The US Medicare program uses a five-star rating system intended to steer older Americans into plans that do a better job improving their health. Now Elevance Health Inc. is arguing that regulators used flawed methods to determine crucial ratings that send billions of public dollars each year to insurers operating private Medicare Advantage health plans for seniors. It said the US put too much weight on a single “secret shopper” call intended to test insurers’ customer service.

Elevance, which reports earnings Wednesday, is trying to grow its 2 million-member Medicare Advantage business to catch up with rivals like UnitedHealth Group Inc. and CVS Health Corp. Elevance’s star ratings dropped sharply in October and will be visible to consumers for the 2024 plan year. While the lawsuit revolves around $190 million in bonus payments, the company has said the ultimate impact of the lower rating will mean a $500 million reduction in revenue for 2025. The company expects to blunt the impact on profits.

Elevance says Centers for Medicare and Medicaid Services (CMS) penalized the insurer for a single call on March 23, 2023, placed through the federal 711 text telephone system, that the company’s call center never actually received. The government wrongly determined that Elevance “missed a single call, despite Defendants’ own evidence that the call never even connected to Plaintiffs’ phone lines through no fault of Plaintiffs,” the company said in the lawsuit. That missed call tipped the Elevance’s quality scores below a level that earns bonus payments, according to the lawsuit.

Star ratings matter so much because health insurers increasingly rely on government programs like Medicare for growth and profits. That makes their businesses more exposed to the whims of policy — and they’re quick to use the courts to fight back when the rules don’t go their way.

A reduction in a company’s star ratings can have a dramatic effect: An unexpected miss on star ratings tanked CVS Health Corp.’s stock in 2022, for example. CVS recovered its ratings the next year.

The agencies Elevance is suing, the Department of Health and Human Services and CMS, declined to comment, citing pending litigation. Elevance also declined to comment.

Single Call

CMS assigns the star ratings to private Medicare plans based on a complex set of measures. They include how often patients get preventive cancer screenings and how many complaints members make about the plan. The overall rating on a five-star scale is displayed to seniors shopping for plans. Plans with at least four stars get bonus payments that totaled almost $13 billion last year, according to data from health research group KFF.

Outside experts have criticized the policy for paying insurers without doing much to help patients evaluate plans. The quality bonus program “is not achieving its intended purposes and is costly to Medicare,” the Medicare Payment Advisory Commission, a nonpartisan group that counsels Congress, wrote in a report last year.

The group has long called for overhauling the private Medicare Advantage program because, it says, the government pays 6% more to cover people through the private plans than the traditional program. The US paid Medicare Advantage plans $403 billion in 2022.

Still, insurers are fighting to protect their revenue. Elevance, in its lawsuit filed in federal court in Washington D.C., called the government’s process to determine star ratings “arbitrary and capricious” and asked the court to throw out the result. Medicare used “secret shopper” calls to rate how well insurance companies handle callers who need interpreters or assistance calling through text telephone systems often used by people with hearing or speech impairments.

Elevance isn’t the only insurer taking issue with CMS’s approach. The nonprofit SCAN Health Plan, based in Long Beach, California, filed suit the same day alleging that a secret shopper caller attempting to test the company’s French language interpretation used “objectively vague and ambiguous language that confused the translator” and caused a delay in the company’s response time.

The extra time needed to handle the call led to a cut in SCAN’s star ratings that cost the plan hundreds of millions of dollars, according to the company’s lawsuit. A representative from SCAN declined to comment.

Both lawsuits characterize CMS’s approach as too rigid and say the agency disregarded its own policy on “guardrails” intended to insulate plans from big swings in the metrics needed to earn good ratings.