Humana Inc., the biggest provider of Medicare Advantage plans in Tennessee, suffered its biggest loss on Wall Street in three months Wednesday after the government cut the performance ratings on many of Humana's Medicare plans.
The percentage of Humana's membership in plans rated four stars or higher by the government dropped from 78 percent of its plans, or 2.15 million enrollees, to about 37 percent, or 1.17 million members, according to ratings published by the Centers for Medicare and Medicaid Services, or CMS, on Wednesday. In a statement, Humana said the decline is mainly due to lower scores as a result of a recent audit by CMS.
Humana shares dropped 5.1 percent to $168.44 at the close of trading on the New York Stock Exchange. Humana is planning to merge with Aetna, whose shares also fell Wednesday by 1.5 percent to $110.37.
Cigna Corp. also reported a drop in the ratings for its Medicare Advantage plans. Cigna said 20 percent of its Medicare Advantage customers are in plans rated four stars or higher. The company had about 67 percent of membership in such plans last year. Cigna said in the filing that it will work with CMS to review the ratings.
Cigna shares fell 2.4 percent to $121.96.
In contrast to the drop in its rating on the CMS' five-star system, BlueCross BlueShield of Tennessee said Wednesday its main Medicare Advantage preferred provider plan kept its four-star rating.
Humana said it plans to fight the Obama administration over a large reduction in the ratings of its four-star Medicare Advantage plans for coverage starting in 2018.
Star ratings are a key quality measure under Medicare, and lower ratings could result in reduced reimbursement rates for Humana.
"Not having four stars on a significant portion of your plans will hurt you financially because you will not be able to achieve the bonus reimbursement that higher rated plans receive," said Deep Banerjee, a health insurance credit rating analyst and director at Standard & Poor's.
The CMS revision is a "substantial negative," said Chris Rigg, an analyst with Susquehanna Financial Group. "If Humana cannot successfully mitigate the issue with CMS, it will be at a material enrollment disadvantage relative to its peers."
The five-star rating system evaluates plans under Medicare Advantage, a privatized version of Medicare, and Part D, the government drug program for the elderly. The measure is used to determine whether carriers will receive bonus payments or rebates for their members, with the higher-rated plans getting the bigger bonuses.
CMS issues the quality ratings annually based on customer satisfaction surveys, plan operations and quality outcomes covering 50 measures, including whether members get the recommended care and screenings, how well their chronic health conditions are controlled and how satisfied they are with their health plan experience.
Overall, CMS said nearly 70 percent of Medicare Advantage enrollees will still be in plans that receive at least four stars for quality in 2017.
Just over half of private Medicare customers signed up for plans that received at least four stars in 2014. But the new figure is down slightly from this year, when just over 70 percent of the 17 million-plus Medicare Advantage customers enrolled in the high-quality plans.
Medicare Advantage plans that receive at least four stars for quality are eligible for bonus payments, while those that consistently receive less than three stars can be eliminated from the program. Just two plans - operated by Tenet Healthcare Corporation and Health Care Service Corp. - are in danger of having their contracts terminated at the end of 2017 for poor performance, according to CMS.
There has been similar improvement in quality ratings for prescription drug plans. Just over 40 percent of Medicare beneficiaries who enroll in stand-alone prescription drug plans are expected to be in plans with at least four stars next year. That's up from just 9 percent who were enrolled in such high-performing plans in 2014.
There are expected to be 18.5 million individuals enrolled in private Medicare plans next year, representing about one-third of all beneficiaries.
Medicare open enrollment starts Saturday and runs through Dec. 7.
BlueCross BlueShield of Tennessee's Medicare Advantage PPO product has maintained its four- out of five-star quality rating from the Centers for Medicare and Medicaid Services.
Todd Ray, vice president and general manager of senior products for BlueCross, said the Chattanooga-based health insurer has been the fastest growing provider of Medicare Advantage plans in Tennessee and has "focused on improving the member experience" with such plans.
"Receiving this four-star rating for a second consecutive year validates the effectiveness of BlueCross quality, medical and care management programs," he said.