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CMS Star Ratings leave you seeing stars? The ratings system explained:


starsEveryone is discussing CMS Star Ratings lately and for good reason: plans that don't earn stellar ratings (i.e. 4 or more stars) this year will take substantial payment hits in 2015. As health plans continue to adjust to this new reality, there remains some confusion about the basic what, how and why of the Stars system. Here, we’ve broken down what Star ratings are, how they work, and why Medicare Advantage plans should be paying attention to them.


Medicare Advantage plans are graded on a 1 to 5 “star” rating by the Centers for Medicare & Medicare Services (CMS) based on a range of quality metrics, including HEDIS® (Healthcare Effectiveness Data and Information Set) measures. CMS originally developed MA Star Ratings as a system to help consumers compare quality among competing Medicare Advantage plans. Under the reforms brought in with the Affordable Care Act the government will now use these star ratings as a financial incentive to reward high quality plans with bonuses and rebates.  


The Stars system currently consists of 53 measures that are weighted 1, 1.5 or 3. These measures come from a variety of data sources, including standard HEDIS, CAHPS, and MHOS] measures, CMS data, and independent CMS auditors. CMS performs a variety of statistical tests to translate these raw measures into stars ratings. The weighted average of these measures becomes the overall star score, which determines the quality bonus payment. 

An additional element of the star rating equation is the “i-Factor”, which is a boost in rating for a high overall average and low variance among measure scores. Highest rated plans depend on this boost to achieve their 4.5 or 5 overall score. However, the i-Factor is a bit of a wildcard as the cut points that determine who receives a bonus are recalculated each year so it is impossible to know for sure which plans will receive a bonus.


The Affordable Care Act has transformed the star rating system into a critical component of Medicare Advantage reimbursement. Currently, plans are eligible for bonus payments if they receive a rating of 3 stars or more. The higher the star rating, the more plans will receive in revenue from the government. There are also very real consequences for low performing plans: those rated with fewer than 3 stars consistently over the prior three years are flagged as low-quality on the Medicare website.  Additionally, CMS will terminate contracts that are consistently low performing.

The star rating systems continues to change and evolve. In 2015, only 4 and 5 star plans will receive quality bonus payments based on this year’s ratings, so with a 3 year lag between activity and payment, this means that 3.5 star plans that do not improve in 2012 will take substantial payment hits in 2015. CMS has also announced plans to add additional measures and redistribute the weighting of current measures in the coming years.  The guiding principles that CMS uses to evolve its stars and quality programs are to improve the individual experience of care and the health of populations.  CMS clearly sees health plans as accountable for the care provided by physicians and hospitals to their enrollees.

While the novelty of the star ratings system can still be a cause of uncertainty and anxiety for many health plans, it also represents an exciting opportunity for them to receive tangible credit for the quality they provide to consumers. “Quality has never had such a direct ROI before,” says our in-house stars expert Nancy Martin.  Because of the broad range of Stars measures, an effective stars strategy needs to include not only barrier busting interventions, but also programs that increase member  engagement, and most importantly programs that are delivered at the point of care through increased provider integration.

Want to learn how to right-size your Stars budget? Download our free whitepaper below:



Those outside of Medicare should be paying attention to this, it's easy to imagine others start to make the same changes in their reimbursement schemes. The Massachusetts exchange has plan ratings posted as well.
Posted @ Thursday, July 26, 2012 9:37 AM by Sarah
Good article - This really explains the system very clearly. Not always an easy task with CMS is involved!
Posted @ Thursday, July 26, 2012 2:39 PM by Maura
I agree - great explanation of a sometimes confusing subject.
Posted @ Thursday, July 26, 2012 4:15 PM by Ali
It's no wonder, with incentives like these, that Medicare plans are taking steps to maintain or improve their ratings. Nice job of explaining this system.
Posted @ Friday, July 27, 2012 3:02 PM by Dani
Phase two should be having this information easily available to the public and user friendly for all Drs and Specialties. Many health plans have cost and quality ratings, but do subscribers use this information to make informed decisions? Wouldn't it be great if you go to a Dr. pick up their business card and their rating is right there- very clear and transparent.
Posted @ Monday, July 30, 2012 11:39 AM by Kate
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