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SCAN Health Plan Wins Lawsuit Against CMS

Another Star Ratings Challenge, Another Victory for Industry

Co-Contributor: Jennifer Beckett

SCAN Health Plan, a California-based nonprofit health organization that provides health insurance to Medicare beneficiaries succeeded in United States District Court after a federal judge agreed that the Centers for Medicare & Medicaid Services (CMS) improperly calculated its 2024 Star Ratings - a quality assessment that affects both federal funding Scan Health receives and how SCAN Health is viewed by consumers.


SCAN filed suit last December, after changes made by CMS to the Star Ratings calculation methodologies caused substantial and unanticipated impact to SCAN, adversely affecting their membership, benefits, internal operations, and reputation.


From a legal perspective, SCAN argued that CMS violated the Administrative Procedure Act (APA). Under the APA, the Court “shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”  Federal case law on the APA adds that “although it is within the power of an agency to amend or repeal its own regulations, an agency is not free to ignore or violate its regulations while they remain in effect.” and accordingly, “an agency action may be set aside as arbitrary and capricious if the agency fails to comply with its own regulations” in taking that action.


Interestingly, SCAN did not challenge CMS’s statutory authority to remove Tukey outliers, nor to apply the Guardrail Rule to hypothetical cut points for one year, nor to change or eliminate the guardrail altogether. Rather, SCAN focused on whether the agency’s current regulations permit it to apply the guardrail to a prior year’s recalculated hypothetical cut points instead of actual cut points.


The Tukey outlier methodology was critical to SCAN Health’s arguments against the Star Ratings changes, directly analogous to the nearly identical and successful Elevance lawsuit earlier this year. This methodology and its application for the 2024 Star Ratings were not definitively finalized until the April 2023 Final Rule.  Although the Tukey methodology was initially finalized in the June 2020 Final Rule, with implementation delayed until the 2024 Star Ratings due to the COVID public health emergency, there was no mention of the Tukey methodology within the Part C and Part D Quality Rating System sections in the May 2022 Final Rule.  Consequently, the references to removing Tukey outliers’ removal were struck from the Federal Register (42 CFR 422.166) at that time.  It was not until the December 2022 Proposed Rule (CMS 4201-P) that CMS affirmatively acknowledged that the May 2022 Final Rule had a “codification error” that “inadvertently removed [Tukey] from the codified regulation text,” an oversight on the part of CMS that had a direct impact on MAOs.


In the Elevance suit, they claimed CMS should have reset the regulatory process for the Tukey changes once the verbiage was removed from rulemaking in 2022. They also successfully argued that using the Tukey outlier deletion in its calculation before factoring in key guardrails led to major declines.


While Elevance’s ultimate Star Ratings adjustment after their suit brought back 190 million in revenue, SCAN Health can now expect approximately 250 million.


As Rebellis Group monitors these Star Ratings lawsuits, we also continue to help Medicare Advantage Organizations impacted by these Star Ratings challenges navigate a path forward with CMS to reconsider their ratings and recoup potential missed bonus payments.



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