Recalculating Medicare Advantage: Potential SCAN and Elevance ruling implications for MA stakeholders (2024)

On June 4, 2024, the U.S District Court for the District of Columbia ordered the Centers for Medicare and Medicaid Services (CMS) to recalculate the 2024 Star Ratings (2025 revenue) for SCAN Health Plan (SCAN)¹, using the actual 2023 cut points as a basis for the 5% guardrails rather than the hypothetical cut points CMS had used. Three days later, the same court ruled in favor of Elevance Health, Inc. (Elevance) in a similar case², setting aside the 2024 Star Rating for one Blue Cross Blue Shield Healthcare Plan of Georgia (BCBS of Georgia) contract, an Elevance subsidiary, and ordering CMS to redetermine those Star Ratings consistent with the SCAN ruling.

Key points from the SCAN and Elevance rulings include:

• Both SCAN Health Plan and Elevance Health contested CMS' use of hypothetical 2023 cut points adjusted with the Tukey outlier deletion method instead of actual prior year cut points as a basis for the 5% guardrails.
• The rulings emphasized that preamble statements do not carry the force of law unless included in the Code of Federal Regulations, even when they go through notice and comment.
• The court ordered CMS to recalculate SCAN's and BCBS of Georgia's 2024 Star Ratings using the actual 2023 cut points, potentially increasing their 2024 Star Ratings and 2025 quality bonus payments.
• In the Elevance ruling, the court specifically addressed the potential impact on other Medicare Advantage Organizations (MAOs): “CMS, in turn, is free to decide whether other MAOs should receive similar relief in the administrative process, and, if necessary, any MAO suffering a cognizable injury in fact can pursue judicial relief to the extent appropriate.”

While the SCAN and Elevance rulings are narrowly scoped to those entities, there is uncertainty surrounding the potential impact to other MAOs if the rulings extended more broadly. To understand the possible implications, we used our Milliman Quality and Performance Analytics Suite to analyze the potential effects if the rulings were applied to all MAOs. Table 1 below summaries the results for the potentially affected groups of MA contracts.

Contracts potentially affected by the application of guardrails to hypothetical cut points have a disproportionately higher percentage of low-income subsidy (LIS) members, with approximately 50% to 70% higher likelihood of the LIS members to be negatively impacted by lower 2024 Star Ratings due CMS’ application of the Tukey Outliers, compared to those contracts without negatively affected Star Ratings. Lower Star Ratings can lead to reduced medical benefits for these vulnerable populations.

In addition to these two rulings, Elevance argued in its original complaint⁵ that there were significant issues with the call center data collection methods negatively affecting four MA contracts. In the Elevance Health Form 8-K⁶ filing released March 4th, the company noted that CMS informed them that four of Elevance’s MA contracts will have higher 2024 Star Ratings.

Background

In the fall of 2023, CMS released its 2024 Star Ratings, which impact the 2025 benchmark payment rates for Medicare Advantage prescription drug (MAPD) plans across the country. Milliman wrote a series of white papers discussing the Star Ratings release, including an explanation of the issues regarding the removal of Tukey outliers in the calculation of the 2024 Star Ratings.⁷

The following summarizes the key issues raised in those white papers:

• CMS finalized a change to remove Tukey outliers when calculating 2024 Star Ratings in the 2021 Final Rule⁸, which anticipated higher cut points for non-Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures and lower Star Ratings for many MA plans, generating $1.5 billion in savings for CMS (savings for CMS due to reduced payments for MA plans) by 2030.
• Based on the “guardrails” language in the Final Rules and the coded regulations, many MA stakeholders expected that the non-CAHPS cut point thresholds could only move by +/- 5% “from year-to-year.”⁹
• However, rather than applying the thresholds on the actual 2023 cut points, CMS instead applied the guardrails to the hypothetical 2023 cut points calculated with the 2023 Star Rating measure data but with the Tukey outliers removed.
• This means the full weight of the Tukey outlier removal will be felt almost immediately, rather than being phased in over multiple years. Based on our analysis, many contracts saw lower 2024 Star Ratings as a result of this discrepancy and would realize a significant loss in revenue.

According to the SCAN ruling,¹⁰ SCAN initially requested that CMS recalculate the Star Ratings by applying the 5% guardrails to the actual 2023 cut points. After CMS declined the request, SCAN filed a lawsuit claiming that CMS did not properly apply its own regulations in the calculation of the 2024 cut points.

In addition to the SCAN lawsuit, Elevance filed a complaint on December 29¹¹ contesting the application of the 5% guardrails. Elevance’s complaint also argued that significant issues with the call center data collection methods negatively affected its scores.

The SCAN v. HHS et al. lawsuit

A review of the legal arguments and findings in the lawsuit is beyond the scope of this paper. However, we do note that the ruling may have implications on future actions by interested parties. Specifically, the court rejected the following three arguments raised by the government in this case.

Preamble comments vs. codified regulations

CMS stated its intent to implement this methodology change in the 2021 Final Rule, although the description of this change was embedded in the comments section of the Final Rule and was not ultimately coded in the regulations.

The ruling emphasizes that CMS's intent to change the methodology, as stated in the preamble comments, is not legally binding because it was not codified in the regulations. In the D.C. Circuit, only provisions designated for publication in the Code of Federal Regulations have the force of law. Therefore, the discrepancy between the preamble statements and the codified regulation means the latter takes precedent, making CMS' uncodified intent insufficient for legal enforcement.

Waiver of right to challenge

The government argued that SCAN waived its right to challenge the regulation because it did not raise the issue during the rulemaking process (when the public can comment on proposed rules). However, the court rejected this argument, citing Koretoff v. Vilsack, which establishes that a party can raise issues on an "as-applied" basis when a regulation is being applied to them, even if they did not raise the issue during the rulemaking process.

Harmless error argument

The government also argued that, even if CMS made errors, they were harmless because SCAN had notice of CMS's intent to apply the guardrail based on hypothetical cut points and had an opportunity to comment on that proposed policy.

The court rejected this argument as well, citing Jicarilla Apache Nation v. U.S. Dept. of Interior, which states that the test for whether an error is harmless depends on whether it will "prejudice" (i.e., cause harm to) the regulated party. The court found that this standard was met in SCAN's case because CMS's failure to follow its own regulation led to an incorrect Star Rating for SCAN, which would likely cost the organization $250 million (as stated in a declaration).

Court's decision

The final ruling included the following key points:

• The court granted SCAN's Motion for Summary Judgment and denied CMS's motion.
• It ruled CMS improperly applied the guardrails to hypothetical 2023 cut points instead of a comparison of actual 2023 cut points, contrary to regulations.
• The ruling instructed CMS to “set aside” SCAN’s 3.5 Star Rating and redetermine SCAN’s eligibility for quality bonus payments based on the correct Guardrail Rule application.
• Based on SCAN’s estimates, it anticipated that its Star Rating will increase from 3.5 to 4.0 and it will receive an additional $250 million in quality bonus payments.

The Elevance v. HHS Lawsuit and Broader Ruling Implications

Similar to the SCAN v. HHS case, a detailed analysis of the legal arguments and findings in the Elevance v. HHS lawsuit is beyond the scope of this paper. The Elevance ruling referenced and reinforced the conclusions from the SCAN ruling discussed above. The ruling set aside the 2024 Star Ratings for one BCBS of Geogia contract and ordered CMS to redetermine those Ratings in a manner consistent with the SCAN ruling.

Burden of proof

In this case, the judge only partially granted summary judgment for Elevance and set aside the ruling only for the Blue Cross Blue Shield of Georgia contract, contrasting with the full summary judgment granted in the SCAN case.

The Elevance Health ruling highlighted that the burden of showing an organization has suffered or is likely to suffer an injury-in-fact applies at the individual MA contract level rather than the parent organization level. This means that analysis needs to be done on each individual contract before an organization can pursue relief. This is a key consideration for large insurers with multiple contracts that may seek to have their Star Ratings changed based on these rulings.

Implications for MAOs

The court also addressed the potential impact on other Medicare Advantage Organizations (MAOs), stating:
“CMS, in turn, is free to decide whether other MAOs should receive similar relief in the administrative process, and, if necessary, any MAO suffering a cognizable injury in fact can pursue judicial relief to the extent appropriate.”

This suggests that while the direct impact of the Elevance ruling is limited to the specific BCBS of Georgia contract, CMS may decide to provide similar relief to other affected MAOs through administrative processes. If CMS does not do so, other MAOs have the option to seek judicial relief if they can demonstrate a specific injury-in-fact related to individual contracts. This sets a precedent that may encourage more MAOs to challenge their Star Ratings calculations if they believe CMS’ methodology has adversely affected them.

Potential outcomes for Medicare Advantage

The implications of these rulings could have significant impacts beyond SCAN and Elevance. There may also be other pending lawsuits that could be affected by this ruling, and we may receive the outcomes of those lawsuits in the future. Until CMS releases further information, we can only speculate on what may occur. Potential outcomes could include:

• The government may appeal these rulings.
• CMS could only recalculate 2024 Star Ratings specifically for those plans that request it or that take legal action.
• CMS could recalculate the 2024 Star Ratings for all contracts, which would be uncharted territory given the initial 2025 MA bid submission deadline was June 3, 2024. In this recalculation scenario, it is also unclear whether or not CMS would apply a “hold harmless” standard and prevent any Star Ratings reductions from the recalculation.
• If the last scenario occurs, CMS may need to recalculate 2024 Star Ratings, leading to redistribution of quality bonus payments (QBPs) and changes to the Part C rebates plans have available to “spend” on benefits and/or reduced premiums for MA beneficiaries.

In the event that CMS recalculates Star Ratings for all contracts, it could have a significant impact on many plans, including an overall revenue increase across the MA program, with some counties experiencing particularly substantial impacts on revenues and resulting member benefits and premiums. Additionally, providers involved in value-based contracting with MA plans could also be affected by these Star Rating changes and revenue implications.

While developing our 2024 white paper series, we created certain models to replicate the MA Star Rating quality program methodology and to estimate the potential impact of different Star Rating scenarios. Using these models, we estimate the potential impact of CMS extending the SCAN ruling to all contracts as follows¹²:

• We identified 76 contracts, representing 44 parent organizations and almost 3.5 million members, that would gain 0.5 Stars if CMS were to fully recalculate the Star Ratings for all contracts using the order from the SCAN ruling.
• Eight contracts, representing approximately 340,000 members, would receive 5.0 Stars instead of 4.5 Stars. Although the revenue for these contracts is not directly affected, they would lose out on special enrollment and marketing privileges.
• Fifteen contracts, representing approximately 140,000 members, would increase from 2.5 Stars to 3.0 Stars. Although the increased Star Ratings would not have directly affected their bonus and rebate payments, being below 3.0 Stars puts them at risk of termination by CMS and negatively affects their reputation and membership acquisition and growth.
• The remaining contracts gaining 0.5 Stars would receive higher revenue through potential increases to their quality bonus payments on the 2025 benchmarks and rebate percentage, which are used to pay for enhanced benefits for their beneficiaries.
• Although extending the SCAN ruling to all contracts would increase the final Star Rating for many plans, our analysis shows that eight contracts, representing approximately 368,000 members, could potentially lose 0.5 Stars if CMS were to fully recalculate the Star Ratings for all contracts (in the event of a full recalculation, the reward factor thresholds¹³ would also increase). For these eight contracts, which were on the cusp of receiving a reward factor in the 2024 Star Ratings, their unrounded Star Rating without the reward factor would not increase as much as the new reward factor threshold. As a result, these contracts would lose 0.5 Stars in a full recalculation of the 2024 Star Ratings.

Contracts potentially affected by the application of guardrails to hypothetical cut points have a disproportionately higher percentage of low-income subsidy (LIS) members, with approximately 50% to 70% higher likelihood of the LIS members to be negatively impacted by lower 2024 Star Ratings due CMS’ application of the Tukey Outliers, compared to those contracts without negatively affected Star Ratings.

Lower Star Ratings can lead to reduced medical benefits for these vulnerable populations. Consequently, the reduced revenue levels for these contracts could have a more significant negative impact on vulnerable populations, highlighting the potential for the guardrail application to hypothetical cut points to disproportionately affect contracts serving higher proportions of low-income individuals.¹⁴

Assumptions, methodology, and validation

A key part of our analysis was validating our calculations as compared to the Star Ratings data published by CMS. We replicated each individual contract’s calculated measure-level Star Rating and each contract’s overall Star Rating. By doing so, we matched all but two contracts among the contracts rated by CMS. When validating our alternative cut point projections, we were also able to replicate the contracts cited in the Elevance and SCAN lawsuits.

We validated the accuracy of our alternative cut point scenarios by first implementing the logic CMS used to develop the 2022, 2023, and 2024 Star Rating cut points for non-CAHPS measures. We then compared our results against the actual cut points to confirm we could accurately reproduce the CMS clustering methodology, Tukey outlier removal, and 5% guardrail logic.

We relied on published measure results, measure weights and cut points, Categorical Adjustment Index (CAI) values, disaster percentages, reward system logic, hold harmless provisions, and Puerto Rico adjustments. The Star Rating scenarios presented in this white paper recalculate the contract-level Star Ratings using the standard CMS methodology, incorporating the alternative cut point scenarios discussed in this paper.

Our simulations do not account for the impact of changes in individual quality measure scores on the health and drug quality improvement scores. The calculation of these improvement scores relies on nonpublic information, which prevents us from including an estimate for them in this report. Given the general trend of quality measure improvement, it is likely that our analysis underestimates the number of contracts that would benefit from an extension of the SCAN ruling to all plans. The actual number of contracts experiencing an increase would likely be higher than our current projection estimates.

Elevance complaint and call center calculations

While the full resolution of Elevance’s complaint is not publicly known, the complaint raises several key points regarding the call center measure calculations that may also be relevant to plans’ 2024 Star Ratings:

• CMS set a 5.0-Star cut point for measure D01 at a 99% success rate. Elevance contends this was mathematically impossible to achieve with the sample sizes used (61, 62, 63, or 64 calls) as only a perfect score would equate to a 5.0-Star Rating.
• The health plan plaintiffs argue their actual results were statistically equivalent to the 99% measure, given the small sample size. Elevance contended that missing only one call in such a small sample should be considered equivalent to achieving a 99% score and that CMS's methodology did not account for sampling error.
• Elevance disputes that a call attributed as a ”missed call” ever connected with its call center. Elevance argues that this call, attempted via teletypewriter (TTY) service 7-1-1, never reached its system due to a technical error not within its control.
• CMS considered the 7-1-1 operators, a federally mandated public TTY service, as agents of the plan. Elevance argues this is contrary to law and interpretation of the Federal Communications Commission (FCC), as it has no control over these operators.

It is possible that this call center dispute could result in additional changes to the 2024 Star Ratings beyond the guardrails-related changes discussed above.

Conclusion

The SCAN and Elevance rulings potentially have far-reaching implications for the Medicare Advantage landscape, affecting not only health plans' Star Ratings and revenue but also providers and beneficiaries. If the rulings are extended to all MA plans, they could lead to significant improvements in Star Ratings, increased revenue for plans and potentially providers, and enhanced benefits for beneficiaries. However, the uncertainty surrounding the lawsuit outcomes may create challenges in financial planning, benefit planning, and resource allocation for all stakeholders; this uncertainty is compounded by the lack of public information surrounding the resolution to the Elevance call center data complaint, which may also have the potential to lead to additional changes in 2024 Star Ratings and 2025 revenue.

By understanding the implications of these rulings and proactively adapting to potential changes, stakeholders can position themselves for success in an evolving healthcare landscape. Collaboration, transparency, and a commitment to quality will continue to be essential for navigating the challenges and opportunities that lie ahead.

Limitations and data reliance

We primarily relied on information and data provided by CMS, including both publicly released membership data and projections for model impacts. We also relied on other information provided by additional sources, primarily relating to policy analysis. Throughout this analysis, Milliman relied on data and other information provided by publicly available data sources. The estimates included in this paper are not predictions of the future; they are estimates based on the assumptions and data analyzed at a point in time. If the underlying data or other listings are inaccurate or incomplete, then the results may also be inaccurate or incomplete. Milliman has not audited or verified this data and other information but has reviewed it for reasonableness.

This report is intended for informational purposes only. Milliman makes no representation or warranties regarding the contents of this report. Likewise, readers of this report are instructed that they are to place no reliance upon this report that would result in the creation of any duty or liability under any theory of law by Milliman or its employees to third parties.

We developed the Milliman Quality and Performance Analytics Suite to estimate the values included in this white paper. The intent of the models was to estimate the impact of the 2024 Star Rating methodology changes to contract-level Star Ratings. We have reviewed the models, including their inputs, calculations, and outputs, for consistency, reasonableness, and appropriateness to the intended purpose and in compliance with generally accepted actuarial practice and relevant actuarial standards of practice (ASOP). The models, including all input, calculations, and output, may not be appropriate for any other purpose.

The views expressed in this research paper are made by the authors and do not represent the opinions of Milliman, Inc. Other Milliman consultants may hold alternative views and reach different conclusions from those shown.

Qualifications

Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all actuarial communications. Hayley Rogers and Matthew Smith are members of the American Academy of Actuaries and meet the qualification standards for performing the analyses in this paper.

Acknowledgments

The authors would like to express their gratitude to Rob Pipich, FSA, MAAA, Principal and Consulting Actuary, Rob Bachler, FSA, MAAA, Principal and Consulting Actuary, and Andrew Naugle, Principal and Senior Healthcare Management Consultant for their invaluable peer review contributions during the preparation of this report.

¹The full text of the ruling, Case No. 1:23-cv-03910, is available athttps://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2023cv3910-33 (retrieved June 10, 2024).

²The full text of the ruling, Case No. 23-3902 (RDM), is available athttps://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2023cv3902-30 (retrieved June 11, 2024).

³Prescription drug plans (PDPs), dual demonstrations, National PACE, 1833 Cost, and 1876 Cost contracts are not included in these estimates because their CMS revenue is not directly affected by changes to their Star Ratings.

⁴CMS (2024). Low-Income Subsidy Enrollment by Plan. Retrieved June 10, 2024, fromhttps://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/mcradvpartdenroldata/lis/2024-low-income-subsidy-enrollment-plan.

⁵Scribd (2024). Elevance v. HHS. Retrieved June 10, 2024, fromhttps://www.scribd.com/document/696925680/Elevancev-hhs.

⁶U.S. Securities and Exchange Commission. (2024). Form 8-K for Elevance Health, Inc.. Retrieved fromhttps://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/0001156039/000119312524056688/d806565d8k.htm.

⁷Rogers, H. M., Smith, M., & Yurkovic, M. (October 6, 2023). The Future of Medicare Star Ratings: Reimagined CMS Bonus System. Milliman White Paper. Retrieved June 10, 2024, from https://www.milliman.com/en/insight/future-of-medicare-star-ratings-reimagined-cms-bonus-system.
Rogers, H. M., Smith, M., Nelson, P. & Yurkovic, M. (October 30, 2023). The Future is now: 2024 Star Ratings release. Milliman White Paper. Retrieved June 10, 2024, from https://www.milliman.com/en/insight/the-future-is-now-2024-star-ratings-release.
Rogers, H. M., Smith, M., & Yurkovic, M. (November 27, 2023). The next stage of Star Ratings evolution: 2025 proposed rule CMS. Milliman White Paper. Retrieved June 10, 2024, from https://www.milliman.com/en/insight/the-next-stage-of-star-ratings-evolution-2025-proposed-rule-cms.

⁸The full text of the Final Rule is available athttps://www.federalregister.gov/documents/2020/06/02/2020-11342/medicare-programcontract-year-2021-policy-and-technical-changes-to-the-medicare-advantage-program . See Table 12, Tukey Outlier CMS Cost Savings.

⁹42 CFR 423.186(a)(2)(i). Seehttps://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-423#423.186.

¹⁰U.S. District Court ruling, op cit.

¹¹Scribd (2024). Elevance v. HHS, op. cit.

¹²These scenarios include modeled impacts on the appeals measures given the SCAN ruling. Because the appeals measures incorporate non-public info (“scaled reductions”), we have only used the public information to estimate the potential impact of appeals measure adjustments. As a consequence, there may be some variation between our estimates and the actual impact of appeals measures adjustments. Additionally, as noted in the Assumptions, Methodology, and Validation section, these estimates also do not include the impact of changes to the improvement measures because they rely on non-public information.

¹³The current system rewards contracts that achieve high weighted average Star Ratings, with low variability among the individual measures, based on thresholds set by all contracts in the measurement period.

¹⁴Ip cit. CMS (2024). Low-Income Subsidy Enrollment by Plan.