Background
HMO Louisiana, Inc. (HMOLA) participates in the Medicare Advantage program and serves approximately 30,000 beneficiaries in Louisiana. In 2024, HMOLA consolidated two of its Medicare Advantage contracts effective January 1, 2024. The “consumed” contract (which would no longer exist) had offered a Special Needs Plan (SNP) and received a measure C05 score (SNP Care Management quality rating) of 3 stars in 2023. The “surviving” contract (which continued) did not offer an SNP and therefore had no C05 score for that year.
When the Centers for Medicare and Medicaid Services (CMS) initially calculated the consolidated contract’s 2025 star rating in September 2024, it excluded the consumed contract’s C05 data, treating the consumed contract as “terminated.” This yielded a 3.5-star overall rating. HMOLA objected, arguing the regulations required including the consumed contract’s C05 score. CMS agreed and recalculated using the enrollment-weighted mean of both contracts’ C05 scores. However, the recalculated rating remained 3.5 stars—unchanged from the original.
Disappointed with this result, HMOLA sued the Department of Health and Human Services under the Administrative Procedure Act, reversing its earlier position by arguing that CMS erred in including the consumed contract’s C05 data and that the original methodology (excluding it) was correct.
The Court’s Holding
The D.C. Circuit affirmed summary judgment for CMS on all counts. The court held that CMS’s methodology was consistent with applicable regulations and technical guidance. The governing regulation provides that during the first two years following consolidation, a consolidated contract’s star rating must be calculated as “the enrollment-weighted mean of the measure scores of the surviving and consumed contract(s).” Because the new consolidated contract offered an SNP, the consumed contract’s C05 data was properly included in that weighted calculation.
The court rejected HMOLA’s argument that the consumed contract should be treated as “terminated” (triggering data exclusion rules). The regulations distinguish between “consolidation” and “termination”—consolidation occurs when multiple contracts merge into one, while termination refers only to specified circumstances such as mutual consent, agency action due to contract violations, or organizational failure to perform. Consolidation is not a form of termination, and therefore the exclusion rules for terminated contracts do not apply to consumed contracts.
On HMOLA’s claim that CMS failed to explain a policy change, the court held that no policy change occurred. CMS explained that it had never before encountered the specific scenario of a consolidation involving one contract with an SNP and one without. Accordingly, the recalculation did not depart from a settled practice or prior policy position, and detailed reasoned explanation under the Administrative Procedure Act’s change-in-position doctrine was not required.
Key Takeaways
- Consolidated Medicare Advantage contracts’ star ratings must incorporate pre-consolidation data from all constituent contracts under the enrollment-weighted mean methodology for the first two years after consolidation.
- The regulatory definitions of “consolidation” and “termination” are distinct; consolidation does not trigger the data exclusion rules that apply when a contract is terminated.
- An insurer’s own prior advocacy for an interpretation during preliminary administrative review undermines later claims of reliance interests or surprise when that interpretation is adopted.
- Courts will enforce the plain language of agency regulations even when a party’s litigation position contradicts its earlier administrative requests.
Why It Matters
Star ratings for Medicare Advantage plans directly affect financial incentives: higher-rated plans receive larger rebate payments from CMS. This decision clarifies how CMS must calculate those ratings when plans undergo consolidation—a transaction type that occurs periodically as insurers restructure their contract portfolios. The court’s enforcement of the plain regulatory text establishes that insurers cannot exploit preliminary administrative review processes to secure favorable methodologies and then challenge those same methodologies in litigation.
The opinion also reinforces the regulatory distinction between consolidation and termination, preventing insurers from deploying termination-related exclusion rules as a backdoor mechanism to improve their star ratings. For administrators and advisors handling Medicare Advantage consolidations, the decision confirms that pre-consolidation performance data will be included in post-consolidation ratings—a material consideration in transaction valuation and planning.