Humana Falls After Losing Bid to Reverse Medicare Bonus Cuts

Mint

3 days ago

(Bloomberg) -- Humana Inc. shares fell after it lost a lawsuit seeking to reverse cuts to its Medicare bonus payments, a blow for the insurer that had hoped the court would restore billions in revenue.
A Texas judge ruled in favor of a government motion to dismiss the case, allowing a downgrade of Humana's Medicare quality ratings that's set to squeeze the company's profits in 2026. Humana shares dropped as much as 7.5% before paring losses.
The judge called Humana's federal court claim 'premature' because the company hadn't exhausted all the administrative procedures over the decision. The lawsuit was dismissed 'without prejudice,' which means Humana could file the court case again. 'Plaintiffs can seek review, just not until the end of the administrative appeal process,' the judge wrote.
In April, the insurer lost an administrative appeal with the Centers for Medicare and Medicare Services. In a court filing that month, the company argued that the administrative decision should invalidate one of the government's arguments for dismissing the suit.
US District Court Judge Reed O'Connor disagreed. While he acknowledged the administrative appeal was over, he wrote that 'when filed, this action was premature,' and the court could not rule on the merits. That decision could pave the way for the company to quickly challenge the ratings in a fresh lawsuit.
Humana will explore its legal options, including 'either an appeal of today's order or a refiling of the lawsuit,' a spokesperson said in an email. CMS didn't immediately respond to a request for comment.
Other insurer stocks fell Friday, with Elevance Health Inc. declining as much as 7.6%. Molina Healthcare Inc. shares fell as much as 5.6%. They'd already been under pressure due to challenges in government insurance programs from Medicare to Medicaid and the Affordable Care Act markets.
The decision is a defeat for the insurance giant in a high-stakes legal gambit to challenge unfavorable results on its Medicare quality scores. A win would have almost doubled Humana's 2026 profit, Barclays analysts wrote in April, to $27.74 a share.
Humana filed the lawsuit in October to challenge how the US Medicare program calculated the quality ratings, known as stars, for Humana's plans. The company suffered a surprise downgrade in its star ratings in October that sent shares plunging.
The ratings are meant to reflect how well Medicare health plans take care of patients and how they perform on customer service, like handling complaints and service calls.
High star ratings drive billions of dollars in Medicare bonus payments to private insurers. The program paid $11.8 billion in bonuses in 2024, including $2.5 billion to Humana, according to health research group KFF.
More than any large health insurer, Louisville, Kentucky-based Humana is focused on Medicare Advantage, the private version of the US health program for seniors. Profit in that business is heavily linked to performing well on annual quality ratings.
The company previously had about 94% of members in highly rated plans that pay bonuses, but that slipped to about 25% in the most recent assessment.
In its October lawsuit, Humana argued that the Centers for Medicare and Medicaid Services erred in how it calculated the company's star ratings, and asked the court to throw out the negative scores.
--With assistance from Steve Stroth.
(Adds company comment in sixth paragraph.)
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