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Medicare Advantage Quality Bonus Program Overpays Insurers, Needs Reform

Analysis  |  By Jay Asser  
   July 07, 2023

New research adds to the concern over quality improvement in the private program.

Rather than informing beneficiaries or encouraging Medicare Advantage (MA) organizations to improve quality, the quality bonus program (QBP) is significantly contributing to overpayment in the MA system, according to a report by the Urban Institute.

The QBP was established by the Affordable Care Act as part of several MA reforms that were meant to reduce payments to MAOs, but lawmakers have expressed concern that the program is doing the opposite.

For the report, researchers analyzed the 2023 MA star ratings data and related MA enrollment data to better understand the QBP's role in the MA payment system and how star ratings are scored.

The findings show that, after weighting, about two-thirds of a contract's star rating is determined by beneficiary experience with care and MA administrative effectiveness. However, measures of beneficiary experiences do not allow for meaningful distinctions across MA contracts and administrative effectiveness measures do not target important deficiencies.

Further, the star rating system and QBP suffered from issues such as score inflation resulting in overly generous bonuses, limitations in underlying data sets that don't allow for measures focused on beneficiaries with serious illness, and performance that is not measured at the plan or local level.

"In short, the QBP is a windfall for insurers that does not provide valuable information to beneficiaries or protect them from poor performance," the report stated.

MedPAC, which has been vocal about the QBP being flawed, suggested a replacement for the program that would rely on a small set of population health measures to determine MA plan quality at the local level, as well as assess rewards and penalties to make it budget neutral.

Urban Institute researchers feel the replacement has merit, but stated that reforms should focus on protecting beneficiaries from poor plan administration.

"Problems with MA contract administration are well documented, and CMS could drive real improvement in beneficiaries' access to care under MA with a system of rewards and penalties focused on areas of concern like network adequacy, access to postacute care, prior authorization denials, disenrollment among high-need beneficiaries, and serious illness care," the report said.

Additionally, researchers posit that reforms focusing on performance should allow for exceptional MA contracts to receive bonuses and serve as models for other MAOs, while low-performing contracts should be assessed penalties.

"The effectiveness and excessive rewards of the MA QBP should be part of ongoing discussions to improve the longevity of the Medicare trust fund," the report concluded.

Jay Asser is the contributing editor for strategy at HealthLeaders. 


A report by the Urban institute looks at the role of the quality bonus program in the Medicare Advantage payment system and finds it results in overpayments to insurers.

Issues with measures of beneficiary experience and administrative effectiveness, as well as the star rating system suffering from score inflation, show that the quality bonus program needs overhauling.

Researchers suggest reforms that focus on protecting beneficiaries from poor plan administration, while performance reforms should include low-performing contracts being assessed penalties.

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