Why Clover v. HHS Matters Even If You're Not in Stars

On May 27, a federal judge in Georgia threw out 20 Medicare Advantage Star Ratings measures from Clover Health's 2026 rating and ordered CMS to recalculate. The order is narrow. The reasoning is not. 

In this first episode of the Upward Growth Podcast, Ryan Peterson breaks down why Clover v. HHS is structurally different from every prior Star Ratings lawsuit, why your buyer at the plan got harder to close overnight, and where you actually sit in the fallout depending on where you operate in the market. 

What you'll hear: 

- The single-sentence way to explain why this case is different from prior Star Ratings litigation 

- What changed about who weighs in on Stars decisions at health plans 

- A three-zone exposure framework for figuring out where you sit in the fallout 

- The Loper Bright throughline and what it signals about the broader regulatory environment 

- Predictions on appellate timeline and likely outcome 

Read the full analysis in the Upward Growth newsletter: Clover v. HHS Is Not Just Another Star Ratings Lawsuit

About Upward Growth: Upward Growth is a health plan market advisory firm. We work with health tech vendors, investors, provider organizations, and management consultancies on how health plans actually buy, operate, and make decisions. 

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Connect with Ryan on LinkedIn: https://www.linkedin.com/in/ryan-peterson-1a20866/

Learn more about Upward Growth: https://www.upwardgrowth.com

Transcript

SPEAKER_00 0:33

A little housekeeping before we jump in. This is episode one, and I appreciate you being here. Quick context on why this show exists. A lot of readers have asked me to put the upward growth newsletter in audio form. The gym goers, the dog walkers, the people who don't have time to sit and read on a Tuesday morning. And I had resisted for a while because the last thing the world needs is another podcast. So the bar I set for myself is that if I'm going to spend the time, this show needs to add something. Most weeks that means me pulling out the parts of analysis that I think hit harder in audio form than they might on the page, plus whatever I've added to my thinking since the article ran. Some weeks that might mean a conversation with someone whose work I follow closely, where we get into a topic together and you get two perspectives instead of one. So today's episode pairs with the Clover Health VHHS piece I published Tuesday, June 9th. The full written version is on Substack, and you can read it and subscribe there at upwardgrowth.substack.com, and that's the best way to stay current. All right, let's get into it. Last month a federal judge in Georgia threw 20 Medicare Advantage Star Ratings measures out of one health plan's rating calculation. The order only touches Clover, but the reasoning touches the entire program. So the case is Clover Health Investments versus the Department of Health and Human Services. Clover sued CMS over its star rating, and they won. The ruling came down May 27, 2026. Judge Lisa Godby Wood of the Southern District of Georgia set aside Clover's star rating and ordered CMS to recalculate it. By Clover's own accounting, the dollars in play are roughly $120 million in quality bonus and related payments for a single plan year for one plan. The court found CMS lacked statutory authority to use 10 of the measures at all, and it found CMS skip the rulemaking process required to change the specifications on the other 10. CMS has 60 days from the ruling to file a notice of appeal. The agency will almost certainly do so. The Eleventh Circuit will rule sometime in the next 12 to 24 months. There are caveats and we'll get to them, but the headline here is that these numbers are real and the reasoning actually has some room to run. And the story continues to move this week as Clover filed an 8K with the SEC disclosing that CMS has already complied with the court order. CMS recalculated Clover's 2026 PPO star rating from 3.5 all the way up to 4.5 stars, and that's actually higher than the four stars they had before the dispute because removing the contested measures actually improved their composite. Well, the stock hit a record high on the news, and so if you're wondering whether the practical effects of this ruling were going to be real or hypothetical, you have your answer. CMS complied, and the money is already moving. So you've probably seen these headlines, you may have seen some of the coverage, but here's what the headlines may have missed. Every prior star ratings lawsuit asked whether CMS did the math right. Clover asked whether CMS was ever allowed to use the inputs in the first place. That's the line. If you take one thing away from this episode, that's it. And so think about the cases that came before. Scan sued over cut points and guardrails, United sued over a single secret shop or phone call. Senteen sued and ended up with a $200 million recalculation, alignment sued over the Tukey Outlier rule, Humana lost in Texas and is on appeal, and multiple blues plans, Massachusetts, Florida, Louisiana, and even CareFirst, the latest of them, alleging roughly $32 million in lost bonus payments tied to its 2026 rating. If you scan those overall, you saw plan sue CMS over stars. And you know, you kind of keep scrolling. And that's a reasonable read because every one of these cases asked the same question. Did CMS apply its own methodology in the right order? Did the cut points run correctly? Did the secret shopper call get counted fairly? Did the guardrail caps work the way the rules said they would? When the plans won, the remedy was always the same. Recalculate this one plan's rating for this one year using the right math, and the measures stayed in place. Clover did not ask whether CMS did the math right. Clover asked whether CMS was ever allowed to use the inputs. And so two arguments here. The first one is statutory authority. The Medicare Act names three approved data sources for STARS HEDUS, Haas, and Caps. That's the pipeline Congress wrote into the statute. Clover argued, and the court agreed, that ten of its measures were pulled from outside of that pipeline. Part D prescription drug event data that CMS collects for payment reconciliation, not for quality, call center monitoring data CMS gathers itself, and independent review entity data on appeals. And the court said none of those belong in the rating. The second argument is about process. CMS changes measure specifications every year through what are called technical notes and other subregulatory guidance. The Medicare Act requires formal notice and comment rulemaking whenever CMS sets or changes a substantive legal standard governing payment for services. Star ratings drive quality bonus payments. Quality bonus payments are payments for services. So the specifications themselves, the court found, are substantive legal standards. They require rulemaking, and CMS never did it. Here's why the second one is the bigger story. The statutory finding could in theory be cured by Congress amending the Medicare Act to authorize the data sources CMS has been using. The procedural finding cannot be cured that way. It can only be cured by CMS actually running its specifications through public rulemaking. And that touches almost every measure in the program because almost every measure has been adjusted through technical notes at some point. The judge ordered a narrow recalculation for one plan for one year. But now any plan whose rating turns on PDE data, IRE data, monitoring data, or specifications that move through technical notes can now make the same argument and point at the same court's opinion. Let me step back from the court case for a minute because the court case is going to take months or years to resolve. I am not a lawyer, I'm not going to pretend to be one on this show. What I do as a health plan market advisor is help vendors and investors understand how plans actually buy and make decisions. So let's talk about what this ruling is already doing to that buying motion, regardless of how the appeal eventually goes. For most of the last decade, if you were selling something that touched stars, your champion was a SARS or quality improvement executive. That person owned the relationship, they ran the internal business case, they often walked the contract through procurement, legal, finance, compliance, etc., and got all of that sign off to bring it forward. But the decision authority pretty much sat with your champion. And that's really no longer the case. And it hasn't been for the while. If you sell to health plans, you've noticed that your champion has been pulling cross-functional support into the room for about the last 18 months, and Clover is definitely compounding that. Here's what I'm hearing from the industry conversations I've had over the last two weeks. Predominantly two kinds of calls are coming in. One from vendor executives asking me to help them figure out their own exposure, and the other from health plan executives who are sitting in cross-functional work groups trying to map their vendor response. The vendor calls usually start with the same problem. Their champion at the plan has called asking what the vendor is doing about the ruling, and the vendor doesn't have a great answer ready. And we'll dive into that in a moment. The health plan executives sound different. The fire they're dealing with right now is not new procurement. It's the vendor contracts already on the books. Payment at risk terms, shared savings triggers, performance commitments, all written against specific star rating measures. And if some of those measures no longer count, or the numbers move when CMS recalculates, the underlying math on those contracts changes. That's the exposure exercise running inside plans right now. The STARS team's running scenarios with the CFO, actuarials, and general counsel on those contracts. And here's the broader pattern. The CFO filter at health plans has been getting tighter for a year and a half. That elephant health $935 million risk adjustment accrual in May was one signal. The OIG's first MA-specific compliance guidance in 26 years was another. Prior auth transparency rules that went into effect on March 31st, which meant that every plan in the country had to publicly post its denial rates and turnaround times on their websites. And of course the CY 2027 final rule that landed in April with the largest SARS overhaul in a decade. And so even though we're talking about Medicare Advantage, the one big beautiful bill act cut nearly a trillion dollars from Medicaid, and most plans run Medicaid alongside MA. So these compliance and finance teams have been weighing in on procurement decisions for well over the last 18 months. So here's what to do with all of this. If you're a vendor, your existing champion needs help briefing upwards to an executive audience that thinks in legal risk and financial exposure rather than measure performance. They need numbers, scenarios, language that holds up in that CFO conversation. If you're an investor, consider modeling a two to four quarter procurement freeze as your base case for portfolio companies with STARS exposed revenue. And if you're a consultant, your plan clients are sitting in cross-functional working groups right now, and not every plan is set up to run that exercise well in-house. Alright, now the framework. I laid this out in a visual diagram in this week's Substack newsletter. So if you want to follow along visually, you can find that at upwardgrowth.substack.com. There are three zones of exposure, and the most useful exercise to run this week, whether you sell the plans, invest in companies that do, or advise either side, is figuring out which zone you sit in. Zone one is direct exposure. Your value proposition is tied to one of the 20 measures Clover challenged, or to the specification machinery the court flagged. Medication adherence vendors on the Part D side, statin use in persons with diabetes, call center quality vendors, including foreign language and TTY availability, appeals times, care for older adults, several of the caps-driven Part D consumer measures. Your buyer's question in the next conversation is not whether you think the measure will survive. I mean you simply don't know that. The question is whether your value holds if the measure changes or disappears. Walk in with three answers ready. What your value looks like if the measure remains, what your value looks like if it falls out, and what it looks like if it comes back through rulemaking with different specifications. Now zone two is adjacent exposure. Your measure is not in the clover suit, but it shares the same statutory or procedural vulnerability that the court flagged. Anything that rides on PDE data, anything that rides on CMS collected monitoring data, anything tied to IRE contractor data. And if the measure was added or modified through technical notes rather than codified rulemaking, this procedural holding could apply to you even though Clover did not name your specific measure or measures. So the honest move in zone two is acknowledging the adjacency directly with your buyer. And frankly, it's better that they hear it from you than a board member sending them a Becker's article on a Sunday night. Zone three is indirect exposure. Your value proposition has nothing to do with the measures or the specifications. So think care navigation, member engagement, pop health platforms, SDOH solutions, and broader analytics. Now here's the part nobody is talking about yet, and it cuts across all three zones. There are thousands of vendor contracts industry-wide with stars-linked performance terms, shared savings triggers, or payment at risk language tied to specific measure numbers. Most of those contracts have not been read closely in years, and every planned legal team in the country is about to pull them off the shelf at the same time. So if you're a vendor, your contracts are about to be reread by people who did not negotiate them. And if you're a plan, the scenario modeling that stops a quality bonus payment impact and skips the vendor contracts is only running half the exercise. Walk through which zone you're in before your next substantive conversation with the plan and have an answer ready for the questions you're about to get asked. Alright, and so I've been asking folks the last couple weeks, I've been reading what I can and trying to do some research to understand what happens from here and how does this play out. And so not predicting the outcomes, but laying out paths that may be rather probable. And so there's three of them, and really they're all connected. The first is the easy one. CMS appeals to the 11th Circuit within the 60-day window. The 11th Circuit rules sometime in the next 12 to 24 months. That's probably going to happen. The second one is a parallel move. While the appeal works its way through, CMS tries to cure the procedural finding through rulemaking. That could happen through accelerated notice and comment. It could also happen through the CY 2027 final rule track CMS already has running, which as we had said is the largest STARS overhaul in a decade. Either way, watch the Federal Register over the next 90 days for any rulemaking notice tied to SARS measure specifications. The third one is the downstream consequence. Humana stapled the Clover ruling to its Fifth Circuit appeal on June 2nd. Now you have two appellate courts considering the same statutory question from diverging starting points. Judge Wood in Georgia and Judge O'Connor in Texas already came out in opposite places. This is what a circuit split looks like in slow motion. Circuit splits are how questions like this end up at the Supreme Court. A Supreme Court conversation on this by 2028 may be plausible. If you only watch two things over the next 90 days, watch the CMS appeal filing and the Federal Register for any rulemaking notice tied to STARS measure specifications. In the broader call, we're going to see more of this kind of ruling in the future, not fewer. Which brings us to the last thing. The deeper story underneath Clover is not STARS. It is a Supreme Court case from 2024 called Loper Bright. For 40 years before that ruling, federal judges had been told to defer to agencies like CMS when the underlying statute was ambiguous. The doctrine had a name, Chevron. Loper Bright threw it out, and now judges read the statute themselves and decide what it means. And that's exactly what Judge Wood did in the Clover case, and also what Judge O'Connor did six months earlier in the Humana case, with the same Medicare provision, and they came out in opposite places. That is the new doctrine working as designed. Two judges, same words, opposite answers. STARS is the first complex Medicare Advantage program to get hit with the structural argument. It will not be the last federal program where these theories show up. Medicaid managed care, ACA marketplace plans, commercial quality programs that ride on federal data sources or specifications. The same arguments are sitting there waiting for the right plaintiff. Two weeks from now, I'm in Dallas at the Koalapalooza conference speaking on a health outcomes survey panel. Haas is one of the three data sources Judge Wood said CMS is actually authorized to use for stars. So while everyone is focused on what got thrown out, the foundations the court reinforced just got a little bit more interesting. Well, that's all for today. Episode one is in the books. The single most useful thing you can do for a brand new podcast like this one is leave a rating wherever you're listening. Apple Podcasts, especially. It takes one tap, no need to write anything. I'm Ryan Peterson. Thanks for being here. See you soon.