A New Mexico district judge has rejected a request from the Department of Health and Human Services to reconsider his February decision on risk adjustment payments that led the agency to momentarily suspend the program over the summer.
U.S. District Judge James Browning reiterated his prior ruling that HHS’ approach to the risk adjustment formula was “arbitrary and capricious.” The lawsuit was filed by New Mexico Health Connection, a consumer operated and oriented plan (CO-OP) that argued the formula favored larger insurers because it used state average premiums as opposed to the average premiums for each insurer.
Browning said in his decision (PDF) last week that HHS has “flip-flopped” between arguments that Congress designed the program to be budget-neutral and that the program lacked a dedicated funding authority.
“Now that HHS has abandoned its view that the statute compelled budget neutrality, it must come to grips with the reality that it—not Congress—made the decision to embrace budget neutrality,” Browning wrote. “Once HHS grips that reality, it must decide what to do following the Court’s conclusion that this decision was arbitrary and capricious.”
Exactly what HHS decides to do remains the biggest question. After briefly suspending $10.4 billion in risk adjustment payments in July, the Centers for Medicare & Medicaid Services (CMS) reinstated funding with a rule that provided additional explanation for 2017 and 2018 payments.
But that might not be enough to satisfy Browning, who noted that “merely providing justification for budget neutrality and the use of statewide average premium” would not absolve HHS of its error. That issue is likely to come up in a lawsuit filed by New Mexico Health Connection asking for an injunction to 2017 payments shortly after CMS issued the updated rule. That case is also before Browning.
An injunction could impact the 2017 payments, although some of those transfers have already been made to insurers. HHS did not respond to a request for comment.
“It didn’t seem like he will look that favorably in the language of the final rule they put out for 2017,” Katie Keith, a health reform researcher at Georgetown University and principal at Keith Policy Solutions, told FierceHealthcare.
In a Health Affairs blog post earlier this week, Keith said it remains to be seen if there will be “further hiccups” for the program.
Given that a Massachusetts judge issued a substantially different ruling on risk adjustment payments in January, it’s likely HHS will appeal the ruling. But the agency could also address Browning’s concerns in a future rulemaking including a proposed rule for 2018 payments that still needs to be finalized, or 2020 rulemaking that still hasn't reached the Office of Management and Budget.
For now, the entire issue appears to be in a holding pattern while the courts wade through the remaining battles, and CMS may face pressure from larger insurers with the most at stake to make sure the rule is fixed.