On August 18, 2025, the United States District Court for the Northern District of Texas denied Plaintiff Elevance Health’s (“Elevance”) motion for summary judgment against HHS and CMS. Elevance’s lawsuit alleges that HHS and CMS rated five of Elevance’s Medicare Advantage contracts based on calculations that were “arbitrary and capricious and contrary to law,” and ultimately in violation of the Administrative Procedure Act (“APA”).
CMS gives a “Star Rating” to every contract it has with a Medicare Advantage Organization (“MAO”), and MAOs receive funding in the form of a rebate from CMS based on the strength of those ratings. The rating system is based on “measurements related to quality of coverage, ease of access, beneficiary experience, and other aspects,” and is set to half-star increments. CMS gathers data for these measurements based on surveys from the Consumer Assessment of Healthcare Providers and Systems (“CAHPS”) and other medical record review data collected in the Healthcare Effectiveness Data and Information Set (“HEDIS” or “non-CAHPS” measures).
Elevance is an MAO. When CMS released the 2025 Star Ratings, five of Elevance’s contracts were rated either 3, 3.5, or 4 stars. At a high level, Elevance had two main arguments: (1) that CMS did not follow statutory and regulatory authority when it adjusted CAHPS scores using “case-mix adjustments”, and (2) that CMS did not follow “traditional rounding rules correctly” when it rounded Elevance’s scores to the sixth decimal place, thereby causing one of its contracts to receive 3.5 stars instead of 4 stars (contract H3655).” As the district court explained, “[c]ase-mix adjustment is the process whereby CMS adjusts a certain CAHPS measure score before converting it to a measure-level rating.” These adjustments take into consideration age, education, medical conditions, and health status. In support of Elevance’s first argument, it provided expert testimony concluding that if CMS had not made case-mix adjustments to CAHPS measures, “two of Elevance’s contracts . . . would have received a score one half-star higher.” Yet the court found that the regulations at issue referred to case-mix adjustments as if they are ongoing, although the regulations do not expressly authorize them, and therefore CMS acted within its authority when applying case-mix adjustments to CAHPS scores for 2025.
Elevance also argued that CMS “penalized” their contracts “by using a national weighted average” for relative distribution and significance testing (“RDS Testing”), which involves a set of conditions for assigning 1 star. Under this formula, CMS gives greater weight to contracts with more enrollees. Elevance argued that this application violated CMS’s regulations, but the court ruled that based on the plain language of the statute, CMS applied the regulation correctly and that “[t]he regulation directs CMS to compare a contract’s ‘average CAHPS measure score’ to ‘the national average CAHPS measure score.’”
Regarding Elevance’s rounding argument, the court found that Elevance misapplied the rounding rules. The court emphasized that the “regulations require CMS to round a contract’s score not to the nearest whole number, but to the nearest half.” As an example, Elevance claimed that one of its contracts should have received a score of 4 stars based off its raw score of 3.749565. The court disagreed, explaining how Elevance’s interpretation would require rounding twice, first to 3.75 and then to 4, which is not what the regulation requires. Instead, the court emphasized how the rounding rule only requires rounding based off the first decimal. The court concluded that “[i]n the Star Rating system, it is virtually guaranteed that there will be contracts that fall a hair’s breadth short of the next highest rating” and that while “Elevance would have preferred for those contracts to reach the next half-star tier. . . the fact that they fell short does not give rise to a claim for relief under federal law.”
The order is available here.
