Medicare Advantage bonuses could go to low-performing private plans

Washington -- An Obama administration plan to test rewarding Medicare private plans that achieve higher scores on outcome-based measures will pay bonuses to plans that otherwise would be considered poor performers, according to a Jan. 6 letter to the agency from the Medicare Payment Advisory Commission.

MedPAC, which advises lawmakers and other federal officials on how to set Medicare pay rates, sent the letter to the Centers for Medicare & Medicaid Services in response to a November 2010 CMS rule outlining changes to the Medicare Advantage program. Although CMS did not invite comments on the quality bonus payment demonstration proposed in the rule, MedPAC members said they were sufficiently concerned about the initiative to bring it to the attention of the agency.

Under the national health reform law, Medicare Advantage plans starting in 2012 will receive higher benchmark payments if they are rated at least four stars on a five-star scale based on the quality of the coverage they provide to beneficiaries. But under a separate proposed three-year demonstration project that would begin the same year, plans that received at least three stars also would receive a bonus payment.

MedPAC noted that 80% of Medicare Advantage enrollees are in plans rated three stars or higher. In addition, because the final star rating combines quality assessments for both the medical coverage and the prescription drug coverage offered by a given plan, several plans that are considered poor performers based on their medical coverage still would qualify for a bonus based on the combined score.

"As compared to the design of the bonus system in [the health reform law], in which the incentive was for plans to try to achieve the highest possible star ratings, and there was consequently a disincentive for poor performance, the demonstration lessens the incentive to achieve the highest level of performance," the MedPAC letter states.

CMS has broad administrative power to conduct alternative Medicare payment demonstrations in an effort to drive higher-quality care. However, because so many plans are expected to qualify for financial incentives during the demo, it probably will cost the federal government a significant amount of money, MedPAC wrote. "We would urge CMS to reconsider its decision to use demonstration authority to implement a costly programwide quality bonus program for MA in which the large majority of plans receive bonuses."

The commission, however, suggested that other parts of the proposed CMS rule be revised to give Medicare private plans more flexibility in what they charge beneficiaries. By prohibiting any cost-sharing from enrollees for home health care services and banning tiered cost-sharing structures for all other types of services, the administration is missing an opportunity to promote more efficiency in the program and discourage unnecessary care, MedPAC wrote.

CMS plans to finalize the Medicare Advantage rule this year.