NOTE: Co-published in partnership with Lilac Software. See more on Lilac at the end of the blog.
More changes could be slated in the future by CMS and Congress
Just as the Centers for Medicare and Medicaid Services (CMS) published its proposed 2027 Medicare Advantage (MA) and Part D rule with major Star Ratings restructuring, there is now even more chatter about further changes. This has to be giving MA plans huge anxiety. Right now, more than $12.7 billion in quality bonuses flow to about 40% of all contracts in MA.
A summary of the regulatory changes proposed in the 2027 MA and Part D rule
In addition to cancelling out the EHO4all health equity reward and introducing a new depression measure, CMS proposed to eliminate 12 (14 if you count overlap between Part C and D) operational and other measures that did not show variability in performance. Eliminating these easy-to-achieve measures creates profound impacts.
CMS calculated some impacts in its announcement, but independent analysis (including our own) suggests fallout is greater. Admittedly, numbers can vary based on assumptions rolling out into SY 2029.
- About 90% of contracts will see a decline in their overall contract rating.
- CMS said 25% of contracts would see a decrease of one-half Star. Other assessments suggest between 30% and 41% of contracts could lose half a Star.
- The number of contracts receiving a 4-Star or greater bonus will drop from about 40% in SY 2026 to 28% in SY 2029. Between 42 and 60 contracts may fall below the 4.0 Star level. The number of contracts below 3.5 Stars also increases between 63 and 79.
- Average ratings will drop between 0.15 Stars and 0.28 Stars.
- Between $1.3B and $2.2 billion could be lost in quality bonus. Overall, there will be at least a 1.4% loss of revenue on average for MA-Part D (MA-PD) plans.
- The lower Star ratings impact plans of all sizes — top 10, large, mid-size, and small.
MedPAC has advocated for major Star changes
Congressional Medicare policy arm MedPAC has been very vocal over the years on the MA Stars program. It has criticized the existing Stars program for being overly complex, how it measures quality, how it drives payments, and how useful it truly is. I happen to think that some of MedPAC’s sentiment is too harsh. There is a good deal of evidence that MA plans have reduced costs compared with the traditional program and driven better outcomes. But in this politically charged environment, that does not matter and CMS and Congress could adopt some of what MedPAC has proposed over the years. And some of what MedPAC has proposed is not without merit.
I went back about five years to see what MedPAC has proposed. Its congressional reports sound the same themes and are consistent in recommendations. MedPAC has recommended replacing the current Star Ratings–based quality bonus program (QBP) with a new value incentive program (VIP) to better align quality measurement and payment incentives with meaningful health outcomes. MedPAC’s aim is ensuring financial incentives truly reflect differences in quality rather than administrative factors or measurement quirks.
Features would be as follows:
- The program would be budget neutral, meaning the added dollars under QBP would go away and incentives would be paid out of rate dollars. The current Star ratings embedded in the rebate calculation for rate setting would change.
- The program would be based on a smaller set of population-based outcome and patient experience measures rather than a large number, many of which are process and administrative measures. As we know, eliminating those is what CMS has just proposed.
- The program would adjust for social risk factors using peer grouping to make comparisons fairer across plans serving different populations. The Trump administration has proposed, though, to eliminate the Biden administration’s EH04all health equity reward.
- The program would evaluate performance at the local market level instead of at the broad contract level. MedPAC believes the current contract level masks important performance differences between plans.
- The program would have predetermined performance targets known in advance rather than shifting cut points that depend on other plans’ performance. It would encourage continuous improvement and improve data accuracy and measurement validity. It would also eliminate the so-called “cliffs” that exist in the current evaluation process.
My thoughts on the MedPAC proposals:
- MA Stars is one of the few, if not only, budget additive reward programs. But while budget constraints could mean migrating to a budget neutral quality program over time, a near-term migration would complicate the financial situation in MA and erosion of benefits and coverage even more.
- I do agree with the phaseout of measures not directly tied to outcomes and satisfaction for members. But we cannot look past the major financial hit the current proposal will mean.
- I do agree with including rating based on social risk factors. The current evaluation system certainly discriminates against certain plans, such as those with large shares of low income and Medicaid enrollees. This is despite the presence of the Categorical Adjustment Index (CAI). The new risk-adjusted medication adherence process in MY 2026 will level the playing field a bit. The big question, though, is how complicated would efforts to make evaluation fairer become.
- Most MA plans are smaller and pretty much have performance gauged at the local level – whether Preferred Provider Organizations, Health Maintenance Organizations, or increasingly in the future Special Needs Plans. But about 75% of all enrollment is in the big national plans that tend to play games with larger contracts to maximize additive Star dollars, including contract consolidation. It hasn’t always worked perfectly (e.g., the Humana national PPO contract) but has been successful. So, I am sympathetic to the proposal, although it would create administrative burdens for both CMS and MA plans.
- Last, anything that makes Stars more transparent and predictable would be a benefit. CMS says it is looking at migrating from clustering to percentiles to rate performance on measures. This would be a half measure compared to what MedPAC is proposing.
MedPAC has also made the case that there must be a better data and methodology to support comparisons between MA and traditional Medicare quality.
Recent Health Affairs Forefront blog
A January 22 Health Affairs Forefront blog outlines similar concepts and was authored in part by Liz Flower and Purva Rawal, two former top CMS officials.
As the authors note, the current program “reflects a series of trade-offs the agency has made over time to balance competing priorities and tensions, including methodological and political challenges inherent in making changes to the MA program.” They argue the program could benefit from an overhaul and note that critics say it is not “measuring what matters most to Medicare beneficiaries, does not drive improved quality, and is not delivering strong value for the costs to Medicare or taxpayers.”
Among the authors’ recommendations:
- CMS could narrow the measure set to focus on outcomes that are meaningful to patients, address methodological weaknesses, and limit financial exposure. They view the current effort to eliminate certain measures as a first step but that more needs to be done. They criticize the sweeping nature of the 40-plus measure program and that it may reward plans that are missing the mark on clinical and population health outcomes. They say it also perpetuates inequities and discriminates against those plans serving the most vulnerable populations. Also, the lag in data may not capture current performance of the rising population.
- Policy makers should increase transparency in MA and that does not require tying every measure to bonus payments. Things like prior authorization, provider payment patterns, encounter data completeness, marketing activities, corporate stewardship, and health equity all need to be accountable but may not need to be rated in Stars. Accountability could be promoted with a reformed Stars program and a comprehensive MA Transparency Scorecard on non-clinical dimensions.
- CMS should move from evaluation at the contract level to more of a local or plan level evaluation process.
- And policy makers should improve methodological stability and financial sustainability. CMS should curb cut-point inflation, adopt a distribution-based approach to cut points, and shift to continuous scoring to reward incremental improvement. They note this may also help plans that serve populations with higher needs.
- Congress could reduce benchmark increases and make the program budget neutral.
Will any of these additional reforms happen?
Many will argue that the dust must settle on the current regulatory proposal before more reforms are made. But given the Medicare funding crisis and rising scrutiny of MA, more could be put on the table in 2026 or 2027.
Consider the views of the Paragon Health Institute. The conservative think tank holds great sway in the administration. Its president, Brian Blasé, served in Trump 45 and many staffers and fellows are now in top posts as well in Trump 47. Paragon was influential in passing many Medicaid and Exchange reforms in the One Big Beautiful Bill Act (OBBBA) and has lobbied hard against an extension of enhanced Exchange premiums subsidies as is, if at all. Its research on so-called “phantom enrollees” in the Exchanges has resonated on Capitol Hill.
One of Paragon’s latest analyses looks at the MA Star program. It comes to many of the same conclusions as MedPAC and the Health Affairs Forefront blog. It wholly endorses the proposal to eliminate 14 measures. It calls out the issues with performance at the contract level.
Paragon argues for fundamental reform, saying: “The proposed changes by CMS help address some of the critiques of QBPs that Paragon has raised, though we ultimately argue that policymakers should end QBPs altogether as part of a unified package of MA reforms. Specifically, the CMS proposals highlight and help address the central issue with the current Star Ratings: they increase costs and distort plan and consumer behavior. If they are to remain, focusing Star Ratings on core metrics identifying health outcomes and objective measures of patient experience is a positive change. As numerous others have pointed out, there is a questionable correlation between Star Ratings and actual quality. Additionally, they are expensive for taxpayers.”
It concludes that the savings of Star reform would likely be around $170 billion over the next 10 years. It advocates for fundamental MA reforms, including reducing county rate benchmarks, ending quality bonuses, and reforming risk adjustment.
Paragon is actually a fan of MA. Paragon focuses on both Medicare savings and accountability via a reformed MA program. It would eliminate traditional Medicare as the default option and has proposals to constrain traditional Medicare growth or make the program less attractive.
The think tank has been persuasive, and its message of austerity, reform, and accountability could well resonate over the next several years. So, more Stars changes and broader MA reform could come.
To learn more about Lilac Software’s Stars and Agentic AI solutions, go to https://lilacsoftware.com .
#stars #medicateadvantage #quality #cms #medpac #paragon #healthaffairs
— Marc S. Ryan
