The Centers for Medicare and Medicaid Services (CMS) uses a star rating system to evaluate the quality of health insurance plans. These ratings, ranging from one to five stars, significantly influence a plan’s advertising potential and the amount of money it receives from CMS. Blue Cross and Blue Shield of Massachusetts Inc., along with its subsidiary, Blue Cross and Blue Shield of Massachusetts HMO Blue, Inc. (collectively referred to as “Blue Cross”), challenged the 2025 ratings for two of its plans, claiming that two aspects of CMS’s rating process violated agency regulations. However, the court has sided with CMS, denying Blue Cross’s motion for summary judgment and granting the government’s cross-motion.
The Stakes: Why Star Ratings Matter
The Medicare program, established under Title XVIII of the Social Security Act, provides health insurance to the elderly and disabled. CMS, a part of the Department of Health and Human Services (HHS), manages this program. Medicare offers different coverage plans, including Part C, also known as the Medicare Advantage Program. In this program, insurance companies provide coverage that is an alternative to traditional Medicare. These companies, called Medicare Advantage Organizations, contract with CMS and agree to offer coverage at a lower price than CMS’s “benchmark” rate. The lower the bid, the more CMS pays the organization.
A crucial factor in this payment structure is the “Star Rating.” These ratings, ranging from one to five stars, directly impact the amount of money an Advantage Organization receives annually from CMS. Plans with higher ratings qualify for bonus payments and can propose higher bids when contracting with CMS. Star Ratings also affect plan enrollment, as potential beneficiaries use them to compare options. This system creates a strong incentive for plans to achieve high Star Ratings.
Breaking Down the Rating Process
The overall Star Rating for each plan is derived from several “measure-level” Star Ratings. These measure-level ratings assess specific features of a plan, such as patient outcomes, access to care, and provider processes. Data for these ratings comes from various sources, including CMS, Advantage Organizations, surveys, and contractors. A significant portion of the data comes from surveys like the Consumer Assessment of Healthcare Providers and Systems (Consumer Assessment).
The court case centers on two key steps in the process of converting raw survey data into Star Ratings:
* Case-mix adjustments: Before converting raw survey data into measure-level ratings, CMS sometimes adjusts the scores to account for the demographic characteristics of enrollees. This adjustment aims to prevent factors outside of a health insurer’s control from skewing the data.
* National average comparison: CMS compares a plan’s average survey score to the national average survey score for the same measure. The measure-level rating rises or falls based on how a plan’s score ranks compared to the national average.
The Legal Challenge: Blue Cross’s Arguments
Blue Cross argued that CMS’s Star Rating calculation process was unlawful and “arbitrary and capricious” under the Administrative Procedure Act (APA). Specifically, they challenged:
1. The use of case-mix adjustments: Blue Cross claimed that CMS circumvented HHS regulations by using case-mix adjustments, arguing that the Technical Notes detailed the adjustments, rather than the regulations themselves.
2. The calculation of the national average: Blue Cross contested CMS’s method of calculating the national average survey score, arguing that it deviated from the plain meaning of the regulations.
Blue Cross maintained that if CMS had not used these methods, their Star Ratings would have been half a point higher, resulting in a loss of at least $35 million.
The Court’s Decision: CMS Prevails
The court reviewed the agency’s actions under the APA, which requires courts to set aside agency actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The court’s role was to determine whether the agency’s actions were supported by the administrative record and consistent with the APA.
The court disagreed with Blue Cross on both points.
* Case-mix adjustments: The court found that CMS’s use of case-mix adjustments was permissible under the regulations. The court noted that the regulations specifically reference the use of Technical Notes and that the adjustments are described in the Technical Notes. The court found no conflict between the regulations and the use of case-mix adjustments. The court also cited that these adjustments were mentioned in other regulations, which assumed the use of case-mix adjustments.
* National average calculation: The court also sided with CMS on the calculation of the national average. CMS weights the contract scores based on enrollment numbers to calculate the national average. The court found that Blue Cross’s proposed method of simply averaging the scores without weighting was not aligned with the regulatory scheme. The court stated that CMS’s method of weighting accounts for the size of the plan, preventing results from skewed outcomes.
The court concluded that CMS acted reasonably and in accordance with the law, denying Blue Cross’s motion for summary judgment and granting CMS’s cross-motion.
Why This Matters
This case highlights the complexities of the Medicare Advantage program and the importance of Star Ratings for both insurance companies and beneficiaries. The ruling reaffirms CMS’s authority to implement its rating system and underscores the significant financial implications of these ratings. This decision provides clarity on how CMS can use case-mix adjustments and calculate national averages, which are both crucial elements in determining a plan’s quality score.