Dive Brief:

• The CMS is recalculating 2026 Medicare Advantage stars for insurers after the agency lost a court case over its methodology.
• Only plans that see their stars increase will have their ratings updated and be able to resubmit bids for next year, regulators said in a memo to plans Wednesday. It could be a major boon for insurers, given the stars are linked to lucrative bonuses and competitive advantages in the privatized Medicare program.
• Still, the recalculation basically results in no change in average star ratings for other insurers besides Clover Health, which brought the lawsuit against the CMS, according to TD Cowen analysts. Some insurers may choose to sue over the approach.

Dive Insight:

Clover Health, an insurer and physician enablement company that offers MA plans in several states, sued the CMS in November after its largest plan’s star rating slipped from 4 stars to 3.5 stars. That drop cost Clover about $120 million in bonus payments, the company said.

And it was based on an illegal choice by federal regulators to include improper measures in the ratings’ calculation — including 10 measures based on data they didn’t have the authority to collect, and 10 measures they included without going through the proper rulemaking channels, according to Clover’s suit.

In late May, a Georgia federal judge agreed with Clover and ordered the CMS to recalculate the insurer’s 3.5 star rating without the disputed measures.

The ruling only applied to Clover. However, experts said the decision could have broad implications for the MA star ratings program writ large, given it destabilized the methodology underpinning star ratings. More insurers unhappy with their ratings could choose to sue, or the CMS could decide to proactively recalculate everyone’s scores.

Regulators elected to go the latter route.

“In light of a recent court decision, CMS is voluntarily recalculating the 2027 Quality Bonus Payment (QBP) ratings for certain Medicare Advantage (MA) contracts,” the agency wrote in its Wednesday memo.

However, the CMS could still be open to legal challenges over how it elected to recalculate the ratings.

For Clover, the CMS reran the company’s contracts without all 20 of the challenged measures. But for all other plans, it appears that the agency only removed measures that the judge ruled CMS didn’t have the authority to collect, along with other measures not included in Clover’s suit but that could be related.

In the memo, regulators said they were recalculating ratings only using data they had explicit permission to pull under the law. The CMS also removed additional measures like complaints against the health plan, members choosing to leave the plan and whether a plan makes a foreign interpreter available for customer service.

“It appears that CMS is essentially conceding on the data source argument and removing those challenged measures as well unchallenged measures that could be vulnerable to a data source argument in a future lawsuit,” TD Cowen analyst Molly Turco wrote in a note Thursday morning.

However, the retention of measures that Clover argued the CMS didn’t solidify in proper rulemaking “seems to signal that CMS wants to fight on that issue,” Turco added.

It’s an unfavorable development for MA insurers, many of which would have seen a bump in their scores if the CMS had extrapolated the Georgia judge’s decision to the entire industry.

If the Clover criteria were used, UnitedHealthcare’s average scores would have moved from 4.11 to 4.27, benefiting the company to the tune of $500 million, according to previous estimates from TD Cowen. Similarly, Elevance’s scores would have moved from 3.9 to 3.92, a $25 million benefit.

Still, the CMS’ decision could open up a new legal avenue for insurers upset about their scores, whether they elect to sue the CMS quickly or wait until they see their 2027 stars, which will be issued in October.

Insurers have not been shy about contesting their stars, especially as MA profits have fallen over the past few years from the confluence of seniors utilizing more care, that care getting more expensive and regulators cracking down on overpayments.

It’s the third year that the CMS has been forced to recalculate payments for all or select insurers following successful legal challenges.

However, the latest recalculation doesn’t amount to the CMS throwing in the towel on the Clover litigation, regulators said. The agency has moved for the court to reconsider, and could appeal if the judge denies its request.

“CMS’s decision to recalculate 2027 Quality Bonus Payment ratings as described herein has no bearing on CMS’s potential exercise of its right to appeal this decision,” regulators wrote in the memo.

Insurers jockey aggressively for higher stars, which are tied directly to lucrative bonuses and competitive advantages in the MA program. It’s particularly important to payers that their MA contracts reach the 4-star cutoff, given that translates to higher bonus payments. Higher scores also result in larger rebates if plans submit bids below the CMS’ benchmark for the coming year.

Watchdogs have become increasingly concerned about the star ratings program, especially in light of research that the program doesn’t lead to any improvements in plan quality and could be contributing to snowballing taxpayer spending on MA.

CMS paid out at least $12.7 billion in bonuses last year, according to estimates from the health policy research group KFF.