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Managing Medicare's Costs

The importance of Advantage plans' quality ratings (1 of 2)

You’ll always select a five-star hotel if your other choices are two- and three-star lodgings at the same price. But you can’t always select a five-star Medicare Advantage plan or even one with four stars. You might, in fact, have to pay a higher premium in a lower-quality plan.

If you live in a less populated area, you may not have any Advantage plan that has a rating higher than three stars. And even if there’s a highly-rated plan in your area, one or more of your doctors may not be in its network.

So you settle for a plan with an average quality rating. Does that make a difference that you were unable to find a higher-rated rated plan? It depends on whether Medicare’s ratings accurately identify the plans that provide superior care. If the ratings aren’t that good at predicting the quality of care you’ll receive, you shouldn’t care whether a plan has five stars or three.

Is there any evidence that improved quality scores help retirees get better healthcare? A recent article in the Washington Post cited the Sharp Rees-Stealy Medical Group in San Diego as an example that it does. When they began using the quality ratings system, the group’s doctors discovered that 700 diabetic Medicare patients were not getting annual eye exams. For diabetics, the failure to get early eye treatment can result in blindness. The doctors quickly called the patients to schedule eye exams and discovered 163 eye problems that had not been diagnosed, 21 of them severe.

Medicare rates different kinds of healthcare for quality – Advantage plans, prescription drug plans, hospitals and nursing homes. The measurement criteria and weightings are different for each. Advantage plans are assessed on 36 measures and prescription drug plans on 17. Thus Advantage plans that include prescription drug coverage are judged by 53 criteria (36 + 17).

Each Advantage plan’s quality is rated on a one-to-five star scale, with five stars being best. Plans are not graded on a curve, and all current plans have at least two stars. Nursing homes are evaluated on 21 criteria and also given a rating between one and five stars. And the Medicare web site enables people to compare one hospital to others on several measures, although it does not assign star ratings.

Once Medicare and other insurers are able to identify high quality healthcare, they can reward it. That hasn’t occurred, however, because Medicare’s fee-for-service system, which has 36 million beneficiaries, rewards volume instead of quality. And until this year, the Medicare Advantage program paid all plans the same monthly amounts, making adjustments only for local medical costs and people’s ages and health, but not for plan quality.

Because Medicare hasn’t until recently given Advantage plans any real incentives to improve quality, the plans haven’t been in a hurry to do so. The incentives that were in place before the bonuses were unstated ones. As the authors of a Robert Wood Johnson study on healthcare quality wrote, “All payment systems tend to incentivize something.” Prior to the bonuses, Advantage plans’ incentives were to enroll more healthy patients, pump up marketing budgets, and design benefits that included free gym memberships and zero premiums.

Medicare began developing quality measures for Advantage plans more than a decade ago, when they were called Medicare + Choice plans. The measures come from different sources and are frequently revised and/or re-weighted. In 2008 Medicare started publishing the ratings to give consumers selecting a plan an easy way to find one. People responded with a yawn. A survey conducted last year for Kaiser Permanente found that only 15% of people considered the star rating when choosing a plan, and only two percent knew their plan’s current rating. With so much indifference by seniors, Medicare’s attempts to improve quality languished.

The Health Reform law changed that by phasing out Advantage plan subsidies over a period of years and replacing them with bonuses tied to quality ratings. For large plans, the bonuses can translate to tens of millions of additional dollars. Plans must use their bonus revenue bonuses for extra benefits, which will help them retain current enrollees and attract new ones. Now focused on quality, plans have begun to improve their scores. The average rating for Advantage plans this year is 3.44 stars, compared to last year’s 3.18 stars.

Medicare has delayed full implementation of Health Reform’s strict quality bonus rules with a three-year demonstration project that will give almost every Advantage plan a bonus until 2015. If the Health Reform law’s rules had been implemented, only one-third of plans would have received bonuses this year. But according to the Medicare Payment Advisory Commission, 93% of this year’s plans will receive bonuses. This Lake Wobegon approach will costs taxpayers more than $8 billion over a three-year period, most of it to plans whose ratings are considered average, either 3 or 3.5 stars. A recent report by the Government Accountability Office indicated that the demonstration might actually reduce incentives for some plans.

For people who don’t live near large urban centers, it may be difficult to find a highly rated Advantage plan. There are fewer plans, for one thing. Rural counties have an average of 13 Advantage plans compared to 22 plans for urban counties. Moreover, the methods used to determine the quality bonuses are biased toward large plans in urban areas. Medicare has tried to address this unintended bias by paying double bonuses to plans, most of them rural, that meet certain criteria. Yet out of more than 3,000 counties and county-like jurisdictions, plans in just 210 counties receive double bonuses, according to the Kaiser Family Foundation.

Ideally, Medicare will find a way to level the playing field, since rural counties tend to have a sizable share of lower-income people who do not qualify for Medicaid and whose only other option is to enroll in an Advantage plan. The benefits in rural plans should be as good as those in urban plans, but the current bonus system discourages that.

Most experts say the quality bonus program has shown progress but also remains a work in progress. There have been encouraging signs that retirees are beginning to pay attention to quality. Last year, for instance, Medicare reported that there was a 5% increase in the number of enrollees in Advantage plans with four or five star ratings.

Retirees can see the quality ratings for Advantage and prescription drug plans in their areas by using the Medicare web site to do a plan search. On the Plan Results page, quality ratings are displayed for a plan’s health and prescription drug coverage. Also, by clicking on a specific plan name and then choosing the Quality Ratings tab, people can see that plan’s quality rating in each of the five categories that Medicare uses to assess plans. ◊◊

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