GAO Tells HHS to Can Wasteful, $8 Billion Medicare “Quality Bonus” Demonstration

After studying the Medicare Advantage Quality Bonus Payment Demonstration, which will “dwarf all other Medicare demonstrations” and cost $8.35 billion over 10 years, the Government Accountability Office has some advice for the Department of Health and Human Services: Cancel the program.

The Centers for Medicare and Medicaid Services (CMS) is planning on rolling out a nationwide quality bonus demonstration between 2012 and 2014 to test an alternative method to the Affordable Care Act’s (ACA) star ratings program, which ties quality benchmarks to Medicare payments.

The ACA plan introduces differential rebates based on a healthcare plan’s star ratings and gives incentives toward achieving quality by awarding bonuses to highly-rated plans, phased in at incremental levels.


However, the CMS’s Office of the Actuary estimated that the healthcare reform bill’s payment reforms would reduce Medicare payments to Medicare Advantage (MA) plans by $145 billion over nine years and projected that MA enrollment in 2017 would be just half what it would be if the ACA didn’t exist.

Unsatisfied with the ACA bonus structure, CMS announced its own demonstration for calculating and awarding bonuses. Unlike the ACA plan, which gave bonuses to plans with four or more stars, the CMS MA Quality Bonus Payment Demonstration gives bonuses to plans with just three or more stars. Compared to the ACA plan, the CMS demonstration also accelerates the phase-in of bonuses for plans with four or more stars along with increasing the size of the bonuses.

The goal of this demonstration, according to CMS, is to test whether a scaled bonus structure leads to a larger and faster annual quality improvement for plans at various star levels, compared to what might occur under the ACA plan.


But after studying the CMS plan, the GAO found the demonstration’s bonus payments don’t “consistently offer better incentives than ACA to achieve high star ratings in 2013 and 2014.”

The generous bonus system doesn’t give lower-rated plans enough incentive to improve quality, and with a price tag of more than $8 billion, GAO recommends that the HHS cancel the demonstration and allow the ACA’s quality bonus payment system to take effect. Especially at a time when the Medicare program is in imminent danger of insolvency, a program that would incur 80% of its costs in the first three years is essentially a waste, according to the nonpartisan federal research agency.

CMS’ Office of the Actuary, on the other hand, believes its demonstration will contribute to the more than $200 billion of savings through 2016 the healthcare reform law is expected to yield.

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Read the GAO recommendation (and CMS’ refutation) here.

Written by Alyssa Gerace

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