rating healthcare: what entrepreneurs need to know about STAR RATINGS
will the stars align for your next startup in this space? let’s find out.
OCTOBER 2023
by Austin Sawyer
Since 2016, the Star Ratings have become essential to understanding care quality in the United States.
This ranking system assigns ratings to health plans based on their performance in various quality measures. It was introduced as a part of the Center for Medicare and Medicaid Services (CMS) ongoing efforts to improve healthcare transparency and provide consumers with easily understandable information about their quality of care.
the question we want to answer here is: why should entrepreneurs care about these rankings?
The answer lies in how they connect to financial rewards for the healthcare providers receiving them. The ranking system does not simply act as a reporting tool but also as a way for CMS to leverage the bid-to-benchmark process and incentivize insurers to improve product quality. Millions of dollars are on the line, and there may be a way for you to help these organizations and create a profitable startup company.
what is Medicare Advantage?
Before diving into the weeds of these ranking systems, let’s recap how Medicare Advantage works.
Medicare Advantage (MA), also called Part C, is an option within Medicare that allows Medicare-eligible seniors and beneficiaries with disabilities to receive their benefits through a private Plan of their choice instead of receiving coverage through Traditional Fee-For-Service (FFS) Medicare.
The Centers for Medicare & Medicaid Services (CMS) approve and regulate Medicare Advantage Plans. The two most popular insurers, UnitedHealthcare and Humana, enroll 44% of all MA beneficiaries. Following are BlueCross BlueShield, CVS/Aetna, Kaiser Permanente, Wellcare, and Cigna; together, they enroll another 36% of total MA beneficiaries.
The financial structure within Medicare Advantage is designed to encourage a healthcare approach that prioritizes care management, integrated care models, and early interventions. In this system, Medicare Advantage Plans are provided with a fixed monthly payment per beneficiary to cover the healthcare needs of enrollees. When the costs for a particular enrollee go beyond the fixed amount, the Plan bears the financial risk. Conversely, if the costs fall below the fixed payment, the Plans get to keep the net savings for themselves.
how do Medicare Advantage budgets work?
The Medicare Advantage health Plan budgets have four key elements:
Base Rate: The base rate in Medicare Advantage is the initial payment made by CMS to these Plans. It sets the funding level for each beneficiary’s coverage. This rate varies by location and is set by a calculation between the bid by the Plan and the average calculated across the country (more on this in the next section).
Risk Adjustment: Risk adjustment is a critical part of Medicare Advantage financing. It considers the health status of enrollees, ensuring Plans receive higher payments for sicker members and lower for healthier ones.
Premiums: Medicare Advantage premiums are monthly fees beneficiaries pay for Plan coverage. They can differ among Plans and may include the Part B premium. Beneficiaries are responsible for both their Part B premium and the Plan premium.
Rebates: When Medicare Advantage Plans’ costs are lower than payments received, they generate rebates. These rebates must adhere to regulations and can be used to enhance benefits or reduce premiums for Plan members. Understanding these elements is crucial for beneficiaries when selecting a Medicare Advantage Plan, as they affect costs and coverage quality.
how does the bidding progress work?
The bidding process starts with the country-level benchmark, which CMS determines based on the average spending from the previous year. The Plans then bid against this benchmark, which CMS analyzes, compares, and determines a rebate amount. This calculation process is complicated and tedious for the Plans, involving millions of data points on their members across all points of care.
Each January, Medicare Part D drug and Medicare Advantage Plans can change their coverage and costs for the new calendar year. Therefore, Plan users should review their coverage and compare it with other available Plans to ensure optimal coverage.
how do higher ratings link to economic incentives for health Plans?
Finally, let’s talk about Star Ratings.
Plans with a 4, 4.5, or 5-star quality rating* from CMS receive an increase in their benchmark.
In addition, benchmark adjustments may double for high-quality Plans in certain qualifying countries that have below the national average and historically high enrollment rates in Medicare Advantage. (*Ratings are on a scale from one to five.)
by incorporating performance benchmarks, Star Ratings play a pivotal role in shaping the rebate arrangement.
Plans that submit bids below the benchmark threshold become eligible for a rebate, which is calculated as a proportion of the difference between the bid amount and the benchmark itself. The percentage of this rebate ranges between 50% and 70%, contingent on how much lower the bid is compared to the benchmark. The exact rebate disbursed to a Plan is determined by its Star Rating in terms of quality. Plans with superior Star Ratings stand to receive Quality Bonus Payments (QBPs). See the table below for a breakdown of the precise percentage allocations.
You might wonder if the Plans entirely retain these funds. However, that’s not quite the case. Plans are mandated to utilize rebates to offer supplementary benefits like hearing, dental, or vision coverage, reduce the financial burden on beneficiaries, or introduce innovative care services such as telemedicine or in-home care. This blend of zero premiums and added benefits encourages Medicare beneficiaries to opt for cost-effective and high-quality Medicare Advantage Plans.
Star Ratings affect health Plans by boosting demand from members.
Since patients have a choice in the Plan, high Star Ratings can boost demand for a specific health Plan. Each year, these ratings are released and made accessible to the public through the official Medicare Plan Finder website.
how do Star Ratings get calculated?
Medicare Advantage with prescription drug (Part D) coverage (MA-PD) contracts are rated on up to 38 unique quality and performance measures; MA-only contracts (without prescription drug coverage, or Part D), on up to 28 measures; and stand-alone Part D (PDP) contracts, on up to 12 measures. For a detailed list of these measures, see the official page on CMS here.
After these measures are taken, they are grouped into five main categories: mortality, readmission, safety of care, patient experience, and timely and effective care. CMS calculates an average within each group to determine a group measurement score for each of the five groups. The importance deemed by CMS then weighs each group.
How often do they measure Star Ratings?
Every fall, CMS releases the Star Ratings for the upcoming Plan year. For example, Plan ratings for 2022 will be available in October 2021. Star Ratings are calculated yearly and may change from one year to the next.
what are the distribution of Star Ratings?
Usually, only a few select Plans nationwide attain a coveted 5-star rating each year. CMS designates any Plan with a 4-star rating or higher as an above-average Plan. However, when a Plan achieves a 5-star rating, it attains the status of excellence — a Plan that excels in maintaining the health of its members and provides superior customer service. Therefore, when choosing a Plan, it’s highly advisable to check if any 5-star Plans are available in your local area.
Approximately 74% of MA plan enrollees are currently in contracts that will have four or more stars in 2024, but just 42% of MA plans offering prescription drug coverage will have an overall rating of four stars or higher. The number of consistently low-performing plans has risen from one to six from 2023 to 2024. Just 21 plans that were given a “high performing” icon retained that status from 2023, while the list welcomed ten new plans.
what are the current challenges with the Star Ratings system?
The Star Ratings system plays a crucial role in ensuring the effectiveness and innovation of Medicare Advantage by providing incentives for enhancing quality. This program drives quality improvements and mandates that Plans utilize rebates resulting from bids below the benchmark and quality bonuses to reduce cost-sharing for enrollees or improve the benefits they receive.
Under the current legislation, county-level benchmarks, including quality adjustments, are limited to their levels before the implementation of the Affordable Care Act (ACA). This benchmark cap prevents Plans in specific counties from receiving the bonus payments they’ve earned and, in turn, deprives beneficiaries of the full advantages of enrolling in a high-quality Plan. In 2017, benchmarks in approximately half of the counties throughout the country were constrained in various ways by this benchmark cap — meaning, Plans with 4-star rating or higher received a benchmark quality bonus that was less than the statutory 5%, or in some cases, received no quality bonus at all. For instance, in 2016, over two million Medicare beneficiaries were enrolled in 4-star Plans but were denied the enhanced benefits, including reduced cost-sharing, due to the limitations imposed by the benchmark cap. It underscores the impact of the cap on both beneficiaries and the potential for Plans to deliver superior care and benefits to their enrollees.
what opportunities do Star Ratings create for startup companies?
To capture the high demand for MA, insurers are making their Plans more appealing and actively investing in new technologies to improve their Plans’ Star Ratings. From talking with several KOL’s in the space, emerging themes seem to be centered around:
- enhance health outcomes;
- introduce new data collection and analysis;
- improve patient engagement to boost patient satisfaction.
Let’s look inside each of these areas of need to gain some deeper insights.
opportunities for innovation in health outcomes
This is the most obvious, but also, the most difficult: enhancing health outcomes helps Plans improve Star Ratings. While this may sound like too broad a healthcare problem, companies have taken unique approaches to target the unique challenges of MA Plans.
One example is SilverSneakers, who partnered with MA Plans to provide free local gym memberships as a supplemental benefit. They creatively identified that exercise and lifestyle changes make a huge impact and sold a crystal clear vision of how they could improve Star Ratings by reducing medical costs through improving physical, social, and mental health. In specific, targeting the exact measurements of (1) improving or maintaining physical health, (2) monitoring physical activity, and (3) checking to see if members are at a healthy weight.
While some speculate that this could have been a business irrespective of Star Ratings, health Plans saw an immediate linkage to rating calculations. They jumped, vs. cautiously adopting for the sole purpose of long-term clinical outcomes and adherence. This subtle change in marketing and strategy gave SilverSneakers a unique advantage and led to a high point of 500M in revenue in 2018.
opportunities for innovation in data reporting
Data reporting can also improve Star Ratings. In the conventional US healthcare system, a lack of centralized data has been an age-old problem that leads to suboptimal care. While this stays true for MA Plans, there are unique added challenges, including bid calculations and reporting. As explained in the previous sections, health Plans have to calculate a bid for covering a region of patients based on all the data they have on their prior data. Imagine millions of rows in Excel spreadsheets. If Plans do this well, they can provide the best care for low costs and capture rebates. If Plans do this poorly, they will overspend and thus negatively affect care delivery. The more data they have and the more organized and structured it is, the better they can run this process.
In addition, reporting is a mandatory portion of the review process for Star Ratings. While the formal submission only happens once a year, health Plans have an incentive to track and have informal feedback every month from CMS. This creates its own challenges in terms of being able to track data at regular interviews efficiently and run ongoing population-wide statistics.
A good example of a company that capitalized on this was Innovacceer, which achieved remarkable success by strategically targeting the healthcare industry’s pursuit of improved Star Ratings. Since its inception in 2014, it has focused on offering a comprehensive data activation platform that caters specifically to insurers and health systems. They enabled the ability to collect real-time patient data from many sources and seamlessly integrate it, providing a holistic view of patient health journeys. This helped make healthcare decisions for health outcomes and allowed them to shine by leveraging robust analytics capabilities. In the quest for better Star Ratings, accurate and up-to-date reporting is paramount, and they creatively equipped these Plans with tools they need to track and measure their performance effectively. Innovaccer’s triumph is a testament to the power of targeted innovation in the healthcare sector, where addressing specific industry needs can yield remarkable success.
opportunities in patient engagement?
Third, engaging patients can help Plans improve Star Ratings. Ah, the notorious task of getting patients engaged! While this usually refers to hot topics such as patient adherence to RPM technologies or patient-reported outcomes, some unique aspects of patient engagement are critical for MA Plans to get right.
A prime example of a company capitalizing on this need was mPulse, which harnessed Artificial Intelligence (AI) capabilities to facilitate personalized patient text conversations. The startup’s platform interacts with patients via text messages to check for disease management and medication adherence. They can also send out messages about Star Rating measures, such as reminders to receive an annual flu shot. Their unique offering led to over $ 200 M in revenue and contracts with leading MA providers.
in summary,
The Star Ratings system in the United States represents a pivotal shift toward healthcare transparency and consumer empowerment. The intersection of quality-based financial incentives and innovative entrepreneurship has the potential to drive positive change, improve healthcare access, and reshape the healthcare ecosystem as a whole. Beyond its primary goal of aiding patients in making informed decisions about their healthcare providers, the Star Ratings system’s financial implications and incentives have created a broader landscape of opportunities for startups targeting MA health Plans.
If this describes you, we would love to hear from you and learn more about your unique value offering for these stakeholders!
Austin
REFERENCES
