Rewarding Mediocrity: GAO Report Concerning Medicare Advantage “Bonus” Payments

On April 23, 2012, the Government Accountability Office (GAO) released a report that concludes, among other things, that a Medicare demonstration program providing bonus payments to Medicare Advantage (MA) plans mainly benefits plans whose performance is no more than average.  While the program is supposed to reward quality, in practice it largely rewards plans receiving only 3 star and 3.5 star ratings, out of a 5 star rating system.[1]

In order to rein in overpayments to Medicare Advantage plans, the Affordable Care Act (ACA) reformed MA payment to bring it more in line with that of traditional Medicare.[2]  ACA also authorized bonus payments to plans based upon a plan’s overall star rating, which compares plans’ performance on a number of quality ratings. Under this provision, plans with 4 or more stars are eligible for a bonus.

In November 2010, CMS announced a nationwide demonstration from 2012 to 2014 that implemented the bonus payment system for plans with 4 or more stars sooner than directed by the ACA, increased the size of bonuses, and extended bonuses to plans with 3 or more stars.  As reported in the New York Times, about one third of current MA enrollees are in plans that would receive bonuses under the original ACA bonus payment system; conversely, under the demonstration program, 90% are in plans eligible for bonuses.[3]  The GAO recommends cancelling the demonstration and allowing the original ACA bonus payment system to take effect.


[1] “Quality Bonus Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings” General Accounting Office (April 23, 2012), summary available at: http://www.gao.gov/products/GAO-12-409R; report available at: http://www.gao.gov/assets/590/589473.pdf
[2] Note that according to GAO, even with these payment reforms, MA plan payment (including bonuses) is still about 7 percent higher than what the government would pay for similar beneficiaries in traditional Medicare.
[3] “GAO Calls Test Project by Medicare Costly Waste” by Robert Pear, New York Times,(4/22/12), available at: http://www.nytimes.com/2012/04/23/health/policy/gao-says-medicare-test-project-is-wasting-8-billion.html?_r=1&emc=tnt&tntemail0=y