Elevance Health sues feds, challenging changes to MA star ratings methodology

Elevance Health and its regional subsidiaries have filed suit against the feds, challenging changes to the methodology for Medicare Advantage star ratings that it calls "unlawful."

The Centers for Medicare & Medicaid Services rolled out significant changes to the methodology used to calculate the annual star ratings, and several payers saw major declines in their scores for 2024. The star ratings are tied to key bonus payments paid annually by CMS.

Executives at Elevance Health said during the company's earnings call that the company was preparing for a $500 million hit to bonus payments as a result of declines in its star ratings performance. While it did see subpar performance on consumer surveys, CEO Gail Boudreaux said that Elevance also felt the sting of changes to the calculations.

Some payers, like Humana and Aetna, fared better in the latest star ratings.

In the lawsuit, Elevance alleges that the change violated the Administrative Procedure Act of 1946. The suit was filed Dec. 29 in District of Columbia federal court.

Central to its concerns is the Tukey outlier deletion provision, through which CMS eliminates outlier contracts from the calculations. The star ratings are calculated using a cluster methodology that establishes "cut points" in data sets using natural gaps in clusters.

"Notably, however, the implementation of Tukey outlier deletion methodology has been fraught with errors and ambiguities during rulemaking," according to the lawsuit.

CMS argued in federal rulemaking that the Tukey changes were key to avoiding massive changes in the star ratings between years. However, the changes drew immediate ire from the industry after they were proposed in 2020 regulations and were set to kick in for 2024.

Following pushback, CMS removed language related to the changes in 2022 rules, before adding it back in during 2023.

"CMS later added the above language back into the regulatory text in 2023, indicating that the relevant sentence 'was inadvertently removed from the codified regulation text,'" Elevance said in the lawsuit.

The insurer said that CMS should have essentially reset the regulatory process for the Tukey changes once the verbiage was axed from rulemaking in 2022. It also said that using the Tukey outlier deletion in its calculation before factoring in key guardrails led to major declines.

"Instead of ensuring stability and predictability of cut points from one year to the next, CMS achieved the exact opposite result, causing destabilization of cut points from 2023 to 2024," according to the lawsuit. "Indeed, CMS’s violation of the guardrails requirement had a significant impact on Star Ratings across the industry by causing overall Star Ratings to drop significantly and making it harder for contracts to improve or even maintain their Star Ratings."

Changes to the star ratings are not the only regulatory update that's roiling the Medicare program. Earlier in the year, CMS finalized key overhauls to risk adjustment audits that are also set to have major impacts on payments. Humana, which has the bulk of its insurance business in MA, filed suit to challenge the updates in September.