Insight Center: News

Pepper Hamilton Argues on Behalf of Insurer in ACA Risk Adjustment Case

CMS announces it will suspend risk adjustment payments in light of developments in the federal case filed by Pepper client New Mexico Health Connections

Pepper Hamilton Argues on Behalf of Insurer in ACA Risk Adjustment Case

In February, Pepper Hamilton won a federal court victory on behalf of New Mexico Health Connections in its challenge to the risk adjustment formula used by the U.S. Department of Health and Human Services for health plans offered on Affordable Care Act exchanges. Now, as a result of that ruling, the Centers for Medicare and Medicaid Services has announced it will suspend risk adjustment payments totaling approximately $10 billion until the litigation is resolved.

CMS’s July 7 announcement follows close on the heels of a late June hearing on the agency’s motion for reconsideration in the U.S. District Court for the District of New Mexico. Pepper Hamilton partner Barak A. Bassman has led the firm’s multidisciplinary team representing New Mexico Health Connections in the case and argued on behalf of the insurer against the motion for reconsideration.

In the underlying case, Pepper Hamilton argued that HHS’s risk adjustment formula was arbitrary and capricious under the Administrative Procedure Act because, among other deficiencies, it used statewide average premiums instead of each plan’s own premium in calculating risk adjustment transfer payments. The district court agreed and vacated HHS risk adjustment regulations for the years 2014-2018.

At the June 21 oral argument on CMS’s motion to reconsider, Judge James O. Browning indicated that he was “not persuaded” by the motion and intended to deny the agency’s reconsideration request. Following that hearing, CMS issued a statement that the original February “ruling prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved.”

“The risk adjustment formula at issue in this case disadvantaged insurers like our client New Mexico Health Connections as they sought to provide innovative solutions that lowered premiums,” Mr. Bassman said. “As originally implemented, the formula subjected smaller, low-priced insurers like our client to risk adjustment payments that penalized them for finding innovative ways to improve their members’ health and lower the cost of care. We hope that our continued success in this litigation provides CMS with the opportunity to propose new regulations that encourage competition and innovation in the market.”

Dr. Martin Hickey, former CEO of New Mexico Health Connections, said in an interview, “we think this is actually very good for consumers because it will allow more new entrants to come into the marketplace. And, as we know, the more competition, the lower the prices, so we view this as a very beneficial ruling for consumers throughout the United States.”

In addition to Mr. Bassman, the Pepper team included partners Marc D. Machlin and Sara B. Richman and associates Leah Greenberg Katz, Benjamin J. Eichel and Janine P. Yaniak.

About New Mexico Health Connections           

New Mexico Health Connections is a physician-led health plan committed to keeping New Mexicans healthy. Started in 2012 as one of the original 24 CO-OPs created by the Affordable Care Act, NMHC is available on both the individual and small business health insurance exchanges through the commercial market. For more information, visit mynmhc.org.

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