SCAN Health Plan has prevailed in a widely watched federal lawsuit brought last year against the Centers for Medicare and Medicaid Services that alleged regulators did not appropriately calculate the insurer's Medicare Advantage star rating.
Judge Carl J. Nichols, of the U.S. District Court for the District of Columbia, on Monday sided with SCAN and wrote that regulators violated the Administrative Procedure Act when calculating the company’s star ratings scores last year.
Related: Why Medicare Advantage carriers are suing CMS over star ratings
The decision could have industrywide implications for the star ratings program if regulators decide to recalculate all carriers’ star scores for the 2024 plan year. The ruling could also affect several pending cases filed by other insurers against CMS. It also could be appealed.
CMS and the Health and Human Services Department did not immediately respond to interview requests.
The case centered on CMS' review of insurers’ performance in several quality metrics through its star ratings program and the ratings it issues that are based on a curve. The difference between a high and low rating depends on how an insurer compares against its rivals and that can change annually. At issue is how regulators went about removing outlier plans from comparison last year through a statistical update known as the Tukey Outer Fence Outlier Deletion Method.
CMS had said since 2020 that it was going to apply Tukey to plan scores beginning in 2023. In 2022, the Tukey provisions were left out of a rule outlining how CMS planned to calculate star scores for the coming year. CMS added the provisions to the preamble of the rule a few months after they were omitted, and cited an input error for the discrepancy. The industry has dubbed the controversy “TukeyGate.”
SCAN alleged the text of the preamble is not legally binding and CMS did not follow the appropriate rulemaking process. The company alleged that because CMS did not follow the appropriate process when calculating the insurer’s star ratings, SCAN’s score fell from 4.5 to 3.5, which cost the company more than $250 million in quality bonus payments. CMS awards Medicare Advantage carriers that earn at least four out of five stars a big bonus payment, which companies rely on to finance supplemental benefits and zero-premium plans for members.
CMS “appears to argue that any statement in a preamble that goes through notice and comment and that is clearly intended to be binding is a legislative rule with the force of law. But that is not the law in this circuit,” Nichols wrote.
The court’s decision validates that CMS’ methodology was outside of what was stipulated in rulemaking, SCAN Group CEO Sachin Jain wrote in a text message to Modern Healthcare.
“The judge’s ruling asks that CMS recalculate our ratings and we are hopeful that this will lead to a higher star rating and the ability for SCAN to maintain its strong benefits for members in our service areas,” Jain wrote.
Insurers’ Medicare Advantage contract bids for the 2025 plan year were due to CMS Monday. The insurer anticipates receiving an additional $280 million if it receives a new rating of at least four stars for the 2024 plan year.
Insurers Elevance Health, Hometown Health Plan and Zing Health have sued CMS in recent months, making similar allegations. Efforts to reach the companies late Monday were unsuccessful.
