CMS To Recalculate 2024 Medicare Star Ratings

CMS recalculating Star Ratings drives health plans to action.

On June 13, 2024, Centers for Medicare and Medicaid Services (CMS) issued a memo outlining a recalculation of the quality bonus payment (QBP) for Medicare Advantage plans due to recent court decisions. If the recalculation results in a decrease in QBP for a plan, it will be held harmless and not experience a decrease in reimbursement or payments. However, plans with increases in their Star Ratings – from 3 to 3.5 stars, 3.5 to 4 stars, or 4 to 4.5 stars – will have a short window to resubmit their contract year 2025 bids, including bid pricing tools (BPTs), plan benefit packages (PBPs), and formularies in an attempt to recoup payment. Revised bids must be submitted by June 28, 2024.

CMS is recalculating the Star Ratings because a US District Court judge had sided with SCAN Health Plan’s claim that the CMS improperly calculated its 2024 Star Ratings. The case centers on the ambiguity of calculation methodologies. Plans such as SCAN and Elevance, which had also filed a suit, interpreted these methodologies differently than CMS. The judge stated, “The Court agrees with SCAN that the only reasonable interpretation of the relevant regulations requires a different calculation.” It is critical for plans to take action quickly to avoid any unrealized payment opportunities.

An Overview of the Lawsuit

SCAN’s 2024 Star Ratings decreased from 4.5 to 3.5, costing the insurer $250 million in bonus payments. The cause of this drop is related to two calculation methodologies, explained in further detail below, that CMS implemented for 2024. Part of the ambiguity stems from language CMS removed from the original 2022 regulation in error. This language was then added back to the preamble in relation to one of the calculation methodology changes, the Tukey rule. SCAN contended that the preamble was not legally binding, and the court agreed.

The judge ruled that SCAN’s “unlawful” 3.5 rating for 2024 cannot be used in determining its eligibility for a quality bonus payment of $250 million. Additionally, SCAN’s Star Rating will revert to 4 Stars.

Recent Changes in CMS Star Ratings Calculations

The lawsuit by SCAN relates to two recent changes in the way CMS calculates Star Ratings. The first, named the Guardrail Rule, increases the strength of cut points. In April 2019, CMS implemented a 5% cap on how much cut points could change from year to year. This means the measure-threshold-specific cut points for non-CAHPS (Consumer Assessment of Healthcare Providers & Systems) measures do not increase or decrease more than the value of the cap from one year to the next. The rule is intended to increase the predictability of the score. CMS first implemented the Guardrail Rule in October 2022 in calculating the 2023 Star Ratings. The second calculation for 2024 Star Ratings to change is the Tukey rule. Within this methodology, CMS is required to remove extreme outliers before calculating cut points. In June 2020, CMS removed these outliers from the raw data before calculating the cut points. The Tukey Outlier Rule was first implemented in October 2023 for the 2024 Star Ratings.

The two changes complement each other. The Tukey Outlier Rule increases the stability and predictability of cut points by removing extremes, and the Guardrail Rule increases the strength of cut points by imposing a limit on their ability to change from year to year. The court found that because CMS implemented the Guardrail Rule before the Tukey Outlier Rule, the results were skewed. There tends to be more outliers on the lower end of the data sets than the higher end, stated the court. In a particular year, applying the Guardrail Rule first would tend to increase certain cut points more than the 5% limit in the Guardrail Rule. The Guardrail Rule would dampen the effect of the Tukey Outlier Rule if cut points calculated from data sets without outliers were tied to older cut points calculated from data sets with outliers. However, it might take years for the Tukey Outlier Rule to take full effect.

How New CMS Rules Impact Plans

To address this, CMS waived the application of the Guardrail Rule for one year. Instead of applying the Guardrail Rule to actual cut points from the previous year, it applied the Guardrail Rule to hypothetical cut points from the previous year, which it would calculate using the previous year’s data with Tukey outliers removed.

“The problem is CMS never amended its regulations to reflect that decision, at least not expressly,” the court said. Instead, CMS announced it in the Federal Register.

Between 2019 and 2023, SCAN – which offers plans in California, Arizona, Nevada, New Mexico, and Texas – had a star rating of 4.5, and received additional funding. In September 2023, after CMS informed SCAN that its 2024 Star Rating would drop to 3.5 stars, SCAN determined that part of the change could be attributed to CMS’s decision not to apply the guardrail to the previous year’s actual cut points. “Had CMS done so, SCAN would have received a higher rating on two measures and an overall Star Rating of 4 stars – a rating that would make the organization eligible for approximately $250 million in additional funding from the federal government,” the court said.

Implications for Star Ratings

In the recent memo, CMS is asking plans to submit their revised bids and any formulary changes by June 28, 2024. CMS will enable admissions through the Health Plan Management System (HPMS) on June 26, 2024. At PSG, we have experts who have built Stars programs within health plans. We keep a pulse on the Stars landscape and the solutions available to health plans from PBMs and point solutions. Reach out to speak with our experts about how we may assist with your plan’s Stars challenges.