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CMS’s updated quality evaluation formula leads to more 5-star hospitals

The number of top-rated hospitals in the US quadrupled—from 83 to 337—after the US Centers for Medicare and Medicaid Services (CMS) revised the methodology behind its Hospital Quality Star Rating system. At the same time, twice as many hospitals landed on the low end of the ratings spectrum.1

Under the revised methodology, which CMS implemented in December, more large hospitals achieve the agency’s top quality rating. Under CMS’s original ratings formula, just six (1 percent) large US hospitals received a 5-star rating in July 2016 compared with 48 (11 percent) under the new methodology, according to our analysis. More small hospitals also have a 5-star rating—121 small hospitals (9 percent) compared with 51 (4 percent) in 2016.2

Rather than significantly altering its metrics, or changing categories or their weighting (as some organizations recommended), CMS opted to target extreme statistical outliers—a process known as winsorizing. This helped the agency achieve its goal of normalizing the distribution of hospitals’ scores, thereby increasing the numbers of both 5-star and 1-star hospitals. This change helps to give the overall ratings system a more realistic spread of hospitals in each category and should help motivate hospitals to achieve a five-star rating.

Background: CMS developed its hospital quality rating system in 2016 to help consumers more effectively evaluate overall hospital quality, as described in a recent report from the Deloitte Center for Health Solutions. More than 4,000 hospitals are evaluated on a variety of measures within seven broad quality categories (mortality, safety of care, readmissions, patient experience, effectiveness of care, timeliness of care, and efficient use of imaging). The first four categories are weighted more heavily than the other three. To receive a star rating, hospitals must report on at least three measures in each category for which they have sufficient data.

The ‘fault in our stars’
Since its launch in July 2016, some hospital leaders and trade groups have criticized the agency’s rating methodology for not painting a completely accurate description of hospitals’ performance.3 Hospitals that serve a high percentage of low-income patients and teaching hospitals with a higher proportion of more complex cases often complained that they were unfairly penalized.

Deloitte Center for Health Solutions researchers looked at how star ratings varied with hospital characteristics under the new methodology. We found that 5-star hospitals are more likely now to be nonprofit, teaching hospitals, and in the Midwest. Some specifics:

  • While the majority of hospitals still have ratings of 2, 3, or 4 stars, the new methodology flattens the distribution of ratings with fewer hospitals in the middle and more hospitals on either end of the rating spectrum.
  • The percentage of 5-star, not-for-profit hospitals that earned a 5-star rating increased from 2 percent in 2016 to 10 percent in 2018. The percentage of top-rated for-profits grew more modestly—from 5 percent to 8 percent.
  • By region, 14 percent of hospitals in the Midwest attained a 5-star rating—up from 5 percent in 2016 under the original methodology. Just 6 percent of hospitals in the South and Northeast now have a 5-star rating, but that percentage is up from 3 percent and 1 percent, respectively, from 2016.
  • Since the revision, 10 percent of major teaching hospitals received a 5-star rating (up from 2 percent), and 11 percent of minor teaching hospitals earned the top rating (up from 3 percent).
  • 5-star ratings are still more common among urban hospitals (11 percent) than non-urban facilities (6 percent).

Hospital executives typically do not spend a lot of time focusing on star ratings—unless they are at one extreme or the other. They do, however, focus on the metrics related to pay-for-performance and value-based purchasing programs. I see the revised methodology as a reasonable way to increase the awareness of the star-ratings program among hospital executives by making the 5-star rating appear more attainable. Prior to the change, many hospital executives might have considered the top rating as being out of reach. While the new methodology appears to focus on the same metrics as in the past, the distribution looks more reasonable.

As hospitals look to improve quality over time, and improve their star ratings in the process, they should continue to invest in technology and analytics tools that support their quality improvement goals. They also should work to develop and promote a culture of quality improvement among all caregivers and team members focusing on outcomes and experiences.

Most of the hospital and health care system executives with whom I work view the star ratings and other performance based reports as important but secondary to doing the right thing for their patients and communities. That’s the way it should be.


Source: Deloitte analysis based on data from CMS and the American Hospital Association Annual Survey.

1 Deloitte analyses based on AHA and CMS data
2 Ibid
3 Modern Healthcare, December 21, 2017, CMS unveils updated hospital star ratings formula

Author bio

Randolph Gordon, MD, MPH is a physician in Deloitte’s Health Care Practice. He brings a 30-year history of leadership in public health, hospital operations, academic medical centers and clinical practice. His areas of expertise include health care transformation, pay for performance, clinical quality improvement, physician leadership coaching, physician change management and public health. He brings physician perspectives and relationship skills to any engagement involving health care. He also advises the Firm in the public health aspects of pandemic planning and infectious disease control for its own employees. He began his career in public health, served as Virginia’s Commission of Health, spent seven years as a Chief Medical Officer of a four hospital integrated health delivery system and has been at Deloitte for 11 years. He is boarded in both family medicine and preventive medicine.