Since the first cases were filed earlier this year, we have been following nationwide litigation seeking full risk corridors payments to qualified health plans (QHPs) providing coverage on the Affordable Care Act (ACA) exchanges.

Most recently, in a bulletin dated September 9, 2016, the federal Department of Health and Human Services (HHS) – through its Centers for Medicare and Medicaid Services (CMS) – has announced that it is open to discussing resolution of those claims. The bulletin also suggests a process through litigation that could allow other QHPs to seek recovery of amounts they are owed in risk corridors payments. The bulletin could open another front in the political battle over the ACA that has ebbed and flowed since 2010.

The risk corridors program is one of three programs (collectively referred to as the 3Rs) designed to stabilize the health insurance market impacted by the implementation of the ACA. The risk corridors program is designed to limit gains and losses in the first three years of the health insurance or exchanges; the basic idea is to collect funds from insurers whose total claims fall below certain target amounts and pay insurers that have experienced higher than expected claims that exceed target amounts.

For 2014, insurers with results below the claims threshold were required to pay approximately $362 million in risk corridors charges. Insurers with higher claims were entitled to approximately $2.87 billion in risk corridors payments. Congress did not appropriate funds to make up the shortfall. Further, in budget bills Congress prohibited the use of other funds available to HHS for risk corridors payments. As a result, CMS only paid approximately 12.6% of the risk corridors payments owed for 2014, stating that it intends to make-up the shortfall with risk corridors funds collected in subsequent years and that it will work with Congress to fully fund the program.

Seeking to recover amounts they are owed, some insurers have sued HHS, arguing that the ACA requires that they be paid in full. HHS does not dispute that the ACA requires full risk corridors payments, but has argued the lawsuits are premature because the full extent of gains and losses cannot be known until the end of the three-year program.

In its September 9th bulletin, CMS announced that preliminary information suggests that risk corridors collections in 2015 will again not cover amounts owed to insurers under the risk corridors program. The agency reported that 2015 risk corridors collections will be applied to make up the 2014 shortfall, but will not fully cover those obligations or allow payment of any of the 2015 obligations at this time.

In an unusual statement, HHS acknowledged the pending risk corridors litigation and invited settlement discussions, writing:

“We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”

It is noteworthy that a different source of federal funds, the Judgment Fund, may be available to pay settlements in the risk corridors litigation. The Judgment Fund is a permanent appropriation available to pay judicially and administratively ordered monetary awards against the United States.

The bulletin has raised questions regarding the reasoning and intent behind the statements regarding settlement of the litigation. HHS may believe that it has a weak legal position and is pragmatically trying to resolve the cases in a manner as favorable to the government as possible. Other observers see this as an end-run around the federal budget process. Still others see it as a creative step to help support the viability of the insurance exchanges. Because HHS acknowledges the validity of the obligations and is charged with implementing the ACA, this last view is not an unreasonable interpretation. In any event, if the Judgment Fund can provide a source of funds for risk corridors payments, other similarly situated insurers will likely consider filing their own suits to recover amounts they are owed.

The HHS September 9, 2016, bulletin regarding Risk Corridors Payments for 2015 can be found here:

https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Risk-Corridors-for-2015-FINAL.PDF

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Photo of Mason Budelier Mason Budelier

Mason L. Budelier | Freeborn & Peters LLP // // //

Mason is Senior Counsel in the Healthcare Practice Group. Mason is a Medicaid subject matter expert, with unique public sector legal and executive management experience. Mason has in-depth knowledge of state and federal processes related to health and human service program administration, audits, information technology, grants and procurement, and legislation and rulemaking.

Prior to joining Freeborn & Peters, Mason was appointed by the Governor to serve as the Executive Director and General Counsel of the Illinois Health Information Exchange Authority (the Authority), leading the State of Illinois’ efforts to support the statewide adoption and use of health information exchange and health information technology. As such, Mason has significant experience navigating the ever-evolving legal, transactional, and policy issues related to health information technology designed to support the care coordination efforts of public Medicaid programs and private Medicaid health plans.

Prior to his work with the Authority, Mason served as Staff Counsel within the Office of Inspector General (OIG) of the Illinois Department of Healthcare and Family Services (HFS), the Illinois agency responsible for administering all aspects of the Medicaid program. In that role, Mason helped develop and lead the Inspector General’s initiatives related to Medicaid providers, recipients, and managed care oversight. During his time with the OIG, Mason handled a wide variety of regulatory, audit, transactional, legislative, and operational matters.

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David Kaufman is a Partner at Freeborn & Peters LLP, and he serves as a key member of the Firm’s Healthcare Practice Group.

David has practiced health law for more than 25 years, representing a range of entities responsible for ensuring cost effective and equitable access to healthcare, including health insurers, physicians groups, and regulators.

David has significant experience in federal and state-level regulatory and administrative law gained through private practice as well as in the public sector, serving as General Counsel to the New Mexico State Corporation Commission, Counsel to the New Mexico Superintendent of Insurance, and an Assistant Attorney General for the State of New Mexico.

Admitted to the state bars of New Mexico, New York, California, and Illinois, David’s prior experience in private practice includes work with national law firms in Chicago and Los Angeles, working on transactional healthcare matters and labor and employment issues, as well as Medicare and Medicaid reimbursement.

Before joining Freeborn, David served most recently as General Counsel for Blue Cross and Blue Shield of Illinois, where he was responsible for advising the company on regulatory and business issues in general and on the implementation of the Affordable Care Act.

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Deborah Dorman-Rodriguez is a Partner at Freeborn & Peters LLP, and is the leader of the Healthcare Practice Group.

Deborah has diverse experience as a healthcare attorney representing insurers, providers, and other healthcare entities. Most recently she served as the Senior Vice President, Chief Legal Officer, and Corporate Secretary at Chicago-based Health Care Service Corporation (HCSC), which operates BlueCross and BlueShield plans in Illinois, Montana, New Mexico, Oklahoma and Texas.

At HCSC Deborah was responsible for providing legal advice and consultation on such issues as federal and state regulatory implementations, litigation, mergers and acquisitions, corporate governance and compliance.  She oversaw HCSC’s legal strategy during a period of unprecedented turbulence in the healthcare industry and helped the company navigate the regulatory and business upheaval associated with the passage of the Affordable Care Act (ACA).

With her experience in serving as CLO of a large organization and in representing healthcare clients over the past 20 years, Deborah understands that no legal decision exists in a vacuum, and that it is vitally important to offer legal advice that is business focused, efficient, practical, and solution-oriented.

Before serving as HCSC’s Chief Legal Officer, Deborah was Vice President and General Counsel of Blue Cross and Blue Shield of New Mexico, an attorney with the law firm of Simons, Cuddy & Friedman in  Santa Fe, New Mexico, where she represented health insurers, physician groups, and other healthcare organizations, Special Counsel to the New Mexico Superintendent of Insurance, and a former New Mexico Assistant Attorney General specializing in health insurance and telecommunications regulatory issues.