Opinions / Panel Activity

On Friday, the Federal Circuit issued its opinion in Sanford Health Plan v. United States, a case we have been tracking because it attracted amicus briefs. In the opinion, a panel composed of Judges Dyk, Bryson, and Taranto unanimously affirmed the judgment of the Court of Federal Claims that the Affordable Care Act “provision on reimbursement of cost-sharing reductions is ‘money-mandating’ and that the government is liable for money damages for its failure to make reimbursements for the 2017 reductions.” Here is a summary of the opinion.

As explained in our argument preview and argument recap, two consolidated cases present questions of whether health insurance companies may recover cost-sharing payments identified in section 1402 of the Affordable Care Act (ACA) but never funded by Congress. The government appealed two judgments against it, arguing that, “[i]n enacting section 1402, Congress did not give insurers a right to damages in the event that future Congresses made the policy choice not to fund cost-sharing payments (or to fund them only in part).” The government also argued that section 1402 did not give insurers implied-in-fact contracts for cost-sharing payments. Two amicus briefs were filed in this case, both supporting the plaintiffs, Sanford Health Plan and Montana Health CO-OP.

Judge Taranto wrote the opinion for the panel, which as mentioned affirmed the decision by the Court of Federal Claims to grant Sanford and Montana Health summary judgment. In the introduction to Friday’s opinion, the Federal Circuit summarized the relevant facts:

In the Patient Protection and Affordable Care Act (the ACA), . . .  as amended, Congress directed each State to establish an online exchange through which insurers may sell health plans if the plans meet certain requirements. One such requirement is that insurers must agree to reduce the “cost-sharing” burdens—such as the burdens of making co-payments and meeting deductibles—of certain of their customers. When insurers meet that requirement, the ACA says, the Secretary of Health and Human Services (HHS) shall reimburse them for the required cost-sharing reductions they have provided to their customers. . . . In October 2017, the Secretary stopped making reimbursement payments, due to determinations that such payments were not within the congressional appropriation that the Secretary had, until then, been invoking to pay the reimbursements. In January 2018, Sanford Health Plan . . . and Montana Health CO-OP . . . brought materially identically actions against the United States in the Court of Federal Claims. The two plaintiffs alleged that they were entitled to damages because the government had violated its statutory obligation—or, in the alternative, breached an implied-in-fact contract—by failing to reimburse them for the cost-sharing reductions they made during the final months of 2017. The trial court granted summary judgment for the plaintiffs. . . .  In materially identical opinions, the court concluded that the ACA provision on reimbursement of cost-sharing reductions is “money-mandating” and that the government is liable for money damages for its failure to make reimbursements for the 2017 reductions.

There were two primary issues on appeal: (1) “[w]hether the insurers’ statutory claims fail because Congress did not intend for insurers to receive damages as compensation for cost-sharing payments that Congress declined to fund,” and (2) “[w]hether the insurers’ contract claims fail because insurers do not have implied-in-fact contracts for cost-sharing payments.”

The court ultimately rejected the government’s first argument that the plaintiffs’ claims failed based on Congress’ intent. After reaching this conclusion, the court declined to address the alternative argument for breach of implied-in-fact contracts.

The court based most of its analysis on the Supreme Court’s recent decision in Maine Community Health Options v. United States. In that case, the Supreme Court held that “‘shall pay’ language” in the Affordable Care Act “imposed a legal duty of the United States that could mature into a legal liability through the insurers’ actions—namely, their participating in healthcare exchanges.” On that basis, the Supreme Court held that the obligation that ripened into liability was “neither contingent on nor limited by the availability of appropriation or other funds.”

The Federal Circuit here saw “no sufficient basis for reaching a different conclusion from the conclusion the Supreme Court drew for the Risk Corridor provision at issue in Maine Community.” Here, like in Maine Community, the section at issue uses “shall make . . . payments” language: “the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions.” The court explained that the government’s “obligation is to pay money based on the insurer’s specified actions—’participating in healthcare exchanges,’” and that, in this case, the obligation ripened into liability.

The court rejected the government’s argument that Maine Community instead instructs that “insurers’ loss of cost-sharing reduction reimbursements could cause the insurers to secure (from state regulators) permission to raise premiums, and that such higher premiums would lead to higher premium tax credits . . . offsetting the loss of the cost-sharing reduction payments.”

The court explained that “the government’s contention would require a marked departure from the Maine Community analysis.” The court explained that the premium tax credit provision does not alter the compelling force of the “shall make . . . payment” language, which “readily creates an obligation that matures into a liability upon the insurer’s taking the prescribed action.” Furthermore, the government’s conclusion, the court explained, would mean that the Tucker Act would not be applicable even in situations where the premium tax credit mechanism does not in fact make up for the losses incurred. There, the court explained, “the result would be to leave the insurer without redress, counter to Maine Community’s recognition that the Tucker Act remedy gives effect to the principle that ‘[t]he Government should honor its obligations.’”

For these reasons, the Federal Circuit found that the government had an obligation that ripened into liability. As a result, the court affirmed the decision of the Court of Federal Claims granting summary judgment in favor of Sanford and Montana.