May 03, 2017

For Health Insurers, Court Decisions Continue to Complicate Risk Corridors Program Payments

For health insurers concerned about when they may receive government payments through the Affordable Care Act’s (ACA) risk corridor program, court decisions have provided little clarity. An April 18 decision by Judge Griggsby in the U.S. Court of Federal Claims has only added to that uncertainty. In a case brought by Blue Cross and Blue Shield of North Carolina (BCBS), Judge Griggsby found that any government payments owed to BCBS under Section 1342 were not “presently due.” Blue Cross & Blue Shield of N. Carolina v. United States, No. 16-651C, 2017 WL 1382976 (Fed. Cl. Apr. 18, 2017) at *17. After denying BCBS’s contractual claims as well, the court dismissed BCBS’s complaint for failure to state a claim. Id. at *21.

This is the third risk corridors case — of more than 20 filed to date — in which a judge has reached the merits of an insurer’s claim. Despite fundamentally similar facts, all three cases produced different results, with each judge providing different legal analysis.

In the Blue Cross case, BCBS argued that risk corridor payments for 2014 were due by December 2015. But the court held that “neither Section 1342 nor its implementing regulations impose an annual deadline for making the risk corridors program payments in full.” Id. at *14. Instead, the court cited the Department of Health and Human Services (HHS) policy that stipulated that the government would make pro-rata payments for a particular program year and make up any shortfalls with payments for subsequent program years. This, in the court’s view, afforded HHS the “full three years” of the program to make up any shortfalls. Id. at *16. The court concluded that no further payment obligation could arise until HHS completes its calculations for 2016, which the parties acknowledged would not occur until roughly the end of 2017. As a result, Judge Griggsby held, no cognizable claim for relief exists at the present time. Id. at *17. Critically, the court left open the ultimate question of “budget neutrality” — whether the government was liable for the full amount of any shortfall as of the end of the risk corridors program — leaving open the possibility that BCBS could refile its case at the appropriate time.

In a 2016 ruling, Judge Lettow of the Court of Federal Claims also dismissed the insurer’s claims, but employed different reasoning. Judge Lettow concluded that Section 1342 was “ambiguous in terms of the ‘payments in’ and ‘payments out’” and also did not explicitly require that payments be made annually. Land of Lincoln Mut. Health Ins. Co. v. United States, 129 Fed. Cl. 81, 108 (2016). As a result, Judge Lettow deemed it appropriate to defer to the agency’s pronouncement — despite HHS’s previous statements to the contrary — that Section 1342 would be implemented in a “budget neutral” manner.

By contrast, in Moda Health Plan, Judge Wheeler of the Court of Federal Claims firmly held that Section 1342 is not “budget neutral,” and that Congress did not amend Section 1342’s payment obligation through subsequent appropriations riders. Moda Health Plan, Inc. v. United States, 130 Fed. Cl. 436, 455 (2017). Moreover, Judge Wheeler held that the statute requires not only annual payments, but also full annual payments. Id. at 462. As a result, once HHS had established the amounts owed for a program year, the payments were presently due.

Judge Sweeney in Health Republic, in which a class has been certified, has not yet reached the merits of the insurer’s statutory and contract claims. Cross-motions for summary judgment are now pending. Health Republic Ins. Co. v. United States, No. 16-259, ECF No. 52 (Apr. 12, 2017).

As these varied rulings reflect, the government’s legal obligation to make payments under the risk corridors program remains in dispute. Land of Lincoln is now on appeal before the U.S. Court of Appeals for the Federal Circuit. The U.S. Supreme Court may — or may not — decide to consider the issue.

So what should health insurers with viable claims make of this? First, insurers should not expect payment any time soon. The budget agreement now pending in Congress includes yet another prohibition on use of HHS appropriations to pay shortfalls under the risk corridors program. Moreover, if the Federal Circuit and/or other Court of Federal Claims judges were to adopt Judge Griggsby’s reasoning, the pending cases could be deemed premature, such that no cognizable claim can be stated until the financial results for 2016 — the final year of the risk corridors program — are complete.

Although an insurer can still properly file a case now, the ruling in BCBS suggests another possible approach: presenting the issue after the numbers are fully tabulated for the entire three-year risk corridors program. Such an approach could help courts focus on the ultimate issue: whether a statute stipulating that an agency “shall pay” under specified conditions imposes a legal obligation on the government to make payment when those conditions are met. The answer is of fundamental importance not only to insurers participating in the ACA exchanges, but also to all who do business with the government. 

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