Health Law Daily Wrap Up, QUALITY OF CARE—D.D.C.: BCBS of Florida loses bid to get recalculation of its “Star Rating”, (May 20, 2025)

By Donielle Tigay Stutland, J.D.

CMS did not act arbitrarily in determining that a waiver and public health emergency declaration was required before a Star Ratings adjustment could issue for an extreme and uncontrollable circumstance.

The federal district court in Washington, D.C. granted summary judgment in favor of HHS and CMS in a suit brought by Blue Cross and Blue Shield of Florida, Inc. and Florida Blue Medicare, Inc. (collectively, BCBS) challenging the 2025 Medicare Advantage (MA) and Prescription Drug Plan (PDP) Star Ratings. Specifically, the health insurance companies argued that the Extreme and Uncontrollable Circumstances Rule (the Rule) is arbitrary and capricious because, to qualify for ratings relief, the Secretary of HHS must declare a public health emergency and waive certain requirements, which cannot be reconciled with the Rule’s purpose. The health insurance companies also contended that the Rule is at odds with other CMS rules about Medicare plan requirements during natural disasters and leads to dissimilar treatment of similarly situated Medicare plans. The court rejected these arguments and determined that CMS did not act arbitrarily and capriciously in determining that a Section 1135 waiver and a public health emergency declaration was required before a Star Ratings adjustment could issue for an extreme and uncontrollable circumstance. The court concluded that the insurers have not demonstrated that the Rule’s predicate condition of a declared public health emergency is arbitrary and capricious, nor did they show the Rule to be arbitrary and capricious because of any inconsistency with 42 C.F.R. § 422.100(m) (Blue Cross and Blue Shield of Florida, Inc. v. HHS, No. 24-cv-03609 (APM) (D.D.C. May. 16, 2025)).

Background. In April 2023, Broward County, Florida was struck by massive rainstorms. Due to flooding, Florida Governor Ron DeSantis declared a state of emergency. Additionally, while President Biden declared Broward County a FEMA-designated Individual Assistance area, then-Secretary of HHS Xavier Becerra did not, however, declare a public health emergency for Broward County. Without having satisfied that precondition, no Section 1135 waiver was issued. In August 2023, Hurricane Idalia hit Florida. President Biden again declared that a major disaster existed under the Stafford Act in certain counties, designating them for FEMA Individual Assistance. Following the hurricane, then Secretary Becerra determined that a public health emergency did exist “[a]s a result of the consequences of Hurricane Idalia on the State of Florida.” A Section 1135 waiver followed.

Blue Cross and Blue Shield of Florida, Inc. and Florida Blue Medicare, Inc. are insurers who offer health care plans under Part C and Part D in Florida. Their complaint asserted that if CMS had issued an extreme and uncontrollable circumstance adjustment for the Broward County flooding, their Star Ratings for Calendar Year 2025 would be higher. BCBS argued that the flooding disrupted its operations, which negatively impacting its 2025 Star Ratings (3.5 stars instead of 4.5 for its MA HMO plan and 2.5 stars instead of 3 for its PDP), leading to significant financial losses due to reduced rebates under the Quality Bonus Payment program. BCBS repeatedly contacted CMS in 2024, requesting an adjustment to its ratings, but CMS declined, citing the absence of a Section 1135 waiver as mandated by the Rule.

BCBS filed this action on December 27, 2024, asserting three claims under the Administrative Procedure Act (APA): (1) the Rule is facially arbitrary and capricious due to its reliance on the Secretary’s discretionary public health emergency declaration; (2) the Rule’s application in this case was arbitrary, inconsistent with other CMS regulations (42 C.F.R. § 422.100(m)), and led to disparate treatment of similarly situated plans; and (3) the 2025 Star Ratings were arbitrary due to the Rule’s flaws.

“Facial challenge” to the Rule. The court began its analysis with the health insurers’ first challenge: that the Rule does not accomplish the objective that CMS articulated in promulgating it, which is to ensure that MA plans and PDPs are not punished in their Star Ratings for circumstances beyond their control. They further asserted that because the Rule is “keyed to the Secretary issuing a waiver under Section 1135, which itself requires the Secretary to have made a public health emergency declaration,” the requirements serve as “arbitrary and practically useless gating mechanisms,” as “the Secretary is under no obligation to do either of those things, no matter how severe the disaster or emergency.”

The court countered this argument by outlining CMS’s original intentions for a narrow scope when creating the Rule. CMS sought to ensure that only a narrow set of the most affected contracts benefited from the Rule. In the original proposed rulemaking, CMS observed that “[e]xtreme and uncontrollable circumstances such as natural disasters can directly affect Medicare beneficiaries and providers, as well as the Parts C and D organizations that provide them with important medical care and prescription drug coverage.”

The court found that “given the Rule’s narrow purpose, it was not arbitrary and capricious for CMS to tie the Rule’s application to the Secretary’s discretionary declaration of a public health emergency. That condition is consistent with the statutory scheme.” The purpose of a Section 1135 waiver is to ensure “that sufficient health care items and services are available to meet the needs of individuals” in an “emergency area during an emergency period” and “that health care providers . . . that furnish such items and services in good faith . . . may be reimbursed for such items and services and exempted from sanctions for such noncompliance[.]”

The court indicated that it “declines to disturb what is essentially a policy judgment by CMS,” finding that CMS did not act arbitrarily and capriciously in determining that a Section 1135 waiver and a public health emergency declaration was required before a Star Ratings adjustment could issue for an extreme and uncontrollable circumstance.

“As-applied” challenge. The court next turned to the insurers’ “attempt to establish arbitrary and capricious decision-making by comparing the Rule’s restrictive approach to a different provision, 42 C.F.R. § 422.100(m).” BCBS argued that the Rule was inconsistent with 42 C.F.R. § 422.100(m), which ensures care access during emergencies and uses broader triggering criteria (including state-level declarations).

The court rejected this argument indicating that “the two rules serve different purposes.” Section 422.100(m) ensures that beneficiaries have uninterrupted access to care during a disaster or emergency, while the Rule pertains to ratings relief. The court found that “CMS was well within its discretion to place demands on MA plans to ensure beneficiary access to care in the case of disaster or emergency, but to narrow the circumstances of eligibility for ratings relief when an MA plan falls short in such circumstances.”

The insurers also argued that the Rule is arbitrary and capricious because it causes similarly situated MA plans and PDPs to be treated disparately. As evidence, they offered flooding events in Kentucky in 2022 and Mississippi in 2023 that resulted in Section 1135 waivers for Calendar Year 2025, which BCBS maintains were like the Broward County storms. The court rebuffed this evidence indicating that, “Two plans are not similarly situated if the Secretary declares a public health emergency that affects one but not the other. CMS therefore is not compelled to treat such plans the same.” The court found that without additional evidence, there was no basis to conclude that the insurers have been treated differently than similarly situated plans.

Ultimately, the court concluded that as the insurers had not demonstrated that the Rule’s predicate condition of a declared public health emergency is arbitrary and capricious, nor did they show the Rule to be arbitrary and capricious because of any inconsistency with 42 C.F.R. § 422.100(m).

The case is No. 24-cv-03609 (APM).

Judge: Mehta, A.

Attorneys: Daniel W. Wolff (Crowell & Moring LLP) for Blue Cross and Blue Shield of Florida, Inc. d/b/a Florida Blue and Florida Blue Medicare, Inc. d/b/a Florida Blue Medicare. M. Jared Littman, U.S. Attorney's Office, for Department of Health and Human Services, Centers for Medicare and Medicaid Services, Xavier Becerra and Chiquita Brooks-Lasure.

Companies: Blue Cross and Blue Shield of Florida, Inc. d/b/a Florida Blue; Florida Blue Medicare, Inc. d/b/a Florida Blue Medicare

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