From Correlation to ROI: Each additional CMS Star Is Worth ~3.4% More Medicare Revenue

What’s the value of increasing CMS Stars—and is there a concrete financial reason to rally your organization to invest? Short answer: yes. Higher ratings don’t just reflect better care, they are linked to stronger financial performance. Peer-reviewed data suggests that hospitals can anticipate roughly 3.4% more Medicare revenue per discharge for every one-star gain in the CMS Overall Hospital Quality Star Rating, with even larger revenue associations tied to Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) improvements. Hospitals and health systems can now turn quality gains into reliable financial forecasts—then execute with the right playbooks and tools. Explore the CMS Overall Hospital Quality Star Rating methodology and measure groups for context on how Stars are calculated.

Why this is no longer a vague relationship

Recent research moves the industry beyond logic and association:

• A 2023 analysis in a peer-reviewed journal found that a one-point increase in the Care Compare Overall Rating is associated with a 3.4% increase in net patient revenue per discharge, and a one-point increase in HCAHPS Summary Star Rating is associated with an 8.8% increase in the same metric. These findings hold in multivariate models, using log-transformed revenue outcomes.
• On the plan side, a Health Affairs study exploiting contract consolidations showed that higher MA Star Ratings are associated with improved outcomes, including lower 90-day readmissions, reduced disenrollment, and member shifts to higher-rated hospitals—drivers that stabilize revenue for plans and for hospital markets serving MA populations.

For leaders who have long intuited that “quality pays,” these sources quantify the effect size and connect specific rating changes to dollars.

What 3.4% per star means in practice

Translating evidence into a budgetable forecast requires three steps that any U.S. health system can follow:

1. Anchor your scenarios to the Overall Hospital Quality Star Rating and HCAHPS. Use ~3.4% revenue lift per discharge per Overall star, and consider ~8.8% per HCAHPS star where patient-experience programs are the primary lever. Check HCAHPS Star Ratings definitions to align your initiatives with patient-experience domains.
2. Map elasticity to your book of business. Multiply the percent lift by your Medicare share, net patient revenue per adjusted discharge, and projected discharge volumes by service line.
3. Layer in value-based program effects. The same study associates each 1-point increase in Total Performance Score (HVBP) with a 0.5% increase in net patient revenue per discharge. As readmissions fall and safety improves, you also limit penalties and denials.

Our team uses this approach in client readouts to tie a targeted star increase to a specific financial outcome, then identify the precise operational levers to get you there.

For hospitals: where the ROI comes from

• Payer negotiations and market position. Higher Stars enhance leverage with payers and support better case rates and network status—effects that compound as quality is sustained.
• Experience-driven revenue. HCAHPS gains correlate with larger revenue deltas than the overall star index, so targeted patient-experience work can create outsized financial impact.
• Penalty avoidance and incentive capture. Lower readmissions and stronger safety/engagement scores materially influence HVBP, which has a direct tie to reimbursement.

If you’re building the business case for executive leadership, consider pairing a one-star lift scenario with a sensitivity range that models HCAHPS and HVBP contributions separately.

For additional context on navigating methodology changes, see our explainer on improving hospital quality ratings and our discussion of measuring quality in the U.S. healthcare system.

For Medicare Advantage plans: why provider quality still matters

Higher Stars improve outcomes and reduce churn, which strengthens plan economics and member stability:

• Lower disenrollment and readmissions linked to higher Star Ratings reduce costly care transitions and preserve premium revenue.
• As MA methodology evolves, CMS Star Ratings fact sheets and independent policy analyses help plan leaders anticipate cut-point shifts and weighting changes that influence revenue and network strategy.

Plans steering members toward higher-rated hospitals can improve both member experience and total cost of care—creating a reinforcing loop with hospital quality investments.

How to connect your star lift to dollars—cleanly and defensibly

Step 1: Establish your baseline and forecast targets

Use current CMS files to confirm your Overall Star and HCAHPS positions, plus peer grouping and domain weights. Then draft one- and two-star lift scenarios and apply the validated elasticities.

Step 2: Attribute improvements to operational levers

Break the model into levers with clear owners and timelines:

• Clinical documentation and accurate acuity capture
• Discharge readiness and transitional care to cut readmissions
• Nurse-sensitive safety indicators
• Service recovery and experience design

The same research highlights strong associations from engagement and efficiency domains and quantifies how each point of improvement relates to revenue per discharge.

Step 3: Align to payer mix and local market conditions

The 3.4% and 8.8% elasticities apply at the discharge level; calibrate to your Medicare share, local market concentration, case mix, and CC/MCC capture to right-size the dollar forecast. [See the study’s secondary findings for relevant controls and market factors].

Where Tendo fits: forecast, then achieve the ROI

• Use Tendo Insights to measure your current CMS Star trajectory, model the revenue upside of one- and two-star lifts, and monitor risk to cut-points and penalties in real time.
• Deploy Tendo’s Quality Documentation Improvement tool to prioritize acuity capture and documentation fixes that raise quality scores while minimizing burden on clinical and CDI teams.

For additional perspective on moving from reactive to proactive quality, read A smarter way to improve hospital quality ratings and Proactive vs. reactive quality improvement.

Ready to put a number on your Star Rating upside?

If you’re asking, “What’s the value of increasing CMS Stars for our hospital?” we can show your leadership team the forecasted revenue impact and the operational roadmap to realize it. Get started with a tailored Star Ratings revenue forecast for your market, service lines, and payer mix using Tendo Insights, or talk with us about accelerating documentation accuracy with Tendo’s Quality Documentation Improvement.