Insurance companies have hit federal agencies with a flurry of lawsuits in recent months over the government’s administration of the Medicare Advantage star ratings program.
Four health insurance companies have sued the Centers for Medicare and Medicaid Services, CMS Administrator Chiquita Brooks-LaSure, the Health and Human Services Department and HHS Secretary Xavier Becerra over the process for determining carriers’ scores in the federal quality ratings program.
Related: TukeyGate: Insurers vexed by Medicare Advantage star ratings declines
CMS declined to comment on ongoing litigation, and HHS did not respond to interview requests.
Here’s what to know about the lawsuits.
Which companies are suing the government?
Reno, Nevada-based Renown Health subsidiary Hometown Health Plan filed suit this month in U.S. District Court for the District of Nevada, and Zing Health sued in March in federal court for the District of Columbia. Elevance Health and SCAN Health Plan both sued at the end of 2023 in the District of Columbia federal court.
The companies allege that their lower star ratings for the 2024 plan year will hurt their ability to compete, diminish their reputation among consumers and degrade population health. Hometown Health, Elevance and SCAN also each allege they stand to lose out on tens of millions of dollars in quality bonuses, to be issued in 2025.
“We believe Medicare (CMS) didn’t follow the rules when they decided how to measure the quality of healthcare plans for 2024,” a Hometown Health Plan spokesperson wrote in an email. “We are deeply concerned this mistake may impact the ability of health plans to provide high-quality patient care and access to healthcare services and benefits for Medicare beneficiaries.”
SCAN declined to comment. Elevance Health and Zing Health did not respond to interview requests.
What is "TukeyGate"?
The Medicare Advantage star ratings program has big market implications for carriers.
CMS assigns carriers' contracts — which can encompass several plans — a star rating on a five-point scale based on how they score on several metrics related to member experience, plan administration and patient health outcomes. CMS awards insurance companies the maximum quality bonus for contracts rated at least four stars, which carriers rely on to subsidize zero-premium plans and supplemental benefits. Regulators awarded insurers $12.8 billion in star rating bonuses in 2023, up 30% from the previous year, according to KFF.
CMS also bars carriers that receive lower than three stars for three consecutive years from expanding those contracts' geographic footprint and urges their members to switch plans. Regulators can issue fines over low ratings and ban insurers from participating in Medicare Advantage.
Consumers additionally look to the stars to help them differentiate between plans in the crowded Medicare Advantage market.
The agency relies on a series of complex statistical methods to determine a Medicare Advantage contract's final star rating. Last year, CMS stopped including outlier contracts when developing score rubrics by implementing the Tukey Outer Fence Outlier Deletion Method. The agency said Tukey would promote consistency in the program. The change, however, contributed to insurer ratings falling across the industry.
The industry has dubbed the controversy surrounding this obscure but impactful statistical change “TukeyGate.”
What do the companies allege in the suits?
All of the insurers allege regulators violated the Administrative Procedure Act of 1946 in how they carried out the rulemaking process and in their application of Tukey.
In 2020, CMS issued a regulation stating it would apply Tukey to ratings for the 2024 plan year. But in 2022, the Tukey provisions were left out of regulatory text and only cited in the preamble of the Medicare Advantage star ratings final rule. CMS restored them in another regulation finalized in 2023 and cited an input error for the discrepancy.
“CMS applied an entirely different and new methodology that was not subject to any formal notice and comment rulemaking, and that directly contradicted the plain text of its own regulation,” SCAN wrote in its complaint.
In its complaint, SCAN also alleges CMS’ use of allegedly flawed call input data violated the Administrative Procedure Act. Hometown Health additionally asserts CMS violated the Medicare Act by allegedly making substantive program changes without proper notice and comment.
How much do the insurers allege they've lost?
The insurance companies allege in the suits they missed out on big quality bonuses and will lose members when consumers see their ratings during open enrollment this year.
In March court filings, Elevance Health alleged CMS’ program changes resulted in a $300 million loss in bonus payments. The insurer, which manages Blue Cross Blue Shield plans in 14 states, last year appealed to CMS over how regulators carried out a “secret shopper” call. The agency last month granted Elevance’s appeal and raised the ratings for four of its contracts. Elevance subsequently amended and refiled its complaint.
SCAN alleges it lost $250 million in star-related bonus payments because of CMS’ allegedly unlawful administrative changes and alleged errors officials made during a "secret shopper" call.
Hometown Health alleges it lost $22 million in bonus payments because of how CMS applied Tukey.
Zing Health did not allege it will lose star-related bonus payments. Instead, it alleges CMS’ process for carrying out the new statistical method led it to be terminated from the Medicare Advantage program, and fined over its consistently low scores.
“Zing [will] be unfairly terminated from participating in the Medicare Advantage program, thereby precluding it from serving low-income and minority beneficiaries and undermining its mission of addressing inadequacies in the healthcare system,” the lawsuit says.
Why are insurers suing CMS now?
Medicare Advantage carriers’ intentions for how they want to structure their plans for 2025 are due to CMS by June 3. Hometown Health and SCAN asked the courts for expedited decisions so they can reflect the increased bonuses in their accounting to regulators for the upcoming plan year.
Hometown’s lawsuit referenced Elevance and SCAN’s complaints. Zing Health’s lawsuit is likewise similar to SCAN’s. Larger health insurers’ initial lawsuits likely provided a blueprint for smaller carriers, said Duane Wright, a senior analyst at Bloomberg Intelligence. He also pointed to Elevance’s successful appeal regarding ratings for its four contracts.
“Elevance winning probably provided a roadmap,” Wright said.
Insurance companies could also be feeling pressure over CMS’ modest cut to core payments for 2025, Wright said. Hometown Health filed its lawsuit the same day CMS announced the base rate reduction for the next plan year.
“Because we’re talking about so much money, it’s almost incumbent upon these companies to do whatever they can to protect their revenue stream. It’s part of a broader environment of things that are just getting tighter for health plans,” he said.
What do the insurance companies want?
All of the insurers want CMS to recalculate their star ratings for the 2024 plan year, admit their previous scores were incorrect and base their ratings for the 2025 plan year and beyond on their new, higher score. The companies also seek any award the court determines is appropriate and reimbursement for attorney fees.
What will the insurers do if they don’t get new ratings?
Hometown Health said it may cut consumer benefits or raise cost-sharing requirements in its lawsuit.
The insurer wrote that it may stop paying for members’ Uber rides from the doctor’s office, begin charging for generic drugs and eliminate a program that offers incentives to its 19,000 enrollees who get preventive care.
Elevance Health, SCAN and Zing Health did not explicitly state what impact the 2024 star ratings would have on their operations.
