Judge sides with SCAN Health Plan in dispute with CMS over Medicare Advantage star ratings

SCAN Health Plan secured a court victory Monday when a federal judge agreed that the Centers for Medicare & Medicaid Services (CMS) inappropriately calculated its star ratings for the 2024 plan year.

SCAN filed suit in late December, arguing that CMS' star ratings calculations violated the Administrative Procedure Act. CMS rolled out a number of changes to the methodology used to determine stars scores, and multiple payers saw a significant decline in their ratings as a result.

Sachin Jain, CEO of SCAN Group, told Fierce Healthcare that the insurer had closely studied the regulations to prepare for the updates, but, in its implementation, CMS took an approach that did not align with SCAN's interpretation. Other insurers, including Elevance Health, followed with similar suits.

"We were caught a little bit surprised because we had read the regs as it related to how CMS was going to be implementing its new guardrail methodologies, as well as the Tukey outlier methodology," Jain said. "And we had one interpretation of it that was based on our close reading of the regs, but CMS believed that it implied something different in its documents."

Carl Nichols, a judge in the District of Columbia federal court, agreed, granting summary judgment in the case.

"The Court agrees with SCAN that the only reasonable interpretation of the relevant regulations requires a different calculation," Nichols wrote in his opinion.

A CMS spokesperson told Fierce that the agency does not comment on litigation.

SCAN's 2024 star ratings decreased from a 4.5 to a 3.5, which cost the insurer $250 million in bonus payments, Jain said. He said a sudden change of this magnitude naturally raises questions about the methodology's efficacy.

For example, he said that one of the factors that played into the star ratings decline was a foreign language phone call from a secret shopper that CMS believed was "mishandled" by the team at SCAN. Jain said it's critical to continue examining the star ratings program to ensure it's measuring genuine quality.

"I think there's this broader question of the star ratings system and how we make sure that the star ratings are aligned to true performance of health plans," he said. "This year's star ratings really showed us the brittle nature of the star ratings."

The Tukey outlier methodology is central to insurers' arguments against the star ratings changes. CMS told the industry in 2020 rulemaking that the changes would take effect for the 2024 ratings. However, CMS removed language related to the Tukey changes in 2022 regulations before adding it back into a rule preamble in 2023.

CMS said the Tukey language was removed due to an error. SCAN disputed that the preamble was legally binding.

Thomas Scully, a general partner at Welsh, Carson, Anderson & Stowe and a former CMS administrator, told Fierce Healthcare that it's unlikely the agency will challenge the decision, and the ruling will probably spur it to dig deeper into the details in future rulemaking to avoid a similar discrepancy.

"When they lose, they lose, and they'll try to fix it for next year," he said.

Elevance Health also won a concession from CMS and will see its star ratings adjusted, bringing back $190 million in revenue.