oversight

Medicare Advantage: Quality Bonus Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings

Published by the Government Accountability Office on 2012-03-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States Government Accountability Office
Washington, DC 20548



           March 21, 2012

           The Honorable Orrin G. Hatch
           Ranking Member
           Committee on Finance
           United States Senate
           Subject: Medicare Advantage: Quality Bonus Payment Demonstration Undermined
                    by High Estimated Costs and Design Shortcomings

           Dear Senator Hatch:

           The Medicare Advantage (MA) program, an alternative to the original Medicare fee-
           for-service (FFS) program, provides health care coverage to Medicare beneficiaries
           through private health plans offered by organizations under contract with the Centers
           for Medicare & Medicaid Services (CMS). In 2011, about a quarter of all Medicare
           beneficiaries were enrolled in approximately 3,300 MA plans sponsored by 175 MA
           organizations. These organizations generally offer beneficiaries one or more plans to
           choose from—with different coverage, premiums, and cost sharing features—in the
           areas they serve. Also, MA plans may provide additional benefits not offered under
           Medicare FFS, such as reduced cost sharing or vision and dental care coverage. In
           2010, Medicare payments to MA plans totaled about $115 billion, or roughly
           25 percent of all Medicare spending for Part A and Part B. 1

           CMS determines the amount to pay an MA plan by comparing its bid—the MA plan’s
           projected revenue requirements for providing the traditional Medicare benefit
           package to an average beneficiary—to a benchmark derived from the average
           amount of Medicare FFS spending in the plan’s service area. 2 Most plans receive
           their bid amount plus a rebate based on the difference between their bid and their
           benchmark. The rebate must be used to reduce premiums, reduce cost sharing, or
           offer additional benefits. To help Medicare beneficiaries select an MA plan in their
           area, CMS rates MA contractors on a 5-star scale, with 5 stars indicating the highest




           1
            Medicare Part A includes inpatient hospital, skilled nursing, and some home health services.
           Medicare Part B includes physicians’ services, outpatient care, and durable medical equipment. MA
           plans must cover Medicare Part A and Part B benefits except hospice care.
           2
            An MA plan’s benchmark is the enrollment-weighted average of the maximum amount Medicare will
           pay in each county within the plan’s service area.



                                                     GAO-12-409R Quality Bonus Payment Demonstration
quality. 3 Plans’ overall star ratings indicate their performance relative to that of all
other plans on about 50 measures of clinical quality, patient experience, and
contractor performance. 4

The 2010 Patient Protection and Affordable Care Act as amended (PPACA) aligned
benchmarks more closely with Medicare FFS spending and provided incentives for
plans to achieve high star ratings. 5 PPACA tied the new benchmarks to a
percentage of average FFS spending in each county and caps them at the pre-
PPACA level. The new benchmarks would be phased in from 2012 to 2017 by
blending them with the old benchmarks. PPACA also tied MA payments to plans’
star ratings in two ways. First, PPACA introduced differential rebates—varying from
50 to 70 percent—based on plans’ star ratings. 6 Second, PPACA provided that plans
with 4 or more stars receive a bonus that adds 1.5 percent to the PPACA portion of
their blended benchmark in 2012, 3 percent in 2013, and 5 percent in 2014 and
beyond. 7 CMS’s Office of the Actuary (OACT) estimated that PPACA’s payment
reforms would reduce Medicare payments to MA plans by $145 billion over 9 years
and would cause plans to offer less generous benefit packages. 8 OACT also
projected that MA enrollment in 2017 would be half as much as it would have been
in PPACA’s absence.

Rather than implement PPACA’s bonus structure, CMS announced in November
2010 that it would conduct a nationwide demonstration from 2012 through 2014 to
test an alternative method for calculating and awarding bonuses. Compared with
PPACA, the MA Quality Bonus Payment Demonstration extends the bonuses to
plans with 3 or more stars, accelerates the phase-in of the bonuses for plans with 4
or more stars, and increases the size of the bonuses in 2012 and 2013. According to
CMS, the goal of the demonstration is to test whether a scaled bonus structure
would lead to larger and faster annual quality improvement for plans at various star
rating levels compared with what would have occurred under PPACA.

3
 Although multiple MA plans are typically included in a contract, CMS assigns star ratings at the
contract level. As a result, every plan covered under the same contract receives the same star rating.
According to CMS estimates, in 2012, about 9 percent of MA beneficiaries are in 5-star plans, about
20 percent are in 4-star and 4.5-star plans, and about 58 percent are in 3-star and 3.5-star plans. The
remaining MA beneficiaries are in plans that have fewer than 3 stars or that do not have a star rating.
4
 CMS can revise the methodology for calculating star ratings and can also change the cut points for
the levels of the measures that constitute the ratings. On December 20, 2011, CMS proposed
changing the 2013 star rating methodology by adding four new measures and modifying seven
current measures. It was beyond the scope of this report to assess the 5-star quality rating system.
5
 For purposes of this report, references to PPACA include the amendments made by the Health Care
and Education Reconciliation Act of 2010. Pub. L. No. 111-148, §§ 3201-02, 124 Stat. 119, 442, 454
(2010). Pub. L. No. 111-152, § 1102, 124 Stat. 1029, 1040 (2010).
6
 Prior to 2012, if a plan’s bid was less than the benchmark, the plan received a rebate equal to
75 percent of the difference between the bid and the benchmark. The new rebates will be phased in
from 2012 through 2014. In 2012, the rebate equals the sum of two-thirds of the old rebate amount
and one-third of the new rebate amount. In 2013, the rebate will equal the sum of one-third of the old
rebate amount and two-thirds of the new rebate amount.
7
 New plans and plans with low enrollment are also eligible for bonus payments. The bonus
percentages are doubled for plans in qualifying counties.
8
 See OACT, Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as
Amended (Baltimore, Md.: Apr. 22, 2010).



2                                           GAO-12-409R Quality Bonus Payment Demonstration
You asked us to review the cost and design of the MA Quality Bonus Payment
Demonstration. In this report, we examined (1) cost estimates that have been
developed for the demonstration; (2) the extent to which the demonstration conforms
to the principles of budget neutrality; (3) how the demonstration compares in
budgetary impact, size, and scope with other Medicare demonstrations; and (4) the
extent to which the design of the demonstration will allow CMS to achieve its stated
research goal. On November 18, 2011, we presented information on these
objectives to committee staff (see enc. I). This report contains the results of our
review and a recommendation that the Secretary of the Department of Health and
Human Services (HHS) cancel the demonstration and allow the quality bonus
payment system established by PPACA to take effect.

To examine cost estimates that have been developed for the demonstration, we
obtained published and unpublished analyses and interviewed representatives from
OACT and the Kaiser Family Foundation. We also conducted interviews with
Medicare Payment Advisory Commission representatives and other health care
researchers. To assess the extent to which the demonstration conforms to the
principles of budget neutrality, we reviewed information on the budget neutrality
policy for Medicare demonstrations and conducted interviews with officials from
CMS and the Office of Management and Budget (OMB). To compare the
demonstration’s budgetary impact, size, and scope with those of other Medicare
demonstrations, we reviewed OMB cost estimates published in the President’s
Budgets from fiscal years 1996 through 2012, as well as CMS documents. To
assess the extent to which the design of the demonstration will allow CMS to
achieve its goal, we reviewed CMS’s announcements and evaluation plans as well
as literature on evaluating Medicare demonstrations.

We conducted this performance audit from October 2011 to March 2012 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.

In summary, we found the following:

•   OACT has estimated that the MA Quality Bonus Payment Demonstration will cost
    $8.35 billion over 10 years, most of which will be paid to 3-star and 3.5-star
    plans. About $5.34 billion of OACT’s cost estimate is attributed to quality bonus
    payments more generous than those prescribed in PPACA, specifically to
    (1) higher bonuses for 4-star and 5-star plans, (2) new bonuses for 3-star and
    3.5-star plans, (3) applying bonuses to plans’ entire blended benchmarks, and
    (4) allowing plans’ benchmarks to exceed their pre-PPACA levels. 9 Most of the
    remaining projected demonstration spending stems from higher MA enrollment
    because the bonuses enable MA plans to offer beneficiaries more benefits or

9
 Under PPACA, about one-third of MA beneficiaries would be covered by contracts eligible for a
bonus in 2012 and 2013. In contrast, under the demonstration, about 90 percent of MA beneficiaries
will be covered by contracts eligible for a bonus in 2012 and 2013.



3                                         GAO-12-409R Quality Bonus Payment Demonstration
     lower premiums. Taken together, the expanded bonuses and higher MA
     enrollment mainly benefit average performing plans—those receiving 3-star and
     3.5-star ratings. 10 In addition, OACT estimated that the demonstration will offset
     more than one-third of the reduction in MA payments projected to occur under
     PPACA during the demonstration years. The largest annual offset will occur in
     2012—71 percent—followed by 32 percent in 2013 and 16 percent in 2014.

•    The MA Quality Bonus Payment Demonstration does not—and is not required by
     law to—conform to the principles of budget neutrality. OMB officials told us that
     they considered the costs of the demonstration in the context of other
     administrative actions in the Medicare program that are expected to generate
     savings. However, they did not confirm whether specific offsets were identified to
     account for the total costs of the demonstration.

•    The MA Quality Bonus Payment Demonstration dwarfs all other Medicare
     demonstrations—both mandatory and discretionary—conducted since 1995 in its
     estimated budgetary impact and is larger in size and scope than many of them. 11
     Our review of CMS and OMB data shows that the estimated budgetary impact of
     the demonstration, adjusted for inflation, is at least seven times larger than that
     of any other Medicare demonstration conducted since 1995 and is greater than
     the combined budgetary impact of all of those demonstrations. While the
     demonstration is similar in size and scope to some Part D demonstrations, it is
     unlike many Medicare pay-for-performance demonstrations in that it is
     implemented nationwide and allows all eligible plans or providers to participate. 12

•    The design of the demonstration precludes a credible evaluation of its
     effectiveness in achieving CMS’s stated research goal—to test whether a scaled
     bonus structure leads to larger and faster annual quality improvement compared
     with what would have occurred under PPACA. Because of the timing of data
     collection—all of the performance data used to determine the 2012 bonus
     payments and nearly all of the data used to determine the 2013 bonus payments
     were collected before the demonstration’s final specifications were published—
     the demonstration’s incentives to improve quality can have a full impact only in
     2014. In addition, the demonstration’s bonus percentages are not continuously
     scaled—in 2014, plans with 4, 4.5, and 5 stars will all receive the same 5 percent
     bonus—and its bonus payments do not consistently offer better incentives than
     PPACA to achieve high star ratings in 2013 and 2014. Moreover, because the
     demonstration lacks a direct comparison group, it may not be possible to isolate


10
 An analysis by the Kaiser Family Foundation estimated that the total cost of the demonstration
would be about $3 billion in 2012. The authors indicated that expanded bonus payments for 3-star
and 3.5-star plans would account for a majority of the cost—about $2 billion. G. Jacobson, T.
Neuman, A. Damico, and J. Huang, Medicare Advantage Plan Star Ratings and Bonus Payments in
2012 (Washington, D.C.: Kaiser Family Foundation, November 2011).
11
 The estimated budgetary impact refers to the difference between the total costs of the
demonstration and the total costs that would occur in its absence.
12
  The Medicare Part D program provides voluntary, outpatient prescription drug coverage for eligible
individuals.



4                                          GAO-12-409R Quality Bonus Payment Demonstration
    its effects, and any effects that are observed could be attributable, at least in
    part, to other MA payment and policy changes.

Conclusion

Estimated to cost more than $8 billion, the MA Quality Bonus Payment
Demonstration offsets a significant portion of PPACA’s MA payment reductions
during its 3-year time frame. At the same time, the design shortcomings of the
demonstration may undermine its ability to achieve CMS’s stated research goal—to
test whether a scaled bonus structure leads to larger and faster annual quality
improvement compared with what would have occurred under PPACA. Rather than
rewarding only high performing plans, most of the additional payments made under
the demonstration will accrue to average performing plans. In addition, the
demonstration’s ability to test an alternative quality improvement incentive structure
is compromised by its design. The reliance on predemonstration performance data,
the absence of an appropriate comparison group of MA plans, and design features
that are inconsistent with its research goal make it unlikely that the demonstration
will produce meaningful results.

Recommendation for Executive Action

The Secretary of HHS should cancel the MA Quality Bonus Payment Demonstration
and allow the MA quality bonus payment system established by PPACA to take
effect. If, at a future date, the Secretary finds that this system does not adequately
promote quality improvement, HHS should determine ways to modify the system,
which could include conducting an appropriately designed demonstration.

Agency Comments and Our Evaluation

We obtained written comments on a draft of this report from HHS, which are
reprinted in enclosure II. HHS did not concur with our recommendation to cancel the
MA Quality Bonus Payment Demonstration and our finding regarding its design.
After reviewing HHS’s response, we determined that our recommendation is
warranted and our finding is sound.

Regarding its disagreement with our recommendation, HHS contended that the MA
quality bonus payment system established by PPACA would not provide an
immediate incentive for many plans to improve the quality of care delivered to MA
beneficiaries. It stated that the demonstration addresses this concern by providing
quality improvement incentives for plans throughout the star ratings continuum. We
found that bonuses paid in 2012 and 2013 under both PPACA and the
demonstration would primarily reward past performance, with the demonstration
doing so far more generously. Moreover, we found that PPACA’s bonus structure in
2014 provides many plans better incentives than the demonstration to achieve
higher star ratings. In fact, plans improving from 3.5 to 4 stars would generally
receive a larger increase in their bonus payment under PPACA. Therefore, we
maintain that HHS should implement and evaluate the MA quality bonus payment
system established by PPACA before it considers ways to modify that system.



5                                     GAO-12-409R Quality Bonus Payment Demonstration
HHS also disagreed with our finding that the design features of the demonstration
are inconsistent with CMS’s research goal. The agency stated that the
demonstration provides an incrementally larger quality bonus for each increase in a
plan’s star rating with the exception of bonuses to 4-star, 4.5-star, and 5-star plans in
2014. However, as we stated in our report, 4-star and 4.5-star plans receive the
same bonus percentage as each other in all 3 years of the demonstration.
Furthermore, we found that CMS’s decision to provide all plans with a bonus at least
as great as the one they would have received under PPACA results in a bonus
structure that is not continuously scaled and, therefore, conflicts with its stated
research goal of testing whether a scaled bonus structure leads to larger and faster
annual quality improvement.

In addition, HHS disagreed with our finding that the timing of data collection
precludes a credible evaluation of the demonstration. The agency noted that CMS’s
evaluation contractor will compare the impact of the demonstration—as measured
by MA plans’ 2012 and 2013 star ratings—to what would have occurred under
PPACA—as shown in their 2014 star ratings. However, such a comparison fails to
distinguish between predemonstration and demonstration performance. As we
stated in our report, the 2012 star ratings were based on data collected almost
entirely before the demonstration’s final specifications were published in April 2011
and, therefore, cannot be used to measure the demonstration’s impact. Moreover,
this comparison confuses the chronological order of events by using the 2014 star
ratings to represent what would have occurred under PPACA. The 2014 star ratings
will be based on data collected during the demonstration and, therefore, will reflect
the demonstration’s incentives. The agency acknowledged this point in stating that
improvements in plan quality during the demonstration would affect star ratings prior
to the end of the demonstration in 2014, as well as in future years.

Finally, HHS disagreed with our finding that the demonstration lacks an appropriate
comparison group. The agency stated that CMS’s evaluation contractor will
determine the demonstration’s impact on quality improvement by comparing MA
plans’ performance with that of non-MA plans—specifically, managed care plans
contracting with Medicare under section 1876 cost contracts, Medicaid plans, and
commercial plans. We do not believe that these plans constitute an appropriate
comparison group because they may serve different populations, may follow
different regulations and policies, and may have different incentives to improve
quality.

HHS also provided technical comments that we incorporated as appropriate.

                                        –––––

As agreed with your office, unless you publicly announce the contents of this report
earlier, we plan no further distribution until 30 days from the report date. At that time,
we will send copies to the CMS Administrator and other interested congressional
committees. In addition, the report will be available at no charge on the GAO website
at http://www.gao.gov.




6                                     GAO-12-409R Quality Bonus Payment Demonstration
If you or your staff have any questions regarding this report, please contact me at
(202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page of this
report. Individuals making key contributions to this report include Rosamond Katz,
Assistant Director; Sandra George; David Grossman; and Eric Wedum.
Sincerely yours,




James C. Cosgrove
Director, Health Care




7                                   GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




MEDICARE ADVANTAGE: Quality Bonus Payment
Demonstration Undermined by High Estimated Costs and
Design Shortcomings




                  Presentation to staff of the
                 Senate Committee on Finance

                      November 18, 2011
                          (updated)




8                                 GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Introduction


    • In 2008, the Centers for Medicare & Medicaid Services (CMS) implemented a
      5-star quality rating system—with 5 stars indicating the highest quality—for
      Medicare Advantage (MA) plans as a tool to help beneficiaries make enrollment
      decisions.*
    • This system assigns an overall star rating derived from measures of clinical quality,
      patient experience, and contract performance. CMS publishes MA plans’ ratings
      on the Medicare website and uses them in its oversight of plans.
    • The 2010 Patient Protection and Affordable Care Act as amended (PPACA)
      expanded the use of star ratings by requiring CMS to award bonus payments to
      MA plans with at least 4 stars beginning in 2012.




    *CMS assigns a star rating for each MA contract rather than for individual plans. Contracts typically include
    multiple plans.


9                                                                 GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Introduction (cont.)


     • In November 2010, CMS announced that it would conduct a nationwide
       demonstration from 2012 through 2014 to test an alternative method for calculating
       and awarding quality bonus payments to MA plans.
     • CMS is conducting the demonstration under section 402(a)(1)(A) of the Social
       Security Amendments of 1967, as amended.*
     • The MA Quality Bonus Payment Demonstration
         extends the bonuses to plans with 3 and 3.5 stars,
         accelerates the phase-in of the bonuses for plans with 4 or more stars, and
         increases the size of the bonuses in 2012 and 2013 compared with PPACA.

     • When the demonstration terminates at the end of 2014, MA plans will transition to
       the quality bonus payment system established by PPACA.

     *This section allows CMS to test whether changes in Medicare payment methodologies increase the efficiency
     and economy of Medicare services through the creation of additional incentives without adversely affecting the
     quality of such services.




10                                                                GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




 Introduction (cont.)


 • CMS’s stated research goal for the demonstration is to test whether a scaled
   bonus structure leads to larger and faster annual quality improvement for plans at
   various star rating levels compared with what would have occurred under PPACA.
 • According to CMS, the demonstration was designed to reflect several principles,
   such as the following:
      Providing a strong incentive for MA plans to improve performance at various star rating
       levels.
      Creating a difference between the bonus payment percentages for 4-star and 5-star plans
       to test whether the difference moves plans to achieve 5-star ratings.
      Ensuring that all plans will receive a bonus at least as great as the bonus they would have
       received under PPACA.




11                                                     GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Objectives


 This report examines
     1. cost estimates that have been developed for the demonstration;
     2. the extent to which the demonstration conforms to the principles of
        budget neutrality;
     3. how the demonstration compares in budgetary impact, size, and scope
        with other Medicare demonstrations; and
     4. the extent to which the design of the demonstration will allow CMS to
        achieve its stated research goal.




12                                          GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Scope and Methodology


 • To examine cost estimates of the demonstration, we obtained published and
   unpublished analyses and interviewed representatives from CMS’s Office of the
   Actuary (OACT) and the Kaiser Family Foundation. We also conducted interviews
   with Medicare Payment Advisory Commission representatives and other health
   care researchers.
 • To assess the extent to which the demonstration conforms to the principles of
   budget neutrality, we reviewed information on the budget neutrality policy for
   Medicare demonstrations and conducted interviews with officials from CMS and
   the Office of Management and Budget (OMB).
 • To compare the demonstration’s budgetary impact, size, and scope with those of
   other Medicare demonstrations, we reviewed OMB cost estimates published in the
   President’s Budgets from fiscal years 1996 through 2012, as well as CMS
   documents.
 • To assess the extent to which the design of the demonstration will allow CMS to
   achieve its goal, we reviewed CMS’s announcements and evaluation plans as well
   as literature on evaluating Medicare demonstrations.


13                                            GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Background


 • In 2011, about a quarter of all Medicare beneficiaries were enrolled in
   approximately 3,300 MA plans included in 555 contracts. In 2010, MA payments
   totaled about $115 billion, or roughly 25 percent of all Medicare spending for
   Part A and Part B.*
 • Since 2006, payments to each MA plan have been determined by the plan’s bid—
   the projected cost of providing Medicare Part A and Part B benefits—and a
   benchmark—the maximum amount Medicare will pay for those benefits in the
   plan’s service area.
      If the plan’s bid is higher than the benchmark, Medicare pays the plan its benchmark and
       enrollees pay the remainder in their monthly premium.
      If the bid is lower than the benchmark, the plan receives its bid and a portion of the
       difference as a rebate, which must be used to reduce premiums, reduce cost sharing, or
       provide additional benefits, such as vision or dental coverage. Prior to 2012, this portion
       was set at 75 percent.

 *Medicare Part A services include inpatient hospital, skilled nursing, and some home health services. Medicare Part B services include
 physicians’ services, outpatient care, and durable medical equipment.




14                                                                          GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Background (cont.)


 PPACA changed the way MA plan payments are set in the following ways:
     1. Tying benchmarks to projected county-level fee-for-service (FFS) spending.
        From 2012 to 2017, benchmarks will be a blend of the pre-PPACA and PPACA
        amounts. The PPACA benchmark formula will be phased in over 2, 4, or 6 years
        depending on the difference between counties’ pre-PPACA and PPACA
        amounts.
     2. Tying rebates to performance beginning in 2012. By 2014, rebates will be set at
       • 70 percent for plans with 4.5 or 5 stars,
       • 65 percent for plans with 3.5 or 4 stars, and
       • 50 percent for all other plans.

     3. Establishing bonus payments for plans with 4 or more stars. Bonuses will be
        phased in from 2012 through 2014 and will be applied only to the PPACA
        portion of the blended benchmark.




15                                                       GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Background (cont.)

 Quality Bonus Payment Characteristics under PPACA and the Demonstration

                                                                                                                                   MA Quality Bonus
                                                                                          PPACA                                    Payment Demonstration
 How many stars do MA plans need to be eligible for bonuses?                              4 or more stars                          3 or more stars
 What portion of the benchmark are bonuses applied to?                                    Only the PPACA portion                   The entire blended benchmark
 May the blended benchmark exceed the pre-PPACA amount?                                   No                                       Yes

 Are rebates tied to star ratings?                                                        Yes                                      Yes
 Are MA plans in qualifying counties eligible for double bonuses?                         Yes                                      Yes
 Are new MA plans eligible for bonuses?                                                   Yes                                      Yes
 Are MA plans with low enrollment eligible for bonuses?                                   Yes                                      Yes in 2012 and 2013
 Source: GAO analysis of CMS information.

 Notes: New MA plans are defined as those in a contract offered by a parent organization that has not had an MA contract in the previous 3 years. These plans lack
 sufficient data to calculate an overall star rating.

 MA plans with low enrollment are defined as those in a contract that lacked a sufficient number of enrollees to reliably measure plan performance.

 MA plans qualify for double bonuses in counties that meet three conditions: (1) have lower-than-average projected FFS county spending for 2012, (2) had at least 25
 percent of beneficiaries residing in the county enrolled in an MA plan as of December 2009, and (3) were designated as large urban floor counties–those whose
 benchmarks are based on their being located in a Metropolitan Statistical Area with a population of more than 250,000 in 2004.




16                                                                                             GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Background (cont.)

 Quality Bonus Payment Percentages under PPACA and the Demonstration
 Percentage of benchmark

                                                                                                                      MA Quality Bonus Payment
                                                                            PPACA                                          Demonstration
 Overall star rating                                           2012            2013                   2014             2012        2013      2014
 5 stars                                                        1.5               3                      5                5           5         5
 4 or 4.5 stars                                                   1.5                   3                  5                  4                   4                    5
 3.5 stars                                                          0                   0                  0                3.5                3.5                  3.5
 3 stars                                                            0                   0                  0                  3                   3                    3
 Fewer than 3 stars                                                 0                   0                  0                  0                   0                    0
 New plan                                                         1.5                2.5                3.5                   3                   3                 3.5
 Low enrollment plan                                                 *                  *                   *                 3                   3                    **
 Source: GAO analysis of CMS data.

 Notes: Under PPACA, the bonus payment percentages would be applied only to the PPACA portion of the blended benchmark. Under the demonstration, the bonus
 percentages will be applied to the entire blended benchmark. Under both PPACA and the demonstration, MA plans in qualifying counties will be eligible for double
 bonuses.

 *In the final rule for MA program changes in 2012, CMS stated that low enrollment plans will qualify for bonuses in 2012 and subsequent years. However, CMS did not
 specify the bonus payment percentages for low enrollment plans.

 **In the February 2012 call letter for the MA Quality Bonus Payment Demonstration, CMS did not specify the bonus payment percentages for low enrollment plans in
 2014.




17                                                                                          GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Background (cont.)


                                     Percentage of Enrollees in MA Contracts Eligible for Quality
 • Under PPACA, about one-third      Bonus Payments under PPACA and the Demonstration,
   of MA enrollees would be          2012 and 2013

   covered by contracts eligible     Percentage
                                       100%

   for a bonus in 2012 and 2013.                                              5%
                                                                             Bonus
                                                                              4%
                                                                                                                             5%
                                                                                                                            Bonus
                                        80%                                  Bonus

 • In contrast, under the
                                                                                                                              4%
                                                                                                                             Bonus
                                        60%

   demonstration, about 90
                                                                              3.5%
                                                                             Bonus
                                                                                                                              3.5%
                                                                                                                             Bonus

   percent of MA enrollees will be      40%



   covered by contracts eligible
                                                                              3%
                                        20%                                  Bonus                    3%
                                                             1.5%                                    Bonus                   3%

   for a bonus in 2012 and 2013.
                                                            Bonus                                                           Bonus
                                                                                                      2.5%
                                                                                                     Bonus
                                         0%
                                                   PPACA        MA Quality Bonus            PPACA              MA Quality Bonus
                                                                   Payment                                        Payment
                                                                 Demonstration                                  Demonstration

                                                             2012                                       2013

                                     Source: GAO analysis of CMS data.

                                     Notes: The distribution of contracts is weighted by prior enrollment data and is subject to
                                     change if there are shifts in enrollment. MA plans in qualifying counties may receive
                                     double bonuses, which are not reflected in this chart. Low enrollment plans are included
                                     only in the distributions for the MA Quality Bonus Payment Demonstration.




18                                                GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Results


     1. The current estimated cost for the MA Quality Bonus Payment
        Demonstration exceeds $8 billion, most of which is paid to 3-star and
        3.5-star plans.
     2. The MA Quality Bonus Payment Demonstration does not—and is not
        required by law to—conform to the principles of budget neutrality.
     3. The MA Quality Bonus Payment Demonstration dwarfs all other
        Medicare demonstrations—both mandatory and discretionary—
        conducted since 1995 in its estimated budgetary impact and is larger
        in size and scope than many of them.
     4. The design of the demonstration precludes a credible evaluation of its
        effectiveness in achieving CMS’s stated research goal.




19                                          GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Finding 1


 The current estimated cost for the MA Quality Bonus Payment
 Demonstration exceeds $8 billion, most of which is paid to 3-star
 and 3.5-star plans.




20                                    GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




1: OACT’s current estimate of the demonstration’s cost over 10 years is
over $8 billion, most of it occurring during 2012 to 2014*


 • Most of the cost is concentrated in the 3 demonstration years.                $6.83 billion

      Higher bonuses for 4-star and 5-star plans, new                                           $5.34 billion
       bonuses for 3-star and 3.5-star plans, applying
       bonuses to plans’ entire blended benchmarks, and allowing
       plans’ benchmarks to exceed their pre-PPACA levels
       account for most of the cost in the demonstration years.
      Net cost of higher enrollment in MA as beneficiaries                                      $1.49 billion
       switch from FFS because bonuses enable plans to
       offer more benefits or lower premiums

 • The remaining cost is almost entirely due to continued higher                 $1.52 billion
   enrollment in MA in the post-demonstration period.**

                                  Total 10-year cost (2012-2021)                 $8.35 billion


 *The budgetary impact of the demonstration is in comparison to the implementation of PPACA.
 **A small portion of the remaining cost, $40 million, stems from plans whose star ratings are
   assumed to increase as a result of the demonstration.



21                                                            GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




1: Bonuses for and additional enrollment in 3-star and 3.5-star plans will
likely account for most of the cost of the demonstration



 • Of the $5.34 billion of projected demonstration spending attributed to expanded
   bonuses, the majority is likely to go to 3-star and 3.5-star plans.
    This result is due, in part, to a difference in the number of 4-star and 5-star plans in 2013
       and 2014 assumed to exist under the demonstration and PPACA scenarios.

 • Most of the remaining projected demonstration spending attributed to higher MA
   enrollment (both during and after the demonstration) is also likely to go to 3-star
   and 3.5-star plans.
      OACT assumes that the additional MA enrollment stimulated by the demonstration will be
       distributed similarly to the current distribution of enrollees—which is concentrated among
       3-star and 3.5-star plans.




22                                                      GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




 1: Kaiser Family Foundation’s estimate of the cost of the
 demonstration in 2012 exceeds that of OACT


 Billions of dollars                                                Kaiser Family                       OACT estimate
                                                                 Foundation estimate*
 New bonus payments to 3-star and                                          $2.0**                          $1.8**
 3.5-star plans
 Higher bonus payments to 4-star and                                          1.0                            0.7
 5-star plans
 Net cost of FFS beneficiaries switching to                          Not included***                         0.2
 MA plans


 Total                                                                       $3.0                           $2.7

 *G. Jacobson, T. Neuman, A. Damico, and J. Huang, Medicare Advantage Plan Star Ratings and Bonus Payments in 2012
 (Washington, D.C.: Kaiser Family Foundation, November 2011).

 **Includes new plans and low enrollment plans.

 ***Kaiser’s methodology holds constant other factors, such as changes in enrollment and plans’ bids.




23                                                                         GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




 1: Estimated cost of the demonstration offsets a substantial portion of
 the MA payment reductions projected to result from PPACA during the
 demonstration years

 • OACT estimates that the demonstration will offset a significant portion of PPACA’s
   MA payment reductions in the demonstration years:
      71 percent in 2012
      32 percent in 2013
      16 percent in 2014

 • Overall, OACT estimates that the demonstration will offset more than one-third of
   PPACA’s projected reductions in MA payments during the demonstration years.




24                                             GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Finding 2


 The MA Quality Bonus Payment Demonstration does not—and is
 not required by law to—conform to the principles of budget
 neutrality.




25                                GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




 2: Although the demonstration is not budget neutral, OMB officials
 considered the cost of the demonstration in a programwide context


 • Medicare demonstrations conducted under section 402(a)(1)(A) of the Social
   Security Amendments of 1967, as amended, are not required to be budget
   neutral—whereby the total costs of a demonstration cannot exceed the total costs
   in its absence—but OMB generally does require these demonstrations to be budget
   neutral.
 • OMB officials told us that they considered the costs of the MA Quality Bonus
   Payment Demonstration in the context of other administrative actions in the
   Medicare program that are expected to generate savings, such as an adjustment to
   skilled nursing facility payment rates.
 • However, OMB officials did not confirm whether specific offsets were identified to
   account for the total costs of the demonstration.




26                                              GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Finding 3


 The MA Quality Bonus Payment Demonstration dwarfs all other
 Medicare demonstrations—both mandatory and discretionary—
 conducted since 1995 in its estimated budgetary impact and is
 larger in size and scope than many of them.




27                                   GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




3: The MA Quality Bonus Payment Demonstration has the greatest
estimated budgetary impact of any Medicare demonstration conducted
since 1995

 According to CMS and OMB cost            Top Five Medicare Demonstrations by Estimated Budgetary
                                          Impact, 1995 to 2021
 estimates, the estimated budgetary
                                          Outlays in billions of 2011 dollars
 impact of the MA Quality Bonus
                                            9.0
 Payment Demonstration, adjusted            8.0
 for inflation, is                          7.0

     • at least seven times larger than     6.0

       any other Medicare demonstration     5.0

       conducted since 1995 and             4.0

                                            3.0
     • greater than the estimated           2.0
       budgetary impact of all other        1.0
       Medicare demonstrations              0.0
       conducted since 1995 combined.               MA Quality
                                                  Bonus Payment
                                                                    Social Health Demonstration to Replacement Demonstration to
                                                                    Maintenance     Limit Annual      Drug        Transition
                                                  Demonstration    Organization I Changes in Part Demonstration Enrollment of
                                                                   Demonstration    D Premiums                   Low-Income
                                                                                                                   Subsidy
                                                                                                                 Beneficiaries


                                          Source: GAO analysis of CMS and OMB data.

                                          Notes: Estimated budgetary impact refers to the difference between the total costs of the
                                          demonstration and the total costs that would occur in its absence. Estimates shown are in
                                          constant 2011 dollars.




28                                                    GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




3: The MA Quality Bonus Payment Demonstration is larger in size and
scope than other Medicare pay-for-performance demonstrations


 Unlike other Medicare pay-for-        Size and Scope of Medicare Pay-for-Performance Demonstrations
 performance demonstrations,           Demonstration name
                                                                                  Number of
                                                                                  affected states
                                                                                                    Number of
                                                                                                    participants
 the MA Quality Bonus Payment          MA Quality Bonus Payment Demonstration            50         All MA plans
 Demonstration                         Premier Hospital Quality Incentive                38         About 225 hospitals
                                       Demonstration
     • is implemented nationwide and   End-Stage Renal Disease (ESRD) Disease            13         3 providers
                                       Management Demonstration
     • allows all eligible plans or    Physician Group Practice Demonstration            10         10 physician groups
                                       Cancer Prevention and Treatment                    7         6 organizations
       providers to participate.       Demonstration for Ethnic and Racial
                                       Minorities
                                       Care Management for High-Cost                      7         6 care management
                                       Beneficiaries Demonstration                                  organizations
                                       Home Health Pay-for-Performance                    7         569 home health
                                       Demonstration                                                agencies
                                       Health Care Quality Demonstration                  5         3 organizations
                                       Acute Care Episode Demonstration                   4         5 organizations
                                       Care Management Performance                        4         Almost 700
                                       Demonstration                                                physician groups
                                       Hospital Gainsharing Demonstration                 2         2 hospitals
                                       Physician Hospital Collaboration                   1         1 hospital
                                       Demonstration                                                consortium
                                       Source: GAO analysis of CMS information.




29                                                           GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




3: However, the large size and scope of the MA Quality Bonus Payment
Demonstration is similar to some Medicare Part D demonstrations*


 Like the MA Quality Bonus                       Size and Scope of the MA Quality Bonus Payment Demonstration
 Payment Demonstration, some                     Compared to Medicare Part D Demonstrations
                                                                                             Number of         Eligible
 Part D Demonstrations have                      Demonstration name                          affected states   participants
                                                 MA Quality Bonus Payment Demonstration              50        All MA plans
     • been implemented nationwide               Demonstration to Limit Annual Changes in            50        All Part D plans
       and                                       Part D Premiums
                                                 Demonstration to Revise the Part D Low-             50        All Part D plans
     • allowed all eligible plans to             Income Benchmark Calculation
       participate.                              Demonstration to Transition Enrollment of
                                                 Low Income Subsidy Beneficiaries
                                                                                                     50        All Part D plans

                                                 Source: GAO analysis of CMS information.




 *The Medicare Part D program provides voluntary, outpatient prescription drug coverage for eligible individuals.


30                                                                  GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




Finding 4


 The design of the MA Quality Bonus Payment Demonstration
 precludes a credible evaluation of its effectiveness in achieving
 CMS’s stated research goal.




31                                     GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




4: The timing of data collection limits the extent to which the
demonstration’s impact on quality improvement can be measured


• The timing of data collection for the                    Data Collection Timeline for the Measures Constituting the
  measures constituting the star ratings will              5-Star Quality Rating System
  compromise an evaluation of the                          Demonstration         Release date of
                                                           year                  applicable star ratings            Data collection period*
  demonstration’s impact on quality
                                                           2012                  November 10, 2010                  January 2009 – June 2010
  improvement in the first 2 years.                                              (2011 ratings)
        In 2012, bonus payments will be based on data     2013                  October 18, 2011                   January 2010 – June 2011
         collected entirely before the demonstration was                         (2012 ratings)
         announced in November 2010.
                                                           2014                  Fall 2012                          To be determined**
        In 2013, bonus payments will be based on data                           (2013 ratings)
         collected almost entirely before the final        Source: GAO analysis of CMS information.
         specifications of the demonstration were
                                                           *Data collection time frames for individual measures vary within this overall period.
         announced in April 2011.
                                                           **GAO assumes that the dates for the data collection period for 2013 star ratings will
                                                           be similar to those of the 2 preceding years.
• Accordingly, 2014 is the only year for which
  plans can respond comprehensively to the
  demonstration’s quality improvement
  incentives.




32                                                                   GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




 4: The demonstration’s design is inconsistent with CMS’s stated
 research goal


Research goal              Design features that conflict with research goal

Test whether a scaled      • The demonstration’s bonus percentages are not continuously
bonus structure leads to     scaled.
larger and faster annual      In 2012 and 2013, the size of the bonus percentage for 4-star and
quality improvement for        4.5-star plans is the same—4 percent.
plans at various star         In 2014, the size of the bonus percentage for 4-star, 4.5-star, and 5-star
rating levels compared         plans is the same—5 percent.
with what would have
occurred under PPACA       • The demonstration’s bonus percentages in 2013 and 2014 do not
                             offer all plans better incentives than PPACA to achieve higher
                             star ratings.
                              Most plans improving from 3.5 to 4 stars would receive a larger increase
                               in their bonus payment under PPACA.




33                                                    GAO-12-409R Quality Bonus Payment Demonstration
Enclosure I




4: Isolating the effects of the demonstration may not be possible



 • Comparison groups are necessary to isolate the effects of a demonstration from
   other factors in an unbiased manner. However, the demonstration lacks a direct
   comparison group because all MA plans are participating.
 • The effects of the demonstration may be explained, at least in part, by other MA
   payment and policy changes that may encourage plans to improve quality, such as
   the following:
      PPACA’s method of tying rebates to star ratings. For example, in 2014, PPACA rewards
       plans that improve from 3 to 3.5 stars with a 30 percent increase in their rebate amount and
       plans that improve from 4 to 4.5 stars with a 7.7 percent increase in their rebate amount.
      CMS’s proposed rule establishing procedures under which the agency may terminate
       contracts with MA plans that achieve fewer than 3 stars in 3 consecutive years.*

 • CMS officials acknowledged that it will not be possible to isolate the effects of the
   demonstration from other MA payment and policy changes.
 *CMS issued this proposed rule in October 2011. If finally adopted, this proposal is expected to take effect beginning in contract year
 2013. Under this proposal, CMS could terminate MA contracts beginning in contract year 2015 based on their 2013, 2014, and 2015 star
 ratings.




34                                                                         GAO-12-409R Quality Bonus Payment Demonstration
Enclosure II


        Comments from the Department of Health and Human Services




35                             GAO-12-409R Quality Bonus Payment Demonstration
Enclosure II




36             GAO-12-409R Quality Bonus Payment Demonstration
Enclosure II




(290990)


37             GAO-12-409R Quality Bonus Payment Demonstration
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