Health Law Daily Wrap Up, MEDICARE PART C/MEDICARE ADVANTAGE—D. D.C.: Court orders recalculation of one MA ‘Star Rating,’ leaves door open to others, (Jun 11, 2024)

By Justin Marcus Smith, J.D.

The way CMS decided to calculate its 2024 “Star Ratings” with simulated data was contrary to the agency’s own regulations.

Only one Elevance Health, Inc., entity, out of six that complained, suffered a cognizable injury in connection with the 2024 CMS “Star Ratings” for Medicare Part C (Medicare Advantage) (MA) health plans, held the federal district court for the District of Columbia. The court determined that CMS calculated its 2024 “Star Ratings” in a way that did not comport with the only reasonable reading of the CMS regulatory text. Specifically, CMS used certain simulated rather than actual 2023 data when it calculated its 2024 Star Ratings. However, Elevance managed to establish that this calculation artifact harmed only the Star Rating for its Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. (BCBS of Georgia), not the Star Ratings for any of Elevance’s other plans. Although the way CMS decided to use simulated 2023 data was contrary to the agency’s own regulations, and thus contrary to law and arbitrary and capricious, the court applied the remedy of recalculation only to the BCBS of Georgia Star Rating. That ordered recalculation was without prejudice to any other parties that might be affected, and the court otherwise left CMS to decide how best to implement the court’s decision with respect to other potentially affected plans (Elevance Health, Inc. v. Becerra, No. 23-3902 (RDM) (June 7, 2024)).

Background. Elevance Health, Inc. (formerly, Anthem Inc.) and six of its affiliated entities, including BCBS of Georgia (collectively, Elevance), sued the HHS Secretary and related HHS defendants, challenging the method CMS used to assign “Star Ratings” to their MA health plans for 2024. Elevance alleged the method was contrary to the agency’s own regulations because it involved using simulated 2023 “cut points” instead of actual data to calculate the 2024 Star Ratings, and therefore, was arbitrary and capricious. The parties cross-moved for summary judgment.

Star Ratings. Every year, CMS rates MA plans on a one-to-five-star scale as part of its Star Ratings program. In its most recent iteration, the Star Ratings program rewards high-performing plans by increasing their per-beneficiary payment. The stakes are high, because low-scoring plans can suffer significant losses, and eventually, CMS could even terminate them.

Initially, the Star Ratings program was not codified in the Code of Federal Regulations, but in 2017, CMS decided to codify a final rule to improve transparency. Since then, the somewhat arcane method CMS has used to calculate Star Ratings has changed each year. Of particular relevance, when CMS proposed the addition of the “Tukey outlier deletion” method, it explained how it would implement that change, and it adopted a final rule for it in 2020.

Standing. The court agreed with CMS that BCBS of Georgia was the only entity with standing. Here, the court agreed with an Elevance expert that if CMS had used the actual 2023 cut points, instead of simulated ones, the BCBS of Georgia plan would have received a higher star rating. CMS did not dispute this, and the court said its own calculation confirmed it.

The court said Elevance failed to proffer any evidence and failed to supplement for a showing that any of the other Elevance entity suffered or were likely to suffer any similar adverse effects from CMS use of 2023 simulated cut points.

Elevance argued, instead, that eight of their nine plans would have received different 2024 Star Ratings if the court were to direct CMS to not apply the Tukey outlier deletion method at all, that is, the same way CMS had calculated the 2023 cut points. However, the court said it appeared that Elevance was not challenging the application of the Tukey outlier deletion method, and CMS faithfully complied with its own regulations in applying it to the 2024 dataset.

As to whether Elevance did not know yet whether plans other than the BCBS of Georgia plan were affected, the court observed that a plaintiff is not entitled to summary judgment until it establishes standing. The Elevance expert also appeared able to calculate effects. Last, Elevance never explained the legal basis and failed to offer evidentiary support for its broader theory that the challenged Star Ratings method could have an effect on Elevance’s “enterprise” weighted average for new plans.

The court concluded that Elevance established that BCBS of Georgia, only, had standing to bring the action. However, CMS conversely failed to demonstrate that the other Elevance entities did not have standing, and CMS did not even raise standing in its cross-motion for summary judgment. Accordingly, the court could not enter summary judgment for CMS with respect to the other Elevance entities.

2024 method. As to how CMS calculated its 2024 Star Rating for BCBS of Georgia, the court found the most natural way of reading the regulatory text was to interpret references to “prior year” cut points as a reference to actual cut points used for the prior year. CMS asked the court to depart from this ordinary usage to read “the measure-threshold-specific cut points” for one year or “the prior year’s cut point” to refer to the prior year’s cut, as recalculated using the method for the current year. The court noted this was not what the regulation said. Another court that recently considered this exact same interpretive question reached the same conclusion.

The instant court construed that one of the problems with the CMS interpretation of its regulation was that CMS would have had to recalculate cut points for its 2022 Star Ratings as well as the 2023 points, but CMS did not do that. To the extent the regulation preamble supported the CMS position, the court reminded that preambles in direct conflict with the only reasonable reading of regulatory text do not control the language of the regulation itself and cannot have binding legal effect. CMS also failed to justify why it reset the “guardrails” for the simulated cut points.

It followed that the way CMS decided to recalculate the 2023 cut points using the Tukey outlier deletion method and to then compare those simulated cut points to the actual 2024 cut points was contrary to the agency’s own regulations and thus contrary to law and arbitrary and capricious.

Remedy. The court set aside the 2024 Star Rating only for BCBS of Georgia and ordered CMS to redetermine it in a manner consistent with its opinion. Because no other party or third party had raised the concern Elevance raised, the court said it would be best to leave it to CMS to determine how best to implement the court’s decision with respect to third parties. The court left CMS free to decide whether other plans should receive similar relief, without prejudice to any who suffered cognizable injury if they should choose to pursue appropriate judicial relief.

The case is No. 23-3902 (RDM).

Judge: Moss, R.

Attorneys: Lara Elizabeth Parkin (Reed Smith LLP) for Elevance Health, Inc., AMH Health, LLC, Anthem HealthChoice HMO, Inc., Anthem Health Plans, Inc., Anthem Insurance Companies, Inc., Blue Cross Blue Shield Healthcare Plan of Georgia, Inc., Community Care Health Plan of Louisiana, Inc. and HealthKeepers, Inc. Douglas C. Dreier, U.S. Attorney's Office, for Xavier Becerra and Chiquita Brooks-Lasure.

Companies: Elevance Health, Inc.; AMH Health, LLC; Anthem HealthChoice HMO, Inc.; Anthem Health Plans, Inc.; Anthem Insurance Companies, Inc.; Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.; Community Care Health Plan of Louisiana, Inc.; HealthKeepers, Inc.

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