SCAN Health Plan wins lawsuit over MA Star rating calculations

The ruling may have implications for the entire Medicare Advantage (MA) industry if the Centers for Medicare & Medicaid Services (CMS) recalculates all 2024 Star ratings because of the decision.

A U.S. District Court judge this week determined that CMS violated the Administrative Procedure Act when it calculated a California-based nonprofit health plan’s Star rating.

Judge Carl J. Nichols of the U.S. District Court for the District of Columbia wrote in the memorandum opinion that he agrees with SCAN Health Plan’s claims that CMS improperly calculated its 2024 Star rating due to how it implemented changes in the methodology. These changes led to a drop in the insurer’s Star rating and the loss of millions of dollars in federal bonus payments that the plan could use to offer additional benefits to enrollees, reduce cost sharing, or provide innovations in care.

The calculation changes involved guardrails that placed a cap on how much cut points could change and the introduction of the Tukey outlier method, a statistical method for removing outliers when calculating the Star measure cut points.

The problem is that CMS implemented the guardrail rule before it implemented the Tukey outlier rule. Although Tukey removes extreme outliers in both directions, there are more outliers on the lower end of the data sets than the higher end. As a result, removing the outliers increased certain cut points more than the five percent cap. SCAN also argued CMS didn’t follow its own regulations when it applied the guardrail to a prior year’s recalculated hypothetical cut points instead of actual cut points.

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The new calculation caused SCAN Health, one of the country’s largest not-for-profit MA health plans, to see a drop in its Star ratings from 4.5 to 3.5, which led to the insurer losing more than $250 million in quality bonus payments.

The only reasonable interpretation of the relevant regulations, Nichols wrote, requires a different calculation. This means SCAN’s 2024 Star rating will be recalculated.

“We pursued this case with determination and vigor on behalf of our members and provider partners,” said Dr. Sachin Jain, CEO of SCAN Group and SCAN Health Plan, in a statement. “Our Star Ratings have a significant impact on our ability to deliver on the rich benefits our members have come to rely on and to compensate our provider partners for the care they deliver.”

The legal decision may cause CMS to recalculate 2024 Star ratings for all plans, a big win for MA plans that lost their 4-Star rating, noted Melissa Smith, founder of Newton Smith Group, in a LinkedIn post.

In addition, Shereese Maynard, MS, MBA, co-owner of Nostra Data Medical, wrote in a LinkedIn article that perhaps CMS may implement a more robust oversight mechanism to ensure the fairness of the ratings, SCAN’s victory highlights the importance of regulatory fairness and consistency, she says. The result, Maynard wrote, could be significant changes in how CMS audits and penalizes MA Plans.