Quality Bonus Payment Demonstration Has Design Flaws and Raises Legal Concerns

Gao.gov: July 25, 2012

Our March 2012 review found that the CMS Office of the Actuary’s (OACT) estimated cost of the demonstration exceeds $8 billion over 10 years. About $5.34 billion of this 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 benchmarks during the phase-in of PPACA’s new payment methodology, and (4) allowing plans’ benchmarks to exceed their pre-PPACA levels. Most of the remaining projected demonstration spending stems from higher MA enrollment because the bonuses enable MA plans to offer beneficiaries more benefits or lower premiums. Taken together, the expanded bonuses and higher enrollment mainly benefit average-performing plans—those receiving 3 and 3.5-star ratings. Also, while a reduction in MA payments was projected to occur as a result of PPACA’s payment reforms, OACT estimated that the demonstration would offset more than one-third of these payment reductions projected for 2012 through 2014.

Our March 2012 report identified several shortcomings of the demonstration’s design that preclude 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. Subsequently, in our July 2012 letter, we raised concerns about whether the demonstration meets the requirements of section 402 and, therefore, falls within the agency’s authority. Read More