The enormous impact of Medicare Star Ratings on payments received by Medicare Advantage plans cannot be overstated. And with billions of dollars in bonus payments at stake, it may come as no surprise that stringent standards set out by the Centers for Medicare and Medicaid Services (CMS) have led to plans to push back against agency interpretations and seek judicial redress. We discuss the issues here.
Background
Medicare Advantage, also referred to as Part C, allows beneficiaries to receive coverage under a managed care model delivered through private insurers, known as Medicare Advantage (MA) plans or Medicare Advantage organizations (MAOs). Beneficiaries must elect to enroll in Medicare Advantage and can only do so during certain specified enrollment periods after establishing they are covered under Medicare Part A (hospital insurance) and Part B (medical insurance).
The Star Rating system was established in 2007 to give potential enrollees the ability to compare plans and assess certain plan performance metrics, with the goal of enabling enrollees to make better informed healthcare decisions. The rating comprises various measures designed to assess plan responsiveness and care, member satisfaction, complaints and appeals, telephone customer service, patient access to tests and treatments, etc.
Star Ratings include CMS’s evaluation of Consumer Assessment of Healthcare Providers & Systems (CAHPS) surveys. CAHPS surveys are patient experience surveys that ask consumers and patients to evaluate the interpersonal aspects of healthcare with providers and plans and probe those aspects of care for which consumers and patients are the best or only source of information. Questions are generally organized to address six composite measures:
- Getting needed care
- Getting appointments and care quickly
- Doctors who communicate well
- Customer service
- Getting needed prescription drugs
- Care coordination
Around October, prior to the beginning of the Medicare Annual Enrollment Period, each MA plan receives an annual Star Rating published on the Medicare Plan Finder website. Ratings range from one to five, with higher scores indicating better performance. Plans with five stars are depicted on the website with a “high performing” icon. Approximately 42% of MA plans with prescription drug coverage earned at least four stars in 2024 (down from 68% in 2022). The average Star Rating for 2024 (4.04) is the lowest average since at least 2021.
Certainly, plans with higher Star Ratings attract more enrollees. Additionally, there are special enrollment periods and flexibilities to change plans that only apply to five star-rated plans.
Star Ratings and Qualified Bonus Payments
In addition to impacting enrollment, Medicare Advantage Star Ratings have a significant impact on MA plan payments through qualified bonus payments (QBP) and rebate payments. At a high level, plans must receive a score of four or higher to be eligible for a QBP, and rebate payments per enrollee are adjusted based on the plan’s Star Rating. Failure to achieve that score can cost plans hundreds of millions, and in some cases, billions of dollars.
When an MA plan’s bid (i.e., estimated cost for providing covered services) is below the federal benchmark (i.e., the maximum CMS reimbursement per enrollee), CMS pays the MA plan its bid rate, plus a specified percentage of the difference between the benchmark and the bid. When an MA plan is eligible for a QBP, this “rebate” payment is adjusted by adding 3.5% or 5% to the federal benchmark, which raises the maximum reimbursement rate and results in a greater difference between the benchmark and the bid, and thus, a larger rebate payment. Plans that did not receive a Star Rating of four or higher do not receive this adjustment.
Additionally, CMS pays MA plans a percentage of the difference between the benchmark and the bid, which is based on the MA plan’s Star Rating. Specifically, this compensation is set at 70% for plans rated four and a half stars, 65% for four stars, 65% for three and a half stars (without a QBP adjustment), and 50% for three stars or fewer (also without a QBP adjustment). Payments must be used to provide additional benefits or otherwise returned to plan participants through lower premiums or cost sharing. The average bonus per enrollee ranges from $32 to $516. According to Kaiser Family Foundations, MA plans received at least $11.8 billion in QBPs in 2024.
To put these figures into perspective, consider an MA plan that received a reduction in its Star Rating from four stars (from the previous year) to three (in the current year). The plan would lose eligibility for a QBP adjustment, resulting in a 3.5% to 5% decrease in the benchmark for purposes of payment calculation, and its rebate payments would be reduced from 65% to 50%. These payment decreases would affect payment for each and every enrollee. For any plan, this would have a significant negative financial impact, but for some, this could be catastrophic.
So why have Star Rating scores become headline news and the subject of litigation? CMS regularly makes adjustments to its Star Rating methodology, including adjusting the weight of certain performance metrics and calculating cut-off points (or cut points) for certain measures for what CMS claims ensures improved predictability and stability in Star Ratings. Based on a 2020 final rule (delayed implementation due to the COVID-19 pandemic), the 2024 Star Ratings introduced “Tukey outlier deletion,” which involves removing outlier scores prior to determining measure-level cut points. CMS also announced it would double the weight of patient experience/complaints and access measures (largely CAHPS measures) on Star Ratings. These CMS adjustments and others, which are alleged to have resulted in overall Star Ratings score reductions and lost QBPs and rebate payments, are at the heart of current litigation.
Star Ratings Appeals and Trends
Given the significance of the financial impact of the Star Ratings, there are formal and informal opportunities for MA plans to challenge their ratings. First, CMS has plan preview periods before each Star Ratings release, during which MA plans can preview their Star Ratings data in the Health Plan Management System (HPMS) prior to public display on the Medicare Plan Finder. Agency guidance and the preamble in the final rule suggest that CMS expects MA plans to closely review the rating methodology and their data. However, the regulations do not describe any process for challenging Ratings during the preview periods.
Second, federal regulations establish a formal appeal process for QBP determinations under the Star Rating program, which allows an MA plan to request reconsideration of its QBP status. Requests for reconsideration must be submitted within 10 business days of the release of the QBP status. However, an MA plan may not request a review based on either the methodology for calculating the Star Ratings (including the calculation of the overall Star Ratings) or data inaccuracies in CAHPS data.
A trend appears to have emerged with respect to challenges to CMS’s Star Ratings, some of which have succeeded at the motion for summary judgment stage and resulted in orders for CMS to recalculate the plan’s Star Rating. Common themes in complaints include, but are not limited to, challenges to the inappropriate and retroactive use of the Tukey outlier deletion, CMS subregulatory guidance disallowing callbacks during telephone customer service, and agency failure to provide transparency and data requested during preview periods. Given the stakes associated with falling Star Ratings, we expect this trend to continue.
Key Takeaways
Star Ratings are generated through an evaluation of many complex factors, and an MA plan’s published rating could have significant financial impacts on the organization. Understanding how Star Ratings are calculated, what technical factors and adjustment criteria will be used to determine your organization’s rating, and how to challenge a Star Rating properly are critical to ensuring accurate ratings and appropriate reimbursement. Our team continues to monitor developments in this sector and stands ready to assist plans in navigating these complex issues.