Elevance Wins Star Ratings Lawsuit (Sort Of)

Dive Brief:

• Elevance has notched a partial win in its bid to get the federal government to recalculate Medicare Advantage star ratings for its plans. It’s the latest court ruling suggesting the CMS might have to redo quality scores for every MA plan in what would be a massive payment overhaul for the privately run Medicare program.
• Elevance first sued over the scores in December, arguing regulators didn’t follow administrative procedure when they changed the methodology for calculating star ratings, costing it hundreds of millions of dollars in bonus revenue. The insurer wanted the CMS to redo scores for six of its subsidiaries.
• On Friday, a district court ruled the CMS needs to recalculate the star ratings for Blue Cross Blue Shield of Georgia, one of Elevance’s plans, but that Elevance failed to prove its other subsidiaries were affected by the methodology adjustment.

Dive Insight:

In Medicare Advantage, the federal government pays private healthcare plans a per-member, per-month fee based on their member’s health needs and the plans’ performance. Every year, plans are rated from one to five stars based on a series of quality metrics, including beneficiary outcomes and satisfaction, which factor into that per-month payment.

Star ratings include a tempting carrot for insurers. They’re used to determine two parts of a plan’s outlook: whether they receive a bonus and their ability to bid against a higher benchmark rate. Essentially, the higher a plan’s star ratings, the more it’s paid for looking after its beneficiaries every month.

There’s a stick as well. Plans that earn a rating under three stars for three years in a row can be cut from the MA program altogether.

As such, insurers fiercely defend their star ratings and cry foul when regulators make changes that threaten the bonuses. Recently, payers have latched onto a technical methodology adjustment meant to stabilize star ratings.

In 2020, the CMS said it planned to use a new strategy to account for outliers in the data used to calculate cutoffs or “cut points” for star ratings, called the Tukey Outer Fence Outlier Deletion Method, starting in 2023 for the 2024 plan year.

However, regulators failed to include Tukey in the text of a proposed payment rule in 2022. They later reinserted it in the preamble of another regulation, citing an input error.

Despite the purported oversight, regulators forged ahead with Tukey, using the methodology to recalculate cut points from 2023 so they could have an apples-to-apples star ratings comparison for 2024.

That decision has sparked a number of lawsuits from insurers that saw their star ratings plummet as a result. In its lawsuit, Elevance said the CMS’ use of simulated cut points instead of actual cut points from 2023 caused its overall star rating to drop to 3 stars, costing it $500 million in bonuses.

On Friday, a federal judge in the District Court for the District of Columbia agreed regulators should not have relied on the prior year’s cut points as recalculated using the current year’s methodology. 

Language backing up regulators’ actions was only in the preamble of the rule, not the regulation itself, so has no binding legal effect, Judge Randolph Moss wrote in his opinion.

The ruling could have broader implications. It’s an open question whether the CMS should recalculate all insurers’ star ratings to avoid skewing the MA market. Since consumers compare plans based on their stars, improving the ratings of one without giving the same consideration to the others could be unfair, Moss said.

“No party (or third party) has raised this concern with the court,” he wrote in his opinion. But the “CMS, in turn, is free to decide whether other [Medicare Advantage organizations (MAOs)] should receive similar relief in the administrative process, and, if necessary, any MAO suffering a cognizable injury in fact can pursue judicial relief to the extent appropriate.”

Though Moss found only Elevance’s Georgia plan was affected by the CMS’ use of Tukey, he said the insurer could always file another suit on behalf of its other subsidiaries “with the appropriate legal argument and evidentiary support.”

The CMS already bumped Elevance’s star ratings earlier this year after the payer requested an administrative review. However, the adjustment did not zero out Elevance’s expected losses from the bonus drop.

The Biden administration’s defense of Tukey has had a rough go of it in the courts. Last week, Scan Health Plan won its own lawsuit against the government over its changes to star ratings calculations. Scan says it lost $250 million in payments because of the Tukey controversy.

Star ratings swelled during the coronavirus pandemic due to COVID-19 disaster relief provisions. But in 2022, the CMS took steps to pare back what it viewed as overinflated scores. As a result, fewer plans reached the four-star threshold for bonuses in 2024: 42% compared to 51% of contracts in 2023.

The star ratings system is controversial among some health policy experts and Medicare watchdog groups, which argue it’s not a useful indicator of plan quality and puts further financial stress on Medicare.

Insurers submitted MA bids to the CMS for 2025 last week.