CMS approved requests from five additional states to launch reinsurance programs under Section 1332 state innovation waivers in order to help alleviate high premiums in the individual health insurance markets. Colorado, Delaware, Montana, North Dakota, and Rhode Island are embracing reinsurance as a way to help insurers cover the cost of the largest claims they face. They join Alaska, Maine, Maryland, Minnesota, New Jersey, Oregon, and Wisconsin, which have existing reinsurance programs. The positive results in these seven states are significant: a 17% drop in premiums on average in the first year of operation.

Reinsurance was a key feature of the ACA to help stabilize premiums in the individual market for 2014 – 2016, the first three years of the marketplaces. The marketplaces were new, and insurers faced much uncertainty in covering previously uninsured and under insured individuals. The ACA offered a partial safeguard against high, unpredictable medical expenses under Section 1341’s transitional reinsurance program. Estimates place the average reduction in premiums by the federal reinsurance program by as much as 14%. Based on the assumption that insurers would gain a better understanding of their members’ health status as time passed (and thus could price their products with greater accuracy), the ACA’s reinsurance program was temporary. But in 2017 premiums increased more sharply than they had in previous years, in part due to the loss of reinsurance.

Continue Reading Increased State Innovation Aimed at Stabilizing ACA Marketplaces

On February 11, the U.S. Court of Appeals for the Seventh Circuit ruled that consultants who provide services to nursing homes and long-term care facilities lack standing to sue the state Medicaid agency and its contracted Managed Care Organizations on behalf of patients.

In Bria Health Servs., LLC v. Eagleson, No. 18-3076 (7th Cir. Feb. 11, 2020), the plaintiff-consultants asserted that the state agency responsible for administering the Medicaid program—the Illinois Department of Healthcare and Family Services (HFS)—and the Medicaid managed care organizations (MCOs) that HFS used to deliver health benefits to Medicaid recipients had violated various federal laws and regulations by not paying outstanding bills owed to the consultants’ clients. Regarding standing, the plaintiff-consultants argued that they had been authorized to bring claims on behalf of Medicaid beneficiaries residing in their clients’ nursing homes because each resident had designated the consultants as authorized representatives under the Medicaid regulations to bring “action as necessary to establish eligibility for Medicaid.” The consultants pointed to the regulation at 42 C.F.R. § 435.923, which allows beneficiaries to designate authorized representatives to act on their behalf in relations with state Medicaid agencies, for the authority to bring suit on behalf of the residents.

The Seventh Circuit, however, upheld the district court’s grant of the defendants’ 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. The court explained that the language of 42 C.F.R. § 435.923 confines the power of the authorized representative to Medicaid eligibility actions and determinations. Therefore, the regulation did not authorize the plaintiff-consultants to bring civil claims on behalf of Medicaid beneficiaries.

The court noted that even if the regulation had authorized the consultants to bring a civil claim on behalf of the residents, the plaintiffs would still have to show some other support for their “representative standing” under Article III jurisprudence. The court pointed out that if a plaintiff cannot show an injury of their own, they must invoke some sort of recognized exception to the general standing requirements, such as a guardian bringing a claim on behalf of a minor, a next friend for a real party in interest who is disabled, or an association suing on behalf of its members. Even if 42 C.F.R. § 435.923 had by its terms conferred authority to bring a civil suit on behalf of beneficiaries, the court recognized that the plaintiffs had cited no support for the theory that a regulation could confer representative standing on the mere basis of authorization.

This case highlights the importance of considering—at any stage of litigation—whether subject matter jurisdiction exists, particularly when the plaintiff is not the injured party or when an authorized representative is involved in a suit.  It also highlights to MCOs that even if representative authority is conferred by regulation, it may not be enough for a representative plaintiff to establish Article III standing.

Crowell & Moring has released Litigation Forecast 2020: What Corporate Counsel Need to Know for the Coming Year. The eighth-annual Forecast provides forward-looking insights from leading Crowell & Moring lawyers to help legal departments anticipate and respond to challenges that might arise in the year ahead.

For 2020, the Forecast focuses on how the digital revolution is giving rise to new litigation risks, and it explores trends in employment non-competes, the future of stare decisis, the role of smartphones in investigations and litigation, and more.

The health care section, “The Growing Risk of Disability Litigation,” outlines how federal agencies and private plaintiffs are both turning their attention toward disability issues with businesses and how that could have a ripple effect across health care and other industries.

Be sure to follow the conversation on Twitter with #LitigationForecast.


On December 31, 2019, in New Mexico Health Connections v. U.S. Dep’t of Health and Human Services, the U.S. Court of Appeals for the Tenth Circuit upheld the methodology adopted by the U.S. Department of Health and Human Services (“HHS”) to administer the Risk Adjustment Program under the Affordable Care Act (“ACA”). In doing so, the panel, led by Judge Scott M. Matheson, Jr., overturned the decision of the U.S. District Court for the District of New Mexico that the use of statewide average premiums in the methodology was arbitrary and capricious.

The Risk Adjustment Program is a “premium stabilization” program created by the ACA to make premiums in the individual and small group markets more predictable. In essence, to limit incentives for health insurers to try to attract healthier enrollees, the Risk Adjustment Program transfers funds from health plans with healthier enrollees to those with less healthy enrollees. As with similar efforts under Medicare Advantage and some states’ Medicaid managed care programs, the Risk Adjustment Program was intended to mitigate potential adverse selection by targeting the impact of enrollee health status. Section 1343 of the ACA required that HHS create standards for the program through regulations, which have included the annual issuance of a risk adjustment formula for the payment transfers. Among other challenges to the program, insurers have challenged this formula, particularly the decision to base payment transfers on statewide average premiums instead of each plan’s actual premiums.

In 2018, in response to a challenge brought by New Mexico Health Connections, a New Mexico non-profit health plan, Judge James O. Browning of the U.S. District Court for the District of New Mexico found that the use of a statewide average premium in the risk adjustment formula was arbitrary and capricious on the basis that the agency failed to justify its reasoning in the notice-and-comment rulemaking process. This decision came one month after the U.S. District Court of Massachusetts upheld the same risk adjustment formula in a similar challenge. Judge Browning denied a request from the federal government to reconsider his decision in October 2018, and the federal government appealed to the Tenth Circuit.

In the opinion published on December 31, the Tenth Circuit reversed the district court, concluding that the use of a statewide average premium and adoption of a budget-neutral program were appropriate and reasonable. While the appeal was pending at the Tenth Circuit, HHS issued new rules for the 2017 and 2018 methodologies that rendered the case moot for those years. For the methodologies used in 2014 through 2016, the court determined that HHS appropriately justified its use of the statewide average premium in the risk adjustment methodology, including that HHS explained that it chose the statewide average premium to reduce the impact of risk selection, achieve a straightforward and predictable benchmark, promote risk neutral payments, avoid causing unintended distortions in transfers, and avoid disproportionately distributing costs to certain insurers. Further, the court determined that the budget-neutral design for the program was not improper because the ACA did not speak to budget neutrality and budget neutrality was necessary due to funding constraints.

Following this decision, New Mexico Health Connections may seek rehearing of the case en banc by the entirety of the Tenth Circuit or request review by the Supreme Court.

Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records sit down with Jodi Daniel and Ambassador Robert Holleyman to discuss how regulators—across the U.S. and the rest of the world—can overcome the challenges of regulating emerging digital health technologies without stifling innovation.

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Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records, sit down with former regulators Jon Foley, Rob Shriver, and Kristi Martin to discuss the goals and design of the Affordable Care Act’s MSP Program.

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Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records, talk with Todd Rosenberg about PBMs and the regulatory issues they have faced recently.

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The U.S. Court of Appeals for the Fifth Circuit could strike down the Affordable Care Act (ACA) as unconstitutional any moment. Several states are preparing for the impact.

In April 2018, Texas, 19 other states, and two individual plaintiffs filed a complaint in the U.S. District Court for the Northern District of Texas, arguing that the ACA, as amended by more recent legislation, is unconstitutional. They won—the district court held in Texas v. U.S. that the individual mandate is unconstitutional, and that the rest of the law cannot be severed from that provision, so it also must fall. The Fifth Circuit heard oral arguments in July of 2019 and may hand down a decision at any time. Rather than waiting for the possible results of that decision, many states are acting now to soften the blow.

As discussed below, if the district court’s decision is upheld and ACA is struck down, the effects likely would be widespread and dramatic. Nearly 20 million people with insurance under the ACA would be at risk of losing such coverage, markets would be disrupted, and popular consumer protections would be ineffective, including those for persons with preexisting conditions and coverage of dependent children up to age 26. As we have discussed in this space before, the sudden absence of some less-talked-about provisions of the ACA could have serious impacts on the authority behind innovative payment models, several of which have states as direct participants. In addition, billions of dollars in federal Medicaid funding would be removed from states’ budgets.

Continue Reading States Take Action in Anticipation of Possible ACA Unconstitutional Ruling

On October 21, 2019, the Federal Trade Commission (FTC) announced that it had issued orders to five health insurance companies and two health systems to provide information that will allow the agency to study the effects of certificates of public advantage (COPAs) on price, quality, access, and innovation of healthcare services. The ultimate goal of the study is to enhance the FTC’s knowledge of COPAs in order to inform the agency’s advocacy and enforcement efforts, and to serve as a resource for states considering COPAs.

A COPA is a written certificate typically issued by a state department of health under state law and regulations that seek to displace federal (and sometimes state) antitrust laws, and thereby provide immunity from antitrust law to certain healthcare-provider mergers, acquisitions, and other affiliations. Under the “state action doctrine,” states may shield certain transaction and conduct from federal antitrust law if the state (1) has affirmatively expressed and clearly articulated an intent to displace federal antitrust law and replace it with state regulation, and (2) actively supervises the transaction or collaboration.

Concerned that federal antitrust law and FTC enforcement against healthcare mergers has been too stringent and prevents procompetitive transactions, several states have passed COPA (or “cooperative agreement”) laws to permit healthcare providers to enter into transactions that might otherwise be blocked by the FTC. Proponents of COPAs believe that they allow healthcare providers to enter into transactions that eliminate costly duplicative services, achieve clinical efficiencies, facilitate more integrated care, and enable other community health benefits. Continue Reading FTC to Study the Impact of COPAs

Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s biweekly health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records discuss recent FDA guidance related to digital health with Jodi Daniel and Shaina Vinayek. For more information on this topic, please see our previous blog post.

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