By Editorial Staff
Published July 13, 2026
The Medicare Advantage (MA) landscape is currently undergoing a period of unprecedented legal turbulence. As the federal government faces a wave of litigation from some of the nation’s largest health insurance providers, the fundamental mechanism for measuring plan quality—the CMS Star Ratings system—has been thrust into the spotlight.
Following a series of high-stakes court rulings, SCAN Health Plan and Alignment Healthcare have joined the growing ranks of insurers suing the Centers for Medicare & Medicaid Services (CMS). The core of the dispute lies in how the agency calculates quality performance, a metric that directly dictates billions of dollars in annual federal reimbursements. With insurers alleging hundreds of millions of dollars in lost revenue, the judiciary is now being asked to decide whether the CMS acted arbitrarily in its recent attempts to adjust its methodology.
The Genesis of the Conflict: The Clover Health Precedent
The current legal firestorm traces its roots back to a pivotal court decision involving Clover Health. Earlier this year, Clover challenged the CMS, arguing that the methodology used to calculate its 2026 Star Ratings was fundamentally flawed. Specifically, Clover contended that the inclusion of 20 distinct quality measures was improper and lacked the requisite regulatory rigor.
A federal judge agreed with Clover’s assessment, ordering the CMS to recalculate the company’s scores while excluding those 20 disputed measures. While the ruling was a major victory for Clover, it created a cascading effect for the rest of the industry. Following the court’s order, the CMS initiated a broader recalculation of MA star ratings in June. However, the agency’s execution of this mandate—specifically, its decision to drop only 10 of the 20 contested measures for other insurers—has triggered a secondary wave of litigation.
Insurers argue that if the 20 measures were deemed inappropriate for one carrier, they are inherently inappropriate for all. By selectively applying the methodology, the CMS has effectively created a "winners and losers" scenario, prompting a surge of lawsuits from providers who feel they have been systematically disadvantaged.
Chronology of a Legal Tsunami
The timeline of this regulatory and legal clash highlights the increasing friction between private payers and federal overseers:
- Early 2026: A federal district court rules in favor of Clover Health, determining that the CMS improperly included 20 measures in the insurer’s 2026 Star Rating calculation.
- June 2026: In response to the court’s order, the CMS begins a recalibration of Star Ratings across the industry. The agency opts to remove only 10 of the 20 previously contested measures for the broader market.
- Early July 2026: Elevance Health files a lawsuit against the CMS, alleging that the agency’s partial recalculation unfairly cost the company $115 million in projected quality bonus payments.
- July 7, 2026: SCAN Health Plan files a formal complaint in the D.C. District Court, claiming the CMS’s refusal to fully apply the Clover methodology caused the plan a $125 million shortfall.
- July 10, 2026: Alignment Healthcare follows suit, filing its own complaint and asserting that the CMS’s actions deprived the company of $50 million in expected revenue.
Both SCAN and Alignment are represented by the prestigious law firm Latham & Watkins, signaling a coordinated legal strategy to hold the CMS accountable for what they term a violation of the Administrative Procedure Act (APA).
Financial Stakes and Supporting Data
For the average observer, the term "Star Ratings" may sound like a secondary administrative metric. However, for insurers, these ratings are the lifeblood of their financial stability. The ratings—which range from 1 to 5 stars—act as a proxy for the quality and efficiency of care provided to Medicare beneficiaries.
The Mathematics of Quality
A plan’s star rating is not merely a badge of honor; it is a financial lever. High-performing plans receive quality bonus payments, which can be reinvested into benefits, lower premiums, or expanded networks. Because the difference of even a half-star can represent a shift in hundreds of millions of dollars in reimbursement, the stakes are existential.
Reported Financial Impact
The current litigation highlights a significant gap between the revenue insurers expected and what they received following the CMS recalibration:
- SCAN Health Plan: Claims a loss of $125 million.
- Elevance Health: Reports a deficit of $115 million.
- Alignment Healthcare: Estimates a $50 million shortfall.
These figures illustrate the high sensitivity of the MA business model to regulatory adjustments. When the CMS alters the "rules of the game" mid-cycle, the ripple effects are felt instantly on the balance sheets of publicly traded and non-profit health plans alike.
Official Responses and Regulatory Justification
The CMS has remained largely tight-lipped regarding the specific legal strategies of the ongoing litigation, citing the active nature of the cases. However, the agency’s position, as outlined in its previous filings and communications, suggests that it believes it maintains the authority to manage the Star Ratings program in a way that balances individual plan concerns with broader, systemic objectives.
Regulators have historically defended their methodology as a necessary evolution to ensure that the MA program reflects current health outcomes. By keeping some of the contested measures in place for the majority of the industry, the CMS may be attempting to preserve the integrity of the data it deems essential for longitudinal quality tracking.
Critics, however, suggest that the CMS is struggling to manage a program that has become too cumbersome and fragmented to maintain. In the filings brought forth by SCAN and Alignment, the insurers argue that the agency’s refusal to re-evaluate their scores, despite the clear legal precedent set by the Clover case, constitutes an "arbitrary and capricious" decision, a standard phrase used in APA challenges to overturn government actions.
Broader Implications: Is the System Broken?
The lawsuits are not occurring in a vacuum. They are part of a growing chorus of voices, including the Medicare Payment Advisory Commission (MedPAC), which has long questioned the efficacy of the Star Ratings program.
The MedPAC Perspective
MedPAC, the independent agency that advises Congress on Medicare policy, has been vocal about the systemic issues within MA. Their critiques are multi-faceted:
- Complexity: The current system is so complex that it is difficult for beneficiaries to discern real quality differences between plans.
- Lack of Impact: There is limited evidence that the Star Ratings system actually drives better patient health outcomes.
- Overpayment Risk: Experts argue that the bonus structure often results in overpayments to insurers, providing a financial incentive to "game" the system rather than improve the delivery of care.
A System "Off the Rails"
In a scathing assessment included in their recent court filings, SCAN Health Plan explicitly stated, "The Star Ratings program went off the rails years ago. The system is undeniably broken." This sentiment is echoed by industry analysts who worry that the constant litigation will further erode trust in the Medicare Advantage program.
If the courts continue to rule against the CMS, the agency may be forced into an emergency, industry-wide overhaul of how it measures quality. This could result in a massive restructuring of the bonus payment system, which would likely lead to a significant tightening of the fiscal environment for insurers.
Future Outlook
As these cases wind through the D.C. district court, the healthcare industry remains on high alert. The outcome will likely determine the financial trajectory for many MA plans heading into the 2027 fiscal year.
If the judges side with the insurers, the CMS will be forced to recalculate scores for potentially dozens of other providers, leading to a massive redistribution of federal funds. If the judges side with the CMS, the agency will be emboldened to maintain its current methodology, though it may face increased pressure from Congress to pursue a legislative fix to the "broken" system described by the plaintiffs.
Ultimately, this conflict represents a fundamental clash between the flexibility of federal regulators and the predictability required by private entities operating within a federal program. As the legal filings pile up, one thing is clear: the current framework of the Medicare Advantage Star Ratings program is reaching a breaking point, and the resolution of these lawsuits may be the catalyst for the most significant transformation of the program in a decade.
For patients and taxpayers, the outcome remains vital. While the immediate battle is over dollars and cents, the long-term goal must be a system that prioritizes, measures, and rewards the actual health and well-being of the millions of seniors who rely on Medicare Advantage for their care.
