SCAN Health Plan recently won a lawsuit in which it challenged its 2024 Star Rating by the United States Department of Health and Human Services (HHS). SCAN is a California-based nonprofit health organization that provides health insurance to Medicare beneficiaries and the Star Rating impacts both its federal funding as well as how it is viewed by consumers.
Star Ratings are intended to provide Medicare beneficiaries with information about a plan’s quality and to allow them (and the agency) to evaluate a plan’s performance. CMS also provides additional funding to plans with higher Star Ratings, which can then be used to lower costs for beneficiaries or provide beneficiaries with additional benefits.
CMS calculates the Star Ratings annually by first determining each plan’s raw scores on various quality measures. Each raw score is then converted into a star score on a five-star scale in whole-star increments. Plans are graded on a “curve,” under which CMS groups the data “such that the [raw scores] within a group are as similar as possible to each other and as dissimilar as possible to [raw scores] in any other group.” CMS then identifies the dividing lines (“cut points”) between the groups and assigns star scores accordingly. A plan’s overall Star Rating is a weighted average of all measures, again on a five-star scale, but in half-star increments.
SCAN filed a lawsuit alleging that its rating dropped significantly lower than its historic ratings. Between 2018 and 2023, SCAN had a 4.5 Star Rating and used the additional funding from having a high Star Rating to reduce costs for its members and offer them additional benefits, such as dental and vision. SCAN’s 2024 Star Rating was calculated as 3.5 stars.
For the 2023 plan year, CMS placed a 5% cap on how much cut points could change from year to year, in an attempt to increase predictability. In 2024, CMS implemented another change that would remove extreme outliers from raw data before calculating the cut points – known as the Tukey outlier deletion method. After investigating the reason for the decline in Star Rating from 2023 to 2024, SCAN found that part of the reduction could be attributed to CMS’s decision to not apply the cap to the previous year’s actual cut points, but to the cut points calculated after removing outliers.
While the two changes should work in concert together in the future and complement each other, because CMS implemented the cap first, it caused a significant swing in cut points after the outliers were removed.
The decision notes that the order of the implementation of the changes had such an impact on the Star Ratings because there tends to be more outliers on the lower end of the data sets than at the higher end. Therefore, “removing Tukey outliers resulted in significant changes in some cut points – in other words, removing Tukey outliers in a particular year would tend to increase certain cut points much more than the 5% limit.”
United States District Judge Carl J. Nichols from the United States District Court for the District of Columbia ruled that CMS cannot use SCAN’s original 2024 Star Rating for quality bonus decisions and must recalculate the Star Rating.
Other insurers have also sued over their Star Rating calculations, including Elevance, who has seen a partial win in its lawsuit, with a district court ruling that CMS needs to recalculate Star Ratings for Blue Cross Blue Shield of Georgia, one of Elevance’s plans.