and bids for the following plan year are due “allows plans to maximize their bonus revenue through consolidations.”

CMS echoed MedPAC’s concerns in the proposed rule, suggesting that this practice “results in masking low quality plans under higher rated surviving ones.” In an effort to improve transparency for beneficiaries and ensure that contracts are being rewarded for actually delivering higher quality, CMS proposed to modify the current policy of assigning the surviving contract the star rating it would have earned regardless of a consolidation and instead use an “enrollment-weighted mean of the measure scores of the surviving and consumed contract(s).”

“What CMS and MedPAC are concerned about is there are plans that are clearly just gaming the system,” observes Eric Goetsch, a principal and consulting actuary in the Milwaukee office of Milliman. “If your company has plans all over the country, and you have 3.5 star-rated plans in Maine that you’re consolidating with plans in New Mexico that have 4.5 stars, I don’t know the purpose of that other than to get the higher star rating.”

MedPAC Wants Local-Level Reporting

Goetsch predicts that if implemented, the change proposed by CMS will dampen the number of contract consolidations going forward. “If there isn’t a financial reason to consolidate, I’m not sure what the other benefit is, other than maybe you have to do fewer bids. But to me, the financial gain by consolidation is the real draw, and if you no longer have that, I think you’re going to see less consolidating.”

MedPAC presented two draft recommendations, which could be incorporated into a future report to Congress, that take a multiphase approach to reducing consolidations. They are:

(1) For MA contract consolidations involving different geographic areas, the secretary should require contracts to report pre-consolidation quality measures and determine star ratings as though the consolidation had not occurred, until quality can be reported at a local geographic level.Assuming there would be program savings relative to the current policy — given that it would lead to fewer consolidations and thus fewer bonus payments — this policy also would improve the accuracy of information available to beneficiaries on plan quality while “level[ing] the playing field for contracts that compete against contracts that acquired their bonus status solely through a consolidation,” asserted Zarabozo.

(2) Establish geographic areas for MA quality reporting that are accurate reflections of health care market areas, and calculate star ratings for each contract at that geographic level.The implications for spending are uncertain, and depend on the distribution of star ratings in each year, he added.

“Reading between the lines, I think they’re saying that the enrollment-weighted star rating approach is, until you can get something better, an improvement over what’s happening now,” observes Goetsch. But longer term, calculating the star ratings for each contract at the geographic level “makes the most sense,” he says, given that quality measures that reflect outcomes in one health care system could vary widely from those in another geographic area.

Since CMS has recognized the growing prevalence of consolidations, it’s likely that the agency will take a hard look at MedPAC’s second suggestion. Although CMS may seek industry feedback on it in a future proposed rule, it’s very unlikely as a possible change for the 2019 plan year, adds Goetsch.

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