Stephanie Hales

28 December 2012

Proposed Risk-Adjustment Rules Raise Potential FCA Risks for Exchange Plans

Posted by Robert Conlan and Stephanie Hales

One of the central features of the Affordable Care Act (ACA) is the requirement that all states have in place by January 1, 2014 one or more health insurance Exchanges, which are intended to operate essentially as insurance marketplaces helping small businesses and individuals access affordable health plans. Implementation of this feature is moving forward, with the federal government recently issuing a number of guidance documents. In addition, the U.S. Department of Health and Human Services (HHS) has recently approved (or conditionally approved) several states’ proposed exchange “blueprint” plans. As operation of the Exchanges becomes nearer to reality, the significance of one of the ACA’s amendments to the False Claims Act (FCA) – its extension of the FCA to cover “[p]ayments made by, through, or in connection with an Exchange,” if the payments include any Federal funds (ACA § 1313(a)(6)(A)) – deserves increasing attention.

In one recent guidance document, HHS referenced the FCA as a method of enforcement for a new proposed requirement related to the risk adjustment program that the HHS Secretary must establish under Section 1343 of the ACA. See Proposed Rule: Patient Protection and Affordable Care Act: HHS Notice of Benefit and Payment Parameters for 2014, 77 Fed. Reg. 73,117, 73,149 (Dec. 7, 2012). The purpose of the risk adjustment program (along with reinsurance and risk corridors programs also created under the ACA) is to help stabilize premiums for Exchange plans by protecting against adverse selection in the newly enrolled population. 77 Fed. Reg. at 73,118. Under the risk adjustment program, health insurance issuers can receive payments for taking on higher-risk enrollees. The intent is that such payments will spread, more evenly, the financial risk borne by issuers of Exchange plans.

HHS has proposed prosecution under the FCA as a remedy against insurers who are subject to, but not compliant with, the risk-adjustment requirements related to data validation. More specifically, HHS has proposed a data-validation process for benefit years 2014 and 2015, which would involve the issuers conducting an initial validation audit, followed by a second validation audit conducted by HHS. Recognizing the complexities involved in the program, HHS proposes that it would not adjust payments and charges based on validation findings during the first two years of the program (i.e., in the 2014 and 2015 benefit years). HHS adds that, “[a]lthough we are proposing not to adjust payments and charges as a correction based on error estimates discovered, we note that other remedies, such as prosecution under the False Claims Act, may be applicable to issuers not in compliance with the risk adjustment program requirements.” 77 Fed. Reg. 73,149.

HHS specifically requests comments on this approach and on other suggestions for improving the data validation process for risk adjustment. Id. Comments are due December 31, 2012.

As implementation of the Exchanges moves forward, regulators may well continue to look to the FCA as a tool for enforcing health insurance issuers’ (and others’) compliance with the new requirements that will apply to these developing health plan marketplaces.

02 February 2012

Supreme Court’s Ruling On The Affordable Care Act Could Undo Key FCA Amendments

Posted by Ellyce Cooper and Stephanie Hales

On March 26–28, 2012, the Supreme Court will hear oral argument on various challenges to the Affordable Care Act (ACA), the federal health reform legislation enacted in March 2010. Two laws comprise the ACA: the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010. While the vast bulk of the political debate surrounding the ACA involves the individual health insurance mandate and Medicaid expansion provisions, these are only two components of a law that the Eleventh Circuit Court of Appeals described in its underlying opinion as “contain[ing] hundreds of new laws about hundreds of different areas of health insurance and health care.” Florida v. DHHS, Nos. 11-11021 & 11-11067, Slip Op. at 22 (11th Cir. Aug. 12, 2011). In this light, one of the most significant issues before the Supreme Court is whether the remainder of the ACA’s provisions are severable from any provisions that may be deemed unconstitutional.

Of particular import to companies affected by the False Claims Act (FCA) and the Anti-Kickback Statute (AKS), among the ACA’s hundreds of provisions are amendments to the FCA and the AKS that expand the scope of liability and restrict the “public disclosure” defense under the FCA. For example, the ACA:

  • Amends the AKS to provide that any claim submitted to a federal healthcare program for items or services “resulting from” a violation of the AKS constitutes a “false or fraudulent claim” under the FCA. PPACA § 6402(f)(1) (adding a new subsection (g) to 42 U.S.C. § 1320a-7b).
  • Eliminates the need to prove specific intent and actual knowledge to establish an AKS violation. PPACA § 6402(f)(2) (adding a new subsection (h) to 42 U.S.C. § 1320a-7b).
  • Limits the public disclosure bar by (a) restricting the scope of materials that qualify as public disclosure, (b) making it easier for relators to qualify as an “original source,” and (c) eliminating public disclosure as a subject-matter-jurisdictional bar and instead giving the Government veto power over any motion to dismiss based on public disclosure. PPACA § 10104(j)(2) (amending 31 U.S.C. § 3730(e)).
  • Imposes an affirmative obligation on recipients of overpayments to report and return those overpayments or face liability for “reverse false claims.” PPACA § 6402(a) (adding 42 U.S.C. § 1320a-7k, including subsection (d) regarding overpayments).
  • Establishes new civil monetary penalties of up to $50,000 per violation for conduct that is also actionable under the FCA. PPACA §§ 6402(d)(2) and 6408(a) (adding new CMPs under 42 U.S.C. § 1320a-7a(a)).

In the Eleventh Circuit’s 2-1 decision, the appeals court ruled that the ACA’s individual mandate is unconstitutional. Crucially, however, the court found this provision severable from the rest of the law. In so ruling, the Eleventh Circuit stated that “the lion’s share of the [ACA] has nothing to do with private insurance, much less the mandate that individuals buy insurance.” See Slip Op. at 192. Accordingly, under the Eleventh Circuit’s analysis, the rest of the ACA’s provisions could remain intact even if the individual mandate component falls.

The law’s challengers, including 26 states, do not agree; they have told the Supreme Court that the entire law must be struck if the individual mandate is held unconstitutional. Likewise, the federal government does not completely agree with the Eleventh Circuit’s view of severability, either. In its Supreme Court brief responding to the severability question, filed January 27, 2012, the federal government makes two arguments—neither of which asserts that the individual mandate provision is severable from all of the ACA’s other provisions. First, the federal government argues that the Supreme Court should not address the merits of the severability issue in this case, because the petitioners lack standing to challenge the validity of most of the law’s provisions. Should the Justices reach the merits of this issue, however, the federal government further argues that, if the individual mandate falls, so must two particular insurance reform provisions: (1) guaranteed issue, which requires insurers to provide coverage to all comers and prohibits discrimination based on preexisting medical conditions; and (2) community rating, which prohibits plans from charging higher premiums based on applicants’ experiences or characteristics, except for limited variances based on the applicant’s age, where the applicant resides, whether the applicant uses tobacco, and whether the policy covers individuals or families. Under the federal government’s position, only these two provisions—not the entire law—should be struck if the individual mandate is found unconstitutional.

To ensure that the arguments in favor of “full” severability get a full hearing, the Supreme Court appointed an attorney, who does not represent either of the parties to the case, to argue the position that the rest the ACA provisions (including guaranteed issue and community rating) can survive even if the individual mandate does not. (Another appointed attorney will address yet another question: whether the entire case is premature for judicial consideration under the Anti-Injunction Act (26 U.S.C. § 7421(a)).)

If the Supreme Court ultimately agrees with the Eleventh Circuit that the individual mandate is unconstitutional, but holds that the provision is not severable, the entire law would be struck down as unconstitutional. Such a ruling would “undo” the multitude of corollary provisions, which have received less public attention. While it also is possible that the Supreme Court will not reach the severability question in its decision later this year on the fate of the ACA, entities subject to the FCA—and, indeed, anyone affected by the ACA’s “hundreds of provisions”—should appreciate just how much is at stake in the pending decision beyond the provisions at focus in current media coverage.

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