NIC Notes

Insights in Seniors Housing & Care

By: NIC  |  February 10, 2016

Peering Under the Hood of CMS’ Five-Star Quality Rating System

Economic Trends  |  Ideas and Discussion


Originally intended to help guide skilled nursing consumers and their families as they compare and monitor care across different facilities, CMS’ Five-Star Quality Rating System is increasingly being used by investors to identify which properties to invest in and how facilities within their existing portfolio are performing.

 SLittlehale_Captioned-01.pngBut evaluating a skilled nursing facility on its rating alone isn’t enough. For investors to get the complete picture on a facility, they need to know what to look for in order to extract the “truth” from the number, explains Steven Littlehale, executive vice president and chief clinical officer of PointRight, a Cambridge, Massachusetts-based company recognized for providing predictive analytics solutions to post-acute providers, hospitals, payers, lenders, REITs, and insurance companies. In order for investors to avoid being led down the wrong track, having the knowledge to make sense of the metrics is critical.

 NIC spoke with Steven to get a preview of “What Investors Need to Know about the Five-Star Quality Rating System,” his session at the 2016 NIC Spring Investment Forum, which will run March 9–11 in Dallas, Texas.

 NIC: We spend a lot of time focusing on how operators need to demonstrate the quality of care they’re providing. But how should investors look at quality?

 Steven: What I find absolutely fascinating is that in 2008, I could have had a full-time career lecturing, writing, and studying the Five-Star system. It seems to have only grown in relative importance, and the impact that it’s had across our industry has only increased—well beyond what CMS intended. The fact that investors are turning to Five-Star more often doesn’t come as a surprise to me.

 Ultimately, investors have the same motivations for understanding Five-Star and using its metrics—good, bad, or indifferent—to their advantage. I provide them with the same advice I offer to providers, operators, lenders, and defense attorneys: They need a special “decoder ring” to understand and make sense of the metrics. These metrics can’t be taken on face value. There are too many methodological snafus, so to speak, within the Five-Star system that can set investors on the wrong track.

 In short, Five-Star can be confusing and sometimes misleading in that without additional context, it can give the wrong impression about the provider.

 NIC: What does CMS’ Five-Star Quality Rating System tell investors about properties they might be considering investing in?

 Steven: When I’m asked how investors should be looking at quality, I find myself asking them what it is about quality that’s important to them because, chances are, they’re focusing on quality as a proxy for something else. So investors should be able to complete the sentence: “I want to look at quality because . . .” It might be as a proxy for the facility’s ability to maintain census, or enter a preferred network, or access a three-day waiver. It might be a proxy for regulatory risk or even family and patient satisfaction. A lot of investors’ questions can be answered by further defining what they’re looking for.

 The most important message I can deliver is to reiterate that Five-Star is not a substitute for quality. It has nothing to do with something as critical as re-hospitalization rates. The “tail wagging the dog” within the Five-Star system is survey performance, as well as service performance over a three-year time period. Five-Star is really a representation of regulatory performance. The best predictor of regulatory performance is where you live within the United States and, in some instances, where you live within the state that you reside in.

 NIC: When you speak at the Forum, what do you want investors to walk away with?

 Steven: First, it’s key for them to understand that Five-Star isn’t about measuring quality. It’s about measuring survey performance. An investor recently told me that they’re using Five-Star to identify actual harm, when in fact Five-Star doesn’t do that. It’s not a direct proxy.

 Second, a facility’s rating might be based on a bad survey outcome that happened three years ago, even though the past two years’ outcomes have been stellar. Without looking beneath the hood, Five-Star can make the facility look bad. Investors need to be able to recognize the key historical factors influencing the current rating so they more accurately assess a facility.

 And finally, it’s important for investors to be able to discern when a family grievance is driving the bad score or the surveyor. When you can look under the hood and identify the one or two issues that are driving down a facility’s score, you, as an investor, can better determine whether or not it is a facility that aligns with your business needs. Knowing what to look for within Five-Star will arm investors with the information they need to ask the right questions of operators, enabling them to make a more informed decision on how the facility is operated.

About NIC

The National Investment Center for Seniors Housing & Care (NIC) is a nonprofit 501(c)(3) organization whose mission is to support access and choice for America’s seniors by providing data, analytics, and connections that bring together investors and providers.

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