United States: What And How Obamacare Is Doing At The Court Of Federal Claims

Last Updated: February 16 2017
Article by Luke Levasseur

Millions of Americans who were able to obtain health insurance as a result of the Patient Protection and Affordable Care Act ("ACA" or "Obamacare") are waiting to learn the extent to which Congress and the new administration will repeal, replace, or do something else with the ACA. At the same time, Government contracts lawyers are watching a group of ACA-related lawsuits being litigated at the Court of Federal Claims and the Federal Circuit. The cases involve "risk corridors," which the ACA implemented to entice insurers to enter healthcare exchanges by reducing downside risk if, among other possibilities, enrollment did not meet projections. After the ACA was implemented (and control of the Legislative branch had shifted), Congress effectively defunded the ACA's risk corridors (i.e., reduced necessary appropriations), leaving the Department of Health and Human Services ("HHS") without sufficient funds to pay participating insurers. So far, approximately 20 of those companies have sued and are pursuing damages claims based on the Government's failure to make promised payments.

Last November, the Court of Federal Claims issued its first merits ruling in one of the ACA risk corridor cases, Land of Lincoln Mutual Health Insurance v. U.S. Judge Lettow's opinion in that case rejected the plaintiff's claims based on "statutory entitlement," breach of contract, and Fifth Amendment taking theories. A decision in a second case, Moda Health Plan v. U.S., was issued late last week by Judge Wheeler—who ruled in that plaintiff's favor. In Moda Health, the court held that the relevant ACA provision "requires full annual payments to insurers" and, alternatively, that the Government's non-payment constituted a breach of the implied-in-fact contract with the insurer.

How the current administration and Congress will change ACA—and the American healthcare system—is anybody's guess. The ACA-related cases before the Court of Federal Claims are not getting the same amount of press as potential changes to the healthcare reform law, but they address important legal and financial consequences of the long-running policy dispute over the ACA. The cases raise complex legal issues that should be of substantial interest to Government contracts lawyers and practitioners before the Court of Federal Claims and the Federal Circuit.

The ACA included a risk corridor program to protect the companies from potential losses associated with entering new markets because of concerns that insurers would hesitate to the devote resources necessary to enter the healthcare exchanges. However, Congress did not appropriate funds for the risk corridors program. Instead, section 1342 of the ACA specified that the risk corridors would function by limiting the maximum profits participating plans could earn from an exchange, and required HHS to effectively transfer profits above a certain threshold to companies with losses, pursuant to a specified formula.

Before the risk corridors went into effect, HHS issued a series of proposed rules (and other regulatory materials) explaining how the corridors would work. In a proposed rule from July 15, 2011, HHS included an "impact analysis" in which it recognized that the Congressional Budget Office ("CBO") had not formally scored the risk corridors but had made projections concerning their viability and "assumed collections [from profitable participants] would equal payments to plans in the aggregate." In short (and as they were described in later regulatory materials), the risk corridors were supposed to be "budget neutral[]," i.e., not require appropriated funds.

Needless to say, HHS' plan to operate the risk corridors by transferring sufficient funds in a budget-neutral manner did not work out as planned. The number of highly profitable participants was insufficient to cover the losses experienced by other participant-insurers. The insurers that experienced losses demanded payments promised by the risk corridor program. As HHS did not have funds from profitable participants or congressional appropriations, the Government has vigorously resisted the insurers' demands, both in its dealings with the companies and in court.

Both the Land of Lincoln and Moda Health opinions begin with extensive discussions of the court's jurisdiction to consider these claims and whether the claims are ripe. Both opinions conclude that the court has jurisdiction under the Tucker Act because the plaintiffs allege claims based on a money-mandating statutory provision—section 1342's provision that HHS "shall pay" qualifying plans that experience allowable costs—and make at least "non-frivolous assertion[s]" that they are entitled to relief under that law. The court also found that the plaintiffs had sufficiently alleged breaches of an express or implied-in-fact contract. In addition, the claims are ripe because they allege that payments for two of the (three) years at issue are "presently due." (Notably, in a third case in which the court has not yet issued a merits ruling, Health Republic Ins. v. U.S., Judge Sweeney reached the same conclusions regarding jurisdiction and ripeness.)

Statutory Entitlement

The ACA delegated to the HHS Secretary the authority to "establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016. Section 1342(b)(1) of the law provided that if a qualified health plan reports allowable costs for "any plan year" that sufficiently exceed the plan's target amount, "the Secretary shall pay to the plan" a specified percentage of those costs. One of the questions at the heart of the plaintiffs' statutory entitlement claim is whether the ACA's "shall pay" language creates an enforceable right for damages if HHS cannot or does not pay.

The Court of Federal Claims recent decision in Moda Health held that the ACA's section 1342 "requires annual risk corridor payments" to insurers such as the plaintiff. When discussing ripeness, the Court referenced Judge Sweeney's Health Republic decision with respect to the statute establishing the risk corridor program "'for calendar years 2014, 2015, and 2016,' rather than for 'calendar years 2014 through 2016,'" and mandating that HHS calculate "'payments in' and 'payments out' of the program on the basis of insurers' costs in 'any plan year,' not over the life of the program." The court recognized that these references were not dispositive but "tend to suggest that Congress wanted HHS to make annual payments." The court also addressed the risk corridor program that was included as part of the Medicare Part D prescription drug program, on which the ACA's program was based. Although the provisions of the ACA and the Medicare Part D program "are worded differently," the court concluded that those differences "do not mean [that the ACA's] Section 1342 rejected an annual payment structure" (which was implemented in Part D).

On the merits, the Moda Health decision explains that the ACA's section 1342 "is not budget-neutral on its face." To the contrary, the statute's "shall pay" language requires that the Secretary pay amounts "tied to each respective plan's ratio of costs to premiums collected." With respect to the differing Medicare Part D and ACA risk corridor language, Judge Wheeler concluded that the ACA's "shall pay" language constitutes "stronger payment language" than Medicare Part D's "shall establish a risk corridor" requirement, bolstering the conclusion that payment is mandatory. And the Moda Health decision parses HHS' regulatory pronouncements and appropriations riders, and explains why they "did not vitiate HHS' statutory duty to make risk corridors payments."

In Land of Lincoln, Judge Lettow analyzed the same legislative and regulatory materials addressed in Judge Wheeler's Moda Health opinion and came to opposite conclusions. The Land of Lincoln opinion explained that "[a]lthough [section] 1342(b)(1) contemplates that qualified health plans will be reporting costs on an annual basis via the phrase 'any plan year,' that arrangement reflects the year-by-year transitory aspect of the temporary risk-corridors program." The court continued: "[t]he '[p]ayments out' and '[p]ayments in' methodology in Subsection 1342(b) governs the amounts that HHS must pay to and receive from health plans, but it does not establish when these payments are to be made." In addition, the statute's requirement that the Secretary "'shall establish and administer' the program 'for calendar years 2014, 2015, and 2016,' . . . does not specify the timing of the various payments over those three years."

The Land of Lincoln opinion relies on a Government Accountability Office ("GAO") report, which recognized that the ACA, "by its terms, did not enact an appropriation to make the payments specified in Section 1342(b)." Although the CBO had provided revenue and spending estimates related to the risk corridors, "it omitted any budgetary estimate for the risk-corridors program," undercutting the notion that an appropriation had been made—or that "payments out" of the risk pools were otherwise mandatory absent sufficient "payments in." Unlike Moda Health, Judge Lettow also rejected the plaintiff's reliance on the risk corridor provision in the Medicare Part D prescription drug legislation. The Land of Lincoln opinion explained that although the "two programs share many similarities, they are not identical." Most important, "the Medicare Program explicitly provides for authorization of appropriations" to fund the risk corridors while the ACA omitted such language; similarly, "the Medicare Program specifically requires that '[f]or each plan year,' the Secretary shall establish a risk corridor,'" but Congress omitted the "for each plan year" mandate in the ACA.

Breach of Implied-in-Fact Contract

The Moda Health and Land of Lincoln decisions also differed on the question of whether an enforceable implied-in-fact contract had been formed by the insurers' participation in the risk corridor program. Judge Wheeler ruled in favor of the plaintiff on this issue (as he had with respect to the statutory entitlement question). The Moda Health decision recognized that that the "Government does not intend to bind itself in contract whenever it creates a statutory or regulatory incentive program." However, after reviewing relevant precedent, Judge Wheeler explained that "statutes and regulations show the Government's intent to contract if they have the following implicit structure: if you participate in this program and follow its rules, we promise you will receive a specific incentive." The court concluded that the ACA reflected the Government's intent to enter into contracts with insurers, constituted an offer on the part of the Government to enter into unilateral contracts with insurers, and reflected its promise to make risk corridor payments in exchange for insurers' performance. The court held that Moda Health accepted the Government's offer—and formed a contract—by participating in the risk corridor program.

The court's Land of Lincoln decision again analyzed most of the same statutory and regulatory materials addressed by Moda Health but found the plaintiff's contract-related arguments unconvincing. Land of Lincoln parsed the specific obligations in the contract materials with which the insurer agreed and determined that the "plain language of the agreements does not indicate any contractual commitment on behalf of HHS to make risk-corridor payments." For instance, in one of the agreements on which plaintiff relied, HHS agreed to "implement systems and processes" to incorporate the insurer-plaintiff in the program. But the court explained that this provision must be read in the context of the agreement in which it is found, a "Data Services Hub Web Services" contract. The court ruled that the Government's agreement to assist the insurer-participant with using the government internet platform cannot be transformed into an obligation to make risk corridor payments. Judge Lettow also rejected the assertion that the ACA's section 1342 or the implementing regulations "provided any express or explicitly intent on behalf of the government to enter into a contract with qualified health insurers" that would support a finding of an implied-in-fact contract. (The Land of Lincoln opinion also rejected the plaintiff's takings count.)

* * *

Land of Lincoln was decided last November and is now on appeal to the Federal Circuit. As explained above, the Court of Federal Claims has generated extensive opinions in Land of Lincoln and Moda Health that analyze much the same statutory and regulatory materials and reach starkly different conclusions regarding the legal ramifications of congressional efforts to defund initiatives undertaken by the Obama administration. It will be interesting to see how the appeals court addresses these issues.

Originally published February 15, 2017

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.