A screen displays the logo and trading information for Humana on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 6, 2023. REUTERS/Brendan McDermid

By Diana Novak Jones

(Reuters) -A U.S. judge on Tuesday rejected Humana's bid to challenge the Centers for Medicare & Medicaid Services' 2025 ratings for its Medicare Advantage plans, which could cost the health insurance company millions of dollars in bonus payments from the government.

U.S. District Judge Reed O'Connor in Fort Worth, Texas, sided with the U.S. Department of Health and Human Services in Humana's lawsuit over a reduction in the so-called star ratings for its Medicare Advantage plans, saying CMS properly evaluated the plans.

A spokesperson for Humana said the company would explore all legal options.

The company remains "committed to delivering meaningful improvements to our Star measurements and returning to top quartile performance as quickly as possible," the spokesperson said in a statement.

A spokesperson for HHS, which oversees CMS, said the agency does not comment on litigation.

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.

CMS issues 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, payouts that can be worth hundreds of millions or billions of dollars.

Humana shares were off 3.6% in afternoon trading at $261.11 and are down nearly 12% this week.

Humana sued over the 2025 star ratings in July. It claimed its 3.5-star rating could cause it to lose customers and potentially billions of dollars in bonus payments, which it said would have been used to reduce premiums and increase benefits for its members.

The lawsuit came after O'Connor dismissed an earlier challenge to the star ratings, saying the company failed to exhaust all of its administrative remedies.

The company challenged the way the ratings were calculated, saying its rating was unfairly slashed after a CMS test of its phone support for people with limited English proficiency. It sought an order directing CMS to set aside Humana's 2025 ratings and recalculate them.

HHS said problems with Humana's customer service phone line were a fair way to judge the company's accessibility for its customers, according to court filings.

In Tuesday's ruling, O'Connor rejected Humana's argument, saying the guidance on how the calls are evaluated was not arbitrary or capricious under federal law.

(Reporting by Diana Novak Jones; Additional reporting by Amina Niasse in New York; Editing by Mark Porter, Alexia Garamfalvi and Bill Berkrot)