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Centene expects a significant number of its Medicare Advantage plans’ star ratings to drop this year, executives said during an earnings call Tuesday.
Regulatory allowances CMS offered during the COVID-19 public health emergency caused a record number of Medicare Advantage insurers to receive top ratings on the program’s one to five scale, but that policy wasn’t intended to be permanent. CMS is reevaluating how it will calculate star ratings for this year, according to a regulation published in April.
Centene anticipates that its scores will decline when CMS resumes stricter assessments of Medicare Advantage plans’ quality.
The company benefited from the pandemic-related regulatory flexibility more than its competitors and thus will be relatively more exposed when CMS elevates its standards, Drew Asher, executive vice president and chief financial officer, said during the call. “We believe we’re going to underperform,” he said.
More than half of Centene’s 23.5 million Medicare Advantage members are enrolled in plans rated at least four stars for the 2023 bonus year, compared with approximately 30% for the previous bonus year, according to the company.
Medicare Advantage star ratings are designed to measure quality and help beneficiaries choose plans based on that information. In practice, however, Medicare Advantage customers are more swayed by plans’ extra benefits than by CMS quality ratings, research has shown.
Health insurers rely on the the Medicare Advantage star ratings to increase benchmark payments from the Centers for Medicare and Medicaid Services. CMS uses three years of quality and safety data to calculate the ratings, which are designated on a one to five scale.
The bonuses associated with Medicare Advantage star ratings can be critical to financing the extra benefits that attract policyholders. Plans that score four or five stars receive 5% increases to their benchmark payments, which is the maximum amount the federal government will pay. Companies with fewer than four star receive no bonuses. CMS calculates star ratings a year in advance. For example, bonuses for 2022 were calculated in 2021.
Centene anticipates a meaningful decrease in its star ratings for the 2023 rating year, which will impact revenue for the 2024 bonus year.
In addition to the expected change in CMS policy, Centene’s star ratings are expected to decline because of the company’s integration of WellCare and its abrupt transition to remote work, CEO Sarah London said during the call.
Scores will rebound by 2025, London said. “This management team, which is different from the past, is committed to quality performance for the whole company,” she said.
Improving star ratings is a critical part of Centene’s value-creation plan, London said. Under pressure from hedge fund Politan Capital Management, which owns a $900 million stake in the insurer, Centene has focused on shedding non-health insurance businesses and is reviewing other areas in which to cut costs, such as real estate. Centene plans to unload more than half of its domestic real estate assets, leading to a $1.45 billion charge in the second quarter, and expects to incur another $200 million in related costs.
Other elements of Centene’s business are up for sale, London said. “There is still a lot of work going on and you should expect to hear additional announcements about that,” she said.
During the second quarter, Centene generated $35.9 billion in revenue, up 15.8%. The insurer’s net loss narrowed 67.8% to $172 million. Membership grew 15.8% to 26.4 million.
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