Humana Inc. (NYSE:HUM) lost a legal battle challenging cuts to its Medicare Advantage bonus payments, raising concerns over billions in potential revenue.

Per a media report on Tuesday, a Texas judge ruled in favor of the federal government and upheld the downgrade of Humana's star ratings—ratings that are directly tied to the payments private insurers receive under Medicare Advantage.

The ruling marks a setback for Humana, which had argued that the government's decision to lower some of its star ratings was based on three phone calls deemed unsuccessful in what the insurer called an "arbitrary and capricious" move.

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In his decision, the judge ...