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VOLUME 50 | NUMBER 6 | DECEMBER 2015


Higher Incentive Payments in Medicare Advantage's Pay-for-Performance Program Did Not Improve Quality But Did Increase Plan Offerings

Keywords: Pay-for-performance; health insurance; econometrics.

Objective: To evaluate the effects of the size of financial bonuses on quality of care and the number of plan offerings in the Medicare Advantage Quality Bonus Payment Demonstration.

Data Sources: Publicly available data from CMS from 2009 to 2014 on Medicare Advantage plan quality ratings, the counties in the service area of each plan, and the benchmarks used to construct plan payments.

Study Design: The Medicare Advantage Quality Bonus Payment Demonstration began in 2012. Under the Demonstration, all Medicare Advantage plans were eligible to receive bonus payments based on plan-level quality scores (star ratings). In some counties, plans were eligible to receive bonus payments that were twice as large as in other counties. We used this variation in incentives to evaluate the effects of bonus size on star ratings and the number of plan offerings in the Demonstration using a differences-in-differences identification strategy. We used matching to create a comparison group of counties that did not receive double bonuses but had similar levels of the preintervention outcomes.

Principal Findings: Results from the difference-in-differences analysis suggest that the receipt of double bonuses was not associated with an increase in star ratings. In the matched sample, the receipt of double bonuses was associated with a statistically insignificant increase of +0.034 (approximately 1 percent) in the average star rating (p > .10, 95 percent CI: −0.015, 0.083). In contrast, the receipt of double bonuses was associated with an increase in the number of plans offered. In the matched sample, the receipt of double bonuses was associated with an overall increase of +0.814 plans (approximately 5.8 percent) (p < .05, 95 percent CI: 0.078, 1.549). We estimate that the double bonuses increased payments by $3.43 billion over the first 3 years of the Demonstration.

Conclusions: At great expense to Medicare, double bonuses in the Medicare Advantage Quality Bonus Payment Demonstration were not associated with improved quality but were associated with more plan offerings.

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