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Judge dismisses Humana's lawsuit for not exhausting

out-of-court

options

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CMS star ratings affect government reimbursement, bonuses

for

Medicare plans

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Humana's lawsuit challenged CMS star ratings for 2025

By Diana Novak Jones

July 18 (Reuters) - A federal judge in Texas on Friday

tossed a lawsuit brought by Humana that challenged the

U.S. government's reduction in the health insurer's star ratings

for government-backed Medicare plans.

U.S. District Judge Reed O'Connor in Fort Worth, Texas,

dismissed the lawsuit against the U.S. Department of Health and

Human Services after finding that Humana had failed to exhaust

all of its out-of-court options to challenge the ratings.

Humana had alleged in its complaint that the lower ratings

could cause it to lose customers and potentially billions in

bonus payments from the government, which would have been used

to reduce premiums and increase benefits for its members.

Shares of Humana were down about 3.4% lower in early

afternoon trading. Shares of other insurers, including

UnitedHealth ( UNH ) and Centene ( CNC ), were also down between

1.5% and 3.5%.

As of Friday, Humana had finished the administrative

appeals process and would explore all available legal options,

including either an appeal of the ruling or a refiling of the

lawsuit, a spokesperson for the company said in a statement.

A representative for HHS said the agency does not comment

on pending litigation.

Despite the negative share reaction, analysts said the

decision was widely expected. Mizuho analysts viewed the ruling

as priced into Humana's 2026 earnings estimates and in line with

the long-term growth forecast the company shared last month.

Humana is one of the largest providers of Medicare

Advantage plans in the U.S., which are funded by the Medicare

health insurance program for seniors and some disabled people

but administered by private insurers.

The U.S. Centers for Medicare and Medicaid Services, which

is part of HHS, issues star ratings for the plans, from one to

five stars, to help beneficiaries choose.

Plans with higher star ratings receive higher payments from the

government if they keep costs below certain targets. Those bonus

payments can be worth hundreds of millions or billions of

dollars.

Humana sued HHS in November, after CMS finalized and

released the 2025 star ratings. The lawsuit challenged the way

the ratings were calculated and asked for an order directing CMS

to set aside Humana's 2025 ratings and recalculate them.

As part of its ratings calculations, CMS uses test calls to

an insurer's customer service numbers to check compliance. In

its lawsuit, Humana claimed CMS improperly lowered the star

ratings for at least a dozen of its largest plans based on just

three such calls, two of which were disconnected because of

internet connectivity problems.

In dismissing the lawsuit, the judge in Texas said federal

law requires insurers like Humana to seek reconsideration of

their ratings through an administrative process at HHS before

filing a lawsuit. Humana had sued before that process was

complete, he said.

The judge dismissed the lawsuit without prejudice, meaning

the claims could be filed again.