Scan Health Plan Wins Medicare Advantage Star Ratings Lawsuit

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Dive Brief:

• Scan Health Plan won a lawsuit that alleged the federal government had improperly calculated its 2024 Medicare Advantage star ratings, which it argued could cost the insurer millions of dollars. 
• The case centered around recent changes in how the CMS determined quality measures for the private Medicare plans. Scan alleged the agency didn’t follow its stated methodology, causing its rating to drop “precipitously” to 3.5 stars and risking $250 million in quality bonus payments. 
• The U.S. District Court for the District of Columbia ruled for the California-based insurer Monday, barring the federal government from using Scan’s original 2024 Star Rating for quality bonus decisions. 

Dive Insight:

Under the increasingly popular MA program, private insurers contract with the government to manage benefits for seniors and others eligible for Medicare. 

Each year, the plans receive star ratings — scores based on quality measures like hospital readmissions or member complaints — that beneficiaries can use to make enrollment decisions for the next year. 

The rating, based on a scale from one to five stars, is also important for insurers’ finances. They can receive bonus payments for high scores, and plans that consistently receive low ratings could be removed from the program. 

The suit comes as fewer plans are receiving high scores.  For the 2024 plan year, about 42% of MA plans offering prescription drug coverage received four or more stars, a decrease from the previous two years, according to data released in October by the CMS. 

The litigation from Scan, which said its rating this year had dropped significantly lower than its historic ratings, is related to two recent changes in the way the CMS calculates star ratings.

For the 2023 plan year, the CMS had placed a 5% cap on how much cut points — dividing lines between each score — could change from year to year to increase predictability.

And for 2024, the agency implemented a change that would remove extreme outliers from raw data before calculating cut points, called the Tukey Outer Fence Outlier Deletion Method.

In the long run, the changes should complement each other, the judge wrote. The Tukey rule improves stability of cut points by removing outliers that skew the curve, while the cap increases the predictability by limiting how much they can change each year.

But the CMS implemented the cap first, which caused significant swings in cut points after outliers were removed, the judge wrote. 

To solve the problem, the agency decided to use the cap on cut points from the previous year, recalculated from the last year’s data with the outliers removed — which the CMS didn’t clearly say it would do in official rulemaking, the judge ruled.

“This comes down to a curve and how you set a curve. So if you were a professor and if you were to say, ‘I’m going to use last year’s grades to inform this year’s curves,’ that’s essentially what they’re saying,” Sachin Jain said in an interview with Healthcare Dive. “But what we’re saying is that you never said you were going to do that. […]  And that had a pretty negative impact on calculations of some measures.”

Other insurers have sued over MA star ratings calculations. Elevance brought a lawsuit against the HHS early this year, and the insurer filed a motion Tuesday that alerted the court to the Scan ruling. 

The CMS said it doesn’t comment on litigation.