What to expect from CMS recalculating Star Ratings

The Centers for Medicare & Medicaid Services (CMS) will re-calculate the 2024 Star Ratings due to recent court rulings on lawsuits from SCAN Health Plan and Elevance Health. The lawsuits alleged that Medicare Advantage plans were not given proper notifications of changes to the Tukey outlier statistical model for calculating cut points.

Cut points are the upper- and lower-level thresholds for each measure’s Star Rating and are recalculated every year. For the 2024 Star Ratings, published in October 2023, the Tukey outlier deletion methodology was applied for the first time, and many payers saw their Star Ratings drop. This statistical methodology removed outliers from data sets to determine each cut point at numbers that are closer to averages, rather than outliers skewing cut point determinations. The recent lawsuits aimed to challenge how the methodology was communicated to health plans.

Summary of the Star Ratings court rulings

SCAN Health Plan filed in December, arguing that CMS's Star Ratings calculations violated the Administrative Procedure Act by failing to follow its own rules, and also that the wording of the changes was unclear. CMS’s interpretation of the changes did not align with SCAN’s, which claimed to have studied the new regulations in-depth to prepare for the updates.

Elevance Health and other insurers took a similar route. The ruling in the SCAN trial and in the Elevance trial confirmed that the communication of the changes was unclear and that CMS did not follow its codified rules for determining Star Ratings. As a result of these rulings, CMS decided to adjust the ratings and issue additional quality bonus payments (QBP) to roughly 76 Medicare contracts. The extra payments are expected to amount to more than $1 billion.

Following the rulings, CMS is recalculating the 2024 Star Ratings using the published 2023 Star Ratings cut points to determine the guardrails. CMS is assigning all contracts the recalculated 2024 Star Ratings only if they result in higher QBP ratings than what was previously assigned (for example, moving from a 3 star to a 3.5, 3.5 to 4, or 4 to 4.5). If a recalculation causes a lower QBP rating, no change will be made. However, moving even a half of a star amounts to an estimated $417 per member per year, so some of these contracts can expect hundreds of millions in additional payments, not to mention additional supplemental benefit and marketing opportunities. It is not expected that the changes will decrease any plan’s bonus payments.

What can Medicare Advantage plans immediately expect from this ruling?

CMS will publicly update the 2024 Star Ratings for all contracts in the coming weeks. Plans that receive four stars or higher will receive a 5% quality bonus adjustment for the following year and have their benchmark increased. Bidding against a higher benchmark rate and higher rebate percentages give plans a competitive advantage with respect to benefit offerings and reduced premiums.

Plans should be able to view their updated 2025 QBP Ratings and Total Beneficiary Cost (TBC) data in the Health Plan Management System (HPMS) on the CMS website. CMS has also posted the revised cut points on its website.

Medicare plan bids will have to be tweaked and resubmitted to account for the new quality ratings. Affected plans will have a time-limited opportunity to resubmit their Contract Year 2025 bids, including bid pricing tools (BPTs), plan benefit packages (PBPs), and formularies, by June 28, 2024.

What are the effects of this ruling?

Many decisions were made based on the original 2024 Star Ratings that could now be called into question, which could be complex and nearly impossible to undo. For example, decisions related to expanding or reducing coverage areas, exiting a market, consolidating plans, or even strategizing plan terms such as supplemental benefit offerings and premium prices relative to competitors in the market.

Recalculating Star Ratings is set to cost CMS about $1 billion, adding additional pressure to existing budget constraints. CMS will need to carefully evaluate any potential cost savings initiatives to protect against mass consolidation and restrictions in market competitiveness. One potential option may be implementation of the hold harmless provision at the 5-star level. When originally proposed years ago, experts estimated a net savings of $2–$3.5 billion.

CMS has not yet taken a stance on whether to appeal the court rulings, but has further stated that its decision to recalculate 2024 Star Ratings has no bearing on its right to potentially appeal these rulings. As information unfolds and new proposals are introduced, plans should take every opportunity to carefully prepare comments to CMS.