SCAN Health Plan wins Medicare Advantage Star Ratings lawsuit 

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SCAN Health Plan has won its lawsuit against the Department of Health and Human Services over the way the government calculated Medicare Advantage Star Ratings for 2024.

The ruling means SCAN will get the $250 million bonus it was initially denied and that other Medicare Advantage plans could also get federal dollars that were denied to them due to lower than expected star ratings.

CMS offers additional funding to plans with higher star ratings. These higher-rated plans can then use the funds to lower costs for their beneficiaries and attract more consumers. Star ratings are released in October.

"The upshot is that star ratings are quite important for private Medicare plans," U.S. District Court Judge Carl Nichols said in the ruling released Monday.

WHY THIS MATTERS

SCAN, a California-based nonprofit health plan, said CMS improperly calculated its 2024 star ratings.

Nichols sided with SCAN in ruling that the Centers for Medicare and Medicaid Services erred in how it calculated star ratings for 2024. The court agreed with SCAN that the only reasonable interpretation of the regulations requires a different calculation and granted summary judgment for SCAN.

SCAN's 3.5 star rating for 2024 is set aside, and CMS cannot use the "unlawful" star rating in determining SCAN's eligibility for a quality bonus payment of $250 million, Nichols ruled. SCAN's star rating reverts to 4 stars.

The civil action ruling could lead to regulators recalculating all carriers' star scores for the 2024 plan year.

INTO THE WEEDS ON STAR CALCULATIONS

CMS determines star ratings by quality measures that are then converted into a star score on a five-star scale. It grades plans on a curve, running a statistical clustering analysis to group the data set so that the raw scores within a group are as similar as possible to each other, and as dissimilar as possible to the raw scores of any other group, according to the court.

CMS then identifies the dividing lines, or what's called cut points between the groups, and assigns the stars accordingly.

CMS calculates a plan's overall star ratings by running a weighted average of all measures for a five-star scale in half-star increments.

The lawsuit by SCAN relates to two recent changes in the way CMS calculates star ratings. The first, the Guardrail Rule, increases the predictability of cut points. In April 2019, CMS put a 5% cap on how much cut points could change from year-to-year.

This means the measure-threshold-specific cut points for non-CAHPS (Consumer Assessment of Healthcare Providers & Systems) measures do not increase or decrease more than the value of the cap from one year to the next. 

This increases the predictability of the score required to get a high star rating.

CMS first implemented the Guardrail Rule in October 2022 in calculating the 2023 star ratings.

The second change was to the Tukey Outlier rule, which represents the high and low ends of a data set. 

In June 2020, CMS decided to remove these outliers from the raw data before calculating the cut points. The Tukey Outlier Rule was first implemented in October 2023 for the 2024 star ratings.

The two changes complement each other in that the Tukey Outlier Rule increases the stability and predictability of cut points by removing extremes, and the Guardrail Rule increases the stability and predictability of the cut points by imposing a limit on their ability to change from year to year.

However, CMS implemented the Guardrail Rule before it implemented the Tukey Outlier Rule. There tend to be more outliers on the lower end of the data sets than the higher end, the court said.

As a result, removing Tukey outliers resulted in significant changes in some cut points. Removing Tukey outliers in a particular year would tend to increase certain cut points more than the 5% limit in the Guardrail Rule.

The Guardrail Rule would dampen the effect of the Tukey Outlier Rule if cut points calculated from data sets without outliers were tied to older cut points calculated from data sets with outliers. It might take years for the Tukey Outlier Rule to take full effect.

To address this, CMS waived the application of the Guardrail Rule for one year. Instead of applying the Guardrail Rule to actual cut points from the previous year, it applied the Guardrail Rule to hypothetical cut points from the previous year, which it would calculate using the previous year's data with Tukey outliers removed.

"The problem is CMS never amended its regulations to reflect that decision, at least not expressly," the court said. Instead, CMS announced it in the Federal Register.

Between 2019 and 203, SCAN, which offers plans in California, Arizona, Nevada, New Mexico and Texas, had a star rating of 4.5, and got additional funding.

In September 2023, after CMS informed SCAN that its 2024 star rating would drop to 3.5 stars. SCAN determined that part of the change could be attributed to CMS's decision not to apply the guardrail to the previous year's actual cut points. 

"Had CMS done so, SCAN would have received a higher rating on two measures and an overall star rating of 4 stars – a rating that would make the organization eligible for approximately $250 million in additional funding from the federal government," the court said.

SCAN requested CMS to review. CMS refused, saying the calculation was consistent with regulations.

CMS said SCAN failed to raise this issue during rulemaking. Also, that errors made by CMS were harmless, because SCAN had a notice of CMS's intent to apply the guardrail based on hypothetical cut points, and then had an opportunity to comment.

In December 2023, SCAN sued, arguing CMS failed to follow its own regulation in calculating the star ratings. A hearing was held on May 24.

THE LARGER TREND

Fewer Medicare Advantage plans made the 5-star rating for 2024, and many blamed the regulation changes and Tukey Outlier Rule.

Star ratings affect federal bonuses for MA plans. Consumers also use them to determine which plan they'll join.

Star ratings provide beneficiaries with information about a plan's quality, and enable consumers and CMS to evaluate a plan's performance.

Email the writer: SMorse@himss.org