The Reward Factor as an Essential Stars Ingredient

The Lever Used by 56 Plans to Raise Performance 

The Opportunity

The success of a Medicare Advantage Organization’s (MAO) revenue model is highly dependent on its performance within the CMS Stars program. It is well known that a health plan’s Star rating impacts core aspects of the business including:

1. The ability to earn a financial bonus: CMS is expected to pay out at least $10B in 2022¹
2. The opportunity for 5 Star plans to enroll members on a year-round basis
3. Elevated benchmarks during the bidding process for plans

Much has been made about the changes to the measures and weighting used to calculate Stars scores in 2023. In particular, plans were focused on the elevation of the CAHPS (Consumer Assessment of Healthcare Providers & Systems) to a 4x weighting relative to more “traditional” measures (i.e., HEDIS, HOS). As health plans look further into 2023 MAO Stars performance, there is a lesser-discussed but very high-impact implication of CAHPS score challenges in 2023 and beyond: the “Reward Factor.”

This Briefing highlights the Reward Factor, its impact, and its tie to CAHPS scoring. It discusses the impact the Reward Factor had on 2023 results and how plans can take greater advantage of it moving forward. Understanding this fundamental aspect of Stars is important as CMS announced in the 2023 CMS Advance Notice² a proposed Health Equity Index Reward Factor, which could replace the current Reward Factor.

The Insight

Each year, CMS crunches health plan performance data on a weighted set of clinical and member experience scoring criteria. While the math that ultimately creates a weighted 1 Star to 5 Stars average seems quite simple, connecting this simple math to a plan’s ultimate Star rating is less so. For example, only one H-Contract had an unadjusted weighted average at or above the 4.75 to reach 5 Stars but there are 57 plans receiving 5 Stars for 2023 (hint: it’s the Reward Factor). To help drive a deeper understanding, let’s look at the ratings of two similar plans.

Next, we will address how Stars measures are calculated and how the Star rating can be impacted specifically by adjustment factors. In particular, let’s highlight the role that the Categorical Adjustment Index (CAI) and the Reward Factor play.

Generalized CMS Star Rating Process

1. Core Stars Calculation
   CMS combines up to 36 different weighted measures of clinical, operational, and experiential quality down to a single number 1 to 5. Decimal scores are rounded on the half-Star so that 4.750 and higher is 5 Stars, 4.250 is 4.5, etc.
2. Adjustment: Categorical Adjustment Index (CAI)
   Before rounding, CMS adds or subtracts the Categorical Adjustment Index (CAI) to offset high risk populations.
3. Adjustment: Reward Factor
   CMS makes an adjustment of 0.1 to 0.4 for plans that have “high mean average and low variance.”³

A review of our earlier example suggests that the “relative high mean average and low variance” scoring related to the two example health plans in Plan 2 is the reason for the Star rating:

Statisticians use the variance to describe how close together a set of numbers are from the mean average. For health plans who perform well, the variance category will demonstrate a low variance, meaning consistent, measure level performance.

The Impact

A deeper review of plan scores across the industry suggest that the Reward Factor is a “make or break” adjustment for plans seeking to achieve a Stars score that is greater than the weighted sum of its individual measures. 85 plans were helped up a half Star by the Reward Factor (this includes all but 1 of the 5-Star plans).

As illustrated above, the vast majority of plans can benefit from actively managing the variance in their Star ratings to take advantage of the Reward Factor. In particular, given their 4:1 weighting ratio relative to other measures, a particular focus on CAHPS scoring will have a disproportionate impact on a health plan’s ability to drive Reward Factor performance.

As plans seek to bolster low performing CAHPS scores and member satisfaction, it’s clear that many plans have critical, but frequently underutilized, tools that can unlock improved performance, namely seamless activation and engagement of Supplemental Benefits and Special Supplemental Benefits for the Chronically Ill (SSBCI).

Each of these benefits addresses social and care navigation issues often cited by older adults as both barriers to their health as well as drivers of health plan dissatisfaction. While this briefing is not intended to create a blueprint for CAHPS and Stars improvement for every plan, it does surface several questions for plans to consider when understanding the impact of managing CAHPS variance (eg, Reward Factor) as a lever for Stars improvement:

• What is the variance of my plan's scores, specifically CAHPS scores?
• How much investment and return should be attributed to managing them up for the purposes of improving the Reward Factor?
• Are we getting the return on our Supplemental and SSBCI investments as it relates to CAHPS improvement and the Reward Factor adjustment? 

Each plan will have unique answers to these questions. However, based on the data resulting from the 2023 Star ratings, the tie between CAHPS improvement and the Reward Factor is quite clear.

Author’s Note: This briefing was created in partnership with Baltimore Health Analytics (BHA). DUOS utilizes BHA’s Stars and industry analytics platform to create business improvement strategies for its clients. Eric Santa, Chief Strategy Officer at DUOS, Martha Osos, Senior Director of Medicare Strategy at DUOS, and Jeff Schoenborn, CEO of BHA, have co-authored this article.

¹ “Spending on Medicare Advantage Quality Bonus Program Payment Reached $10 Billion in 2022” - Kaiser Family Foundation (August 2022)
² “Announcement of Calendar Year (CY) 2023 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies ” - Centers for Medicare and Medicaid Services (April 2022)
³ "Medicare 2023 Part C & D Star Ratings Technical Notes ” - Centers for Medicare and Medicaid Services (September 2022), pp. 12-13