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One-Star Improvement Can Increase Medicare Advantage Revenue by 17%

News  |  By Philip Betbeze  
   May 03, 2018

Improvement in the CMS ranking metric can also boost enrollment by 8-12% as provider-owned plans compete ever more acutely with traditional payers.

A one-star improvement in CMS star ratings can increase revenue from rapidly growing provider-based Medicare Advantage plans, according to new research from Navigant.

Approximately one-third of current Medicare beneficiaries participate in MA plans versus traditional Medicare, which has grown from only 13% of beneficiaries in 2004. But competition for those patients is acute. With ongoing expansion by traditional payers such as Anthem, Aetna, Humana and UnitedHealth Group, provider plans must look to distinguish themselves not only to attract patients, but also to gain other benefits available by regulation based on CMS star rating, the researchers said.

MA represents a competitive landscape between payers and providers largely because both see the plans as a good way to move toward capturing the premium dollar and transitioning toward a more value-based form of reimbursement.

According to Navigant, providers and payers like MA for different reasons, but they are compelling.

Providers like MA because:

  • Benefit design strongly favors in-network utilization, helping providers reduce inpatient and outpatient leakage.
  • It offers additional upside opportunity to improve quality by closing gaps in care, which feeds directly into determining plan’s star rating)
  • It improves coding accuracy (ensures appropriate funding from CMS for assigned members’ conditions),
  • It lowers unnecessary utilization, and,
  • Shares in rebates, which reduces certain expenses

Payers like MA because:

  • Plan premiums, which can average around $1,000 per member per month, are paid by the federal government, ensuring a steady revenue stream.
  • It's more profitable than administrative services-only self-funded plans.
  • MA provides retention potential for plan’s commercial members who age out of commercial into traditional Medicare.
  • MA members are much more likely to stay with their MA payer, unlike commercial members who tend to switch around plans.

Despite the competitive environment between payers and providers, the research suggests that providers can drastically improve the success of their program beyond what they think a star rating improvement might provide.

That's because per member, per month rates paid by CMS hinge on certain star thresholds. For instance, plans rated 3.5 stars or less are paid a base rate based on the county in which beneficiaries are enrolled, but if the plan is rated 4 stars or more, the plan gets a 5% bonus in addition to the base rate. Also, plans that achieve a 5-star rating can enroll members throughout the year, while plans below that threshold can only enroll members during the late fall open enrollment period.

The analysis shows that a 1-star increase in rating was associated with an 8-12% increase in beneficiary enrollment in the year following the increase. Furthermore, an improvement from 3 to 4 stars should result in revenue increase of between 13.4% and 17.6%, which would mean between $12 million and $16.2 million in revenue increase for a plan with 9,600 members.

Navigant researchers suggest MA plans seek to employ five mechanisms to help achieve financial viability—steps which also support star rating increases in a virtuous circle of improvement.

  1. Comprehensive and accurate patient risk scoring and diagnosis coding accuracy to reflect member health status
  2. Quality programs to identify and close gaps in care
  3. Managing the total cost of care for the covered population while maintaining or improving quality
  4. Reducing administrative loss ratio by expanding enrollment to optimize the operational infrastructure needed and spread fixed costs; and
  5. Negotiating value-based arrangements with MA providers to engage in population health management and share in the savings that can achieve.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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