Case Information
*1 In the United States Court of Federal Claims No. 16-744C
(Filed: November 10, 2016) ************************************* )
) Claim by qualified health insurance plan LAND OF LINCOLN MUTUAL ) participating in a federally-run state HEALTH INSURANCE COMPANY, ) Exchange to damages based upon
) statutory or regulatory entitlement to Plaintiffs, ) receive “risk-corridors” payments; ) Section 1342 of the Patient Protection v. ) and Affordable Care Act, 42 U.S.C. § ) 18062; 45 C.F.R. § 153.510; claims for UNITED STATES, ) damages based upon alleged breach of an
) express contract, an implied-in-fact Defendant. ) contract, or an implied covenant of good ) faith and fair dealing; takings claim ************************************* )
Daniel P. Albers, Barnes & Thornburg LLP, Chicago, Illinois, for plaintiff. With him on the briefs was Scott E. Pickens, Barnes & Thornburg LLP, Washington, D.C.
Terrance A. Mebane and Charles E. Canter, Trial Attorneys, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With them on the briefs were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Civil Division, Ruth A. Harvey, Director, Kirk T. Manhardt, Deputy Director, Serena M. Orloff, Trial Attorney, Frances M. McLaughlin, Trial Attorney, and L. Misha Preheim, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington D.C.
OPINION AND ORDER
LETTOW, Judge.
Since 2014, Land of Lincoln Mutual Health Insurance Company (“Lincoln”) has provided qualified health insurance plans in Illinois under the Patient Protection and Affordable Care Act (“the Affordable Care Act” or “the Act”), Pub. L. No. 111-148, 124 Stat. 119 (2010). In this action, Lincoln seeks damages under Section 1342 of the Act, codified at 42 U.S.C. § 18062, which establishes and governs a temporary program of “risk corridors” applicable to calendar years 2014, 2015, and 2016, where qualifying health plans (“QHPs”) participating on *2 health insurance Exchanges pay money to or receive money from the Department of Health and Human Services (“HHS”), depending upon the ratio of premiums received to claimed costs. [1]
Lincoln is an Illinois not-for-profit company with its headquarters in Chicago that served nearly 50,000 customers on the Illinois Health Insurance Marketplace in 2014, 2015, and part of 2016. Compl. ¶ 13. [2] Lincoln suffered losses in 2014 and 2015 and thus is deemed eligible to receive payment from HHS under the risk-corridors program. HHS paid Lincoln approximately 12.6% of the amount Lincoln is due for 2014, and nothing for 2015. Compl. ¶ 8. As a general matter, the payments HHS owes to qualified health plan issuers under the program exceed the fees received by HHS under the program, and HHS has stated that it will make payments only from fees collected, to the extent such fees are available, on a proportional basis to those owed payment.
Lincoln filed its complaint on June 23, 2016, alleging that it had a statutory and regulatory entitlement to the full amount of the payments due it under the program for 2014 and 2015, totaling at least $72,859,053, and that the full entitlement was and is due on an annual basis. Compl. ¶¶ 9, 77. Additionally, Lincoln alleges that the government’s actions breached an express or implied-in-fact contract, breached the implied covenant of good faith and fair dealing, and contravened the Takings Clause of the Fifth Amendment. Compl. ¶ 1. Shortly after the complaint was filed, Lincoln requested “expedite[d] disposition of this action” because, among other things, it otherwise lacked funds to survive as a continuing entity. Pl.’s Mot. for an Early Pretrial Conference Pursuant to Rule 16(a) at 1 (July 26, 2016), ECF No. 7. In that regard, Lincoln advised that “the State of Illinois Director of Insurance has obtained an Order of Rehabilitation against Lincoln dated July 14, 2016.” Id . at 2. Absent an infusion of funds by September 30, 2016, the health insurance Lincoln was providing to citizens of Illinois would have to be cancelled. Id . Promptly thereafter, the court held a status conference with the parties, and, because the case involves a claim of statutory and regulatory entitlement, the court requested the government to file the administrative record of its regulations and its actions respecting Lincoln. See Hr’g Tr. 32:1-2 (Aug. 12, 2016). The court set an accelerated schedule for submission and briefing of potentially dispositive motions and calendared an early hearing. See Scheduling Order (Aug. 12, 2016), ECF No. 12. With one subsequent adjustment to the *3 schedule, see Amended Scheduling Order (Oct. 18, 2016), ECF No. 36, the parties have followed this procedural path.
BACKGROUND
In 2010, Congress enacted the Patient Protection and Affordable Care Act, Pub. L. No.
111-148, 124 Stat. 119, to expand individual health insurance coverage. The Act requires health
insurance providers offering health insurance in a particular state to accept all individuals and
qualified employers applying for coverage in that state, subject to certain restrictions. 42 U.S.C.
§ 300gg-1(a). Further, the Act prohibits insurance providers from setting premiums based upon
a particular person’s health.
See King v. Burwell
, __ U.S., __, __,
Additionally, the Act establishes health insurance “Exchanges,” i.e. , marketplaces within each state where individuals and qualified employers can purchase health insurance. See 42 U.S.C. § 18031. The Act provides that each individual state may administer its respective Exchange if it elects to do so, or, if the state elects not to establish an Exchange, “the Secretary shall . . . establish and operate such Exchange within the [s]tate.” 42 U.S.C. § 18041(c)(1). Health insurance providers wishing to offer insurance coverage on an Exchange can only do so if they offer a “qualified health plan,” which is defined within the Act and the implementing regulations. See 42 U.S.C. §§ 18021, 18031(b)(1)(A); 45 C.F.R. § 155.20. The Act requires insurers participating on the Exchanges to, among other requirements, be certified as qualified health plans. See 42 U.S.C. § 18031(d)(4)(A), (e); 45 C.F.R. § 155.20.
A. The Risk-Corridors Program
Because the Act enabled health insurance coverage to be made available to many individuals who were previously underinsured or uninsured, Lincoln alleges that health insurance providers “had no previous experience or reliable data to meaningfully assess the risks and set the premiums for this new population of insureds.” Compl. ¶ 4. Recognizing this uncertainty, Congress established three stabilization programs, see 42 U.S.C. §§ 18061-18063, to mitigate the uncertainty and pricing risks for insurers, which programs have become commonly known as “reinsurance,” “risk corridors,” and “risk adjustment,” respectively. HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15,410, 15,411 (Mar. 11, 2013), AR 1807; Def.’s Mot. to Dismiss and Mot. for Judgment on the Administrative Record on Count I (“Def.’s Mot.”) at 6, ECF No. 22. The risk-corridors program established under Section 1342 of the Act, which is the stabilization program pertinent to Lincoln’s claims, was designed to “protect against uncertainty in rate setting for qualified health plans by limiting the extent of issuers’ financial losses and gains.” HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. at 15,411, AR 1807. The risk-corridors program is a three-year temporary program that pertains to the calendar years of 2014, 2015, and 2016. 42 U.S.C. § 18062(a). It applies only to qualified *4 health plans offered through an Exchange. Id. ; see 45 C.F.R. § 153.510. The program was “based on” a similar program enacted under Part D of Title XVIII of the Social Security Act. 42 U.S.C. § 18062(a) (referring to Pub. L. No. 108-173, 117 Stat. 2066 (2003) (codified at 42 U.S.C. §§ 1395w-101 et seq. ) (“the Medicare Program”)).
The risk-corridors program calls upon HHS to provide a mechanism to even out the losses and gains of qualified health plans during the three-year phase-in period. 42 U.S.C. § 18062(b); 45 C.F.R. § 153.510. When a qualified health plan issuer experiences a loss in a calendar year, such that the plan’s “allowable costs” are more than 103 percent of the plan’s “target amount” for that year, HHS is directed to pay the issuer a portion of that loss. 42 U.S.C. § 18062(b)(1); 45 C.F.R. § 153.510(b). Correlatively, when the issuer experiences a gain in a calendar year, such that the plan’s “allowable costs” are less than 97 percent of the plan’s “target amount” for that year, the issuer is directed to pay the HHS a certain amount of that gain. 42 U.S.C. § 18062(b)(2); 45 C.F.R. § 153.510(c). The “[p]ayments out” and “[p]ayments in” are specified by statute as follows:
(b) Payment methodology
(1) Payments out
The Secretary shall provide under the program established under subsection (a) that if –
(A) a participating plan’s allowable costs for any plan year are more than 103 percent but not more than 108 percent of the target amount, the Secretary shall pay to the plan an amount equal to 50 percent of the target amount in excess of 103 percent of the target amount; and
(B) a participating plan’s allowable costs for any plan year are more than 108 percent of the target amount, the Secretary shall pay to the plan an amount equal to the sum of 2.5 percent of the target amount plus 80 percent of allowable costs in excess of 108 percent of the target amount.
(2) Payments in
The Secretary shall provide under the program established under subsection (a) that if –
*5 (A) a participating plan’s allowable costs for any plan year are less than 97 percent but not less than 92 percent of the target amount, the plan shall pay to the Secretary an amount equal to 50 percent of the excess of 97 percent of the target amount over the allowable costs; and (B) a participating plan’s allowable costs for any plan year are less than 92 percent of the target amount, the plan shall pay to the Secretary an amount equal to the sum of 2.5 percent of the target amount plus 80 percent of the excess of 92 percent of the target amount over the allowable costs.
42 U.S.C. § 18062(b). Allowable costs include the costs incurred by the qualified health plan in providing benefits under the plan, other than administrative costs. 42 *6 U.S.C. § 18062(c)(1)(A). [6] The target amount consists of the total amount of premiums received under the plan, reduced by any administrative costs. 42 U.S.C. § 18062(c)(2). [7]
The Act does not include a time limit by which payments must be made to, or received from, HHS, see 42 U.S.C. § 18062, but the implementing regulations do include a deadline for when qualified health plan issuers must pay HHS. If a qualified health plan’s allowable costs are sufficiently below the target amount such that the issuer is required to make payments to HHS, the issuer must do so “within 30 days after notification of such charges.” 45 C.F.R. § 153.510(d). In March 2012, before HHS implemented this regulation, HHS noted that it had considered a 30-day deadline for paying qualified health plan issuers because “issuers who are owed these amounts will want prompt payment, and payment deadlines should be the same for HHS and [qualified health plan] issuers.” Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 Fed. Reg. 17,220, 17,238 (Mar. 23, 2012), AR 969. Even so, this deadline was only considered by HHS; it was not included in the proposed or final rule. Id. And, the implementing regulation did not refer to any time limit for HHS to make payments. 45 C.F.R. § 153.510. Instead, HHS explained through a guidance bulletin issued on April 11, 2014, that if it failed to make sufficient payments for 2014, it would use the program’s collected fees from 2015, and then 2016 if necessary, to satisfy amounts due. CMS, Risk Corridors and Budget Neutrality (Apr. 11, 2014), AR 108-09. HHS explained that it would be administering the risk- corridors payments “over the three-year life of the program, rather than annually.” Exchange and Insurance Market Standards for 2015 and Beyond Final Rule, 79 Fed. Reg. 30,240, 30,260 (May 27, 2014), AR 6195.
B. Funding of the Risk-Corridors Program
Paragraphs 1342(b)(1) and (2) of the Act provide that HHS “shall pay” and plans “shall
pay” amounts due out and due in under the payment methodology described in Subsection
1342(b), but the Subsection is otherwise silent regarding deficits or excess funds under the risk-
corridors program.
See
42 U.S.C. § 18062(b); Def.’s Mot. at 8 (“Congress did not include in the
[Act] either an appropriation or an authorization of funding for risk corridors.”). The
Government Accountability Office (“GAO”) reached this same conclusion in 2014 in response to
a congressional inquiry.
See
The Honorable Jeff Sessions, the Honorable Fred Upton, B-325630,
On July 15, 2011, HHS noted in a proposed rule that prior to enactment of the Affordable
Care Act, the Congressional Budget Office (“CBO”) analyzed the estimated costs that would be
attributable to passage, but “did not score the impact of risk corridors,” under the assumption that
“collections would equal payments to plans in the aggregate.” Standards Related to Reinsurance,
Risk Corridors and Risk Adjustment,
In its guidance of April 11, 2014, HHS explained that under the budget-neutral criterion for administration of the program, fees collected by HHS through the program would be the only funds used to pay the qualified health plans eligible for payment. Risk Corridors and Budget Neutrality , AR 108; see 160 Cong. Rec. H9838 (daily ed. Dec. 11, 2014) (noting that budget neutral means “the federal government will never pay out more than it collects from issuers over the three year period risk corridors are in effect”). Thus, qualified health plans with allowable costs less than 97 percent of the target amount for the year would supply the funds used to pay qualified health plans with allowable costs greater than 103 percent of the target amount for the year. In its guidance of April 2014, HHS went on to state:
[I]f risk corridors collections are insufficient to make risk corridors payments for a year, all risk corridors payments for that year will be reduced pro rata to the extent of any shortfall. Risk corridors collections received for the next year will first be used to pay off the payment reductions issuers experienced in the previous year in a proportional manner, up to the point where issuers are reimbursed in full for the previous year, and will then be used to fund current year payments.
Risk Corridors and Budget Neutrality
, AR 108. HHS has adhered to this budget-neutral
implementation in subsequent rules and guidance.
See e.g.
, Exchange and Insurance Market
Standards for 2015 and Beyond Final Rule,
In establishing this payment plan, HHS recognized the “unlikely” possibility that HHS would not receive sufficient collection fees to make all necessary payments for the 2016 calendar year, the final year of the program. HHS Notice of Benefit and Payment Parameters for 2016, 80 Fed. Reg. at 10,779, AR 8153. If such a situation did occur, however, HHS stated it would “use other sources of funding for the risk corridors payments, subject to the availability of appropriations.” Id.
In September 2014, GAO responded to a congressional inquiry by finding that HHS, and
more specifically CMS, was permitted to draw from its general lump-sum 2014 program-
management appropriation of $3.6 billion to make payments under the risk-corridors program.
GAO Op.
,
*10 In these circumstances, HHS has acknowledged its statutory obligation to make full payments to qualifying health plan issuers under Section 1342, subject to the availability of funds. See Exchange and Insurance Market Standards for 2015 and Beyond Final Rule, 79 Fed. Reg. at 30,260, AR 6195 (“HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers.”); HHS Notice of Benefit and Payment Parameters for 2016, 80 Fed. Reg. at 10,779, AR 8153 (noting that CMS would draw upon “risk corridors collections” and might be able to “use other sources of funding for the risk corridors payments, subject to the availability of appropriations”); Def.’s Mot. App. at A47 (CMS, Risk Corridors Payments for 2015 (Sept. 9, 2016)) (same). [12]
C. Lincoln is a Qualified Health Plan Issuer That Has Not Yet Received All Payments Owed to
It Under the Risk-Corridors Program
In September 2013, Lincoln sought to become a qualified health plan issuer and entered into an agreement with HHS, acting through CMS. Compl. ¶¶ 35-36, Ex. 2. The agreement remained valid until December 31, 2014. Compl. Ex. 2, Section III.a. Lincoln entered into similar agreements with “materially and substantially identical” terms for the calendar years of 2015 and 2016. Compl. ¶¶ 41, 45, Exs. 3-4. [13] Each agreement provides that the qualified health plan issuer will abide by certain standards when using “CMS Data Services Hub Web Services,” such as performing certain testing and formatting transactions appropriately. Compl. Ex. 2, Section II.b; Ex. 3, Section II.b; Ex. 4, Section II.b. Each agreement also states that “CMS will recoup or net payments due” to the qualified health plan issuer with respect to the “payment of [f]ederally-facilitated Exchange user fees.” Compl. Ex. 2, Section II.c; Ex. 3, Section III.b; Ex. 4, Section III.b.
Thus, Lincoln was certified as a qualified health plan issuer under the risk-corridors
program for the calendar years of 2014, 2015, and 2016. Lincoln alleges that it relied upon the
protections offered by the risk-corridors program when it agreed to become a qualified health
plan issuer, and that it set premiums for its qualified health plans at lower rates than it otherwise
*11
would have if the program had not been in place. Compl. ¶ 28; Pl.’s Mot. at 5;
cf
. HHS Notice
of Benefit and Payment Parameters for 2014,
Lincoln suffered losses in 2014, and as a result Lincoln was due $4,492,243.80 for 2014 under the risk-corridors program’s payment methodology. AR 270. In October 2015, however, HHS announced that it received $362 million in fees under the risk-corridors program, but owed $2.87 billion in payments. CMS, Risk Corridors Payment Proration Rate for 2014 (Oct. 1, 2015), AR 1254. Due to the budget-neutral criterion, HHS paid qualified health plan issuers 12.6% of the payments they were owed. Id. As a result, HHS paid Lincoln $566,825.32, but still owes Lincoln $3,925,418.48 in risk-corridors payments for 2014. AR 270; Pl.’s Mot. at 7. HHS explained that it will pay the remainder of the 2014 payments with fees collected from the 2015 risk-corridors program, and the 2016 program if necessary. AR 293.
Lincoln also claims that it is entitled to $71,833,251 from HHS under the risk-corridors program for losses Lincoln suffered in 2015. Pl.’s Mot. at 7-8 & App. 8 at A56 to A59. [14] HHS has not announced final collections and payments for 2015, but HHS stated in September 2015 that it anticipates “all 2015 benefit year collections will be used towards remaining 2014 benefit year risk corridors payments, and no funds will be available at this time for 2015 benefit year risk corridors payments.” Def.’s Mot. App. at A47. HHS has since indicated that it plans to begin making further payments for 2014 in December 2016, but it has not yet specified the amount of fees it collected in 2015. See AR 1498; Def.’s Mot. at 13-14.
D. Lincoln’s Action in This Court
Lincoln filed this action on June 23, 2016. It alleges that it is entitled to damages from the government on the grounds that the government violated its risk-corridors “payment obligations” under Section 1342 of the Act and the implementing federal regulations (Count I), breached an express contract or, alternatively, an implied-in-fact contract (Counts II, III), breached the implied covenant of good faith and fair dealing (Count IV), and contravened the Fifth Amendment by taking Lincoln’s property for public use without just compensation (Count V). See generally Compl. Lincoln demands $75,758,669.48 from the government for payments Lincoln is allegedly owed to date under the risk-corridors program, consisting of $3,925,418.48 for 2014 and $71,833,251 for 2015. Pl.’s Mot. at 2. [15] Lincoln additionally requests that the *12 court require the government to fulfill its risk-corridors payment obligations for 2015 and 2016 within 30 days of determining payments owed. Compl. at 45.
On September 23, 2016, Lincoln filed a motion for judgment on the administrative record, and the government filed a motion to dismiss Lincoln’s claims and a motion for judgment on the administrative record with respect to Count I. See generally Pl.’s Mot.; Def.’s Mot. The government argues that the court should dismiss Lincoln’s claims for lack of jurisdiction pursuant to RCFC 12(b)(1), or, alternatively, that it is entitled to judgment on the administrative record under Count I and that the court should dismiss Counts II, III, IV, and V for failure to state a claim pursuant to RCFC 12(b)(6). See generally Def.’s Mot. Lincoln opposed the government’s motion and filed a cross-motion for judgment on the administrative record with respect to Counts II-V, see Pl.’s Resp. in Opp’n to Def.’s Mot. to Dismiss and Mot. for Judgment on the Administrative Record and Cross-Mot. for Judgment on the Administrative Record on Counts II-V (“Pl.’s Resp. and Cross Mot.”), ECF No. 29, which the government opposed, see Def.’s Opp’n to Pl.’s Cross-Mot. for Judgment on the Administrative Record on Counts II-V (“Def.’s Opp’n to Pl.’s Cross Mot.”), ECF No. 43. The competing motions were addressed at a hearing held on November 7, 2016.
JURISDICTION
A. The Court Has Subject Matter Jurisdiction Over Lincoln’s Claims for Money Damages, but
Not Over Lincoln’s Request for Declaratory Relief
1. Claim for money damages under Section 1342 and the implementing regulations. As plaintiff, Lincoln has the burden of establishing jurisdiction. See Reynolds v. Army &
Air Force Exch. Serv.
,
In short, the court will have jurisdiction when a plaintiff invokes a money-mandating
source and makes a “non-frivolous assertion” that the plaintiff is entitled to relief under that
source.
Jan’s Helicopter Serv.
,
While the word “may” in a statute creates a presumption of government discretion,
Doe
,
Here, Section 1342 of the Act provides that when a qualified health plan’s allowable
costs exceed the target amount by more than 103 percent, “the Secretary
shall
pay to the plan” an
amount set forth in Section 1342, depending on whether the costs exceed the target amount by
more than 103 or 108 percent. 42 U.S.C. § 18062(b)(1) (emphasis added). Further, the
implementing regulation states that qualified health plan issuers “will receive payment from
HHS” under the criteria and formulas described in Section 1342. 45 C.F.R. § 153.510(b).
*14
Neither the statute nor the regulation use the word “may” or provide any indication that HHS has
discretion to refuse risk-corridors payments if funds are available. Regardless of whether the
program is budget neutral or whether full payments are required annually, which topics are
addressed
infra
, it is evident that HHS is obliged to make payments to qualified health plans
when certain criteria are satisfied and funds are available. HHS has acknowledged this
requirement.
See, e.g.
, Exchange and Insurance Market Standards for 2015 and Beyond Final
Rule,
Nonetheless, the government argues that the court does not have jurisdiction over
Lincoln’s claims because the payments that HHS owes are not “presently due.” Def.’s Mot. at
16. To support its argument, the government cites
Todd v. United States
, where the Federal
Circuit held that this court has jurisdiction under the Tucker Act only when the money damages
are “actual” and “presently due.”
The government’s argument reaches too far. The court’s jurisdictional analysis differs
depending on whether the plaintiff relies on a money-mandating statute.
See Bevevino v. United
States
,
2. Claims for money damages under an express contract or, alternatively, an implied-in-fact contract theory.
This court has jurisdiction “to render judgment upon any claim against the United States
founded . . . upon any express or implied contract with the United States.” 28 U.S.C. §
1491(a)(1). Thus, as discussed
supra
, a contract can serve as the substantive source for a
plaintiff’s claim to monetary relief under the Tucker Act.
See Speed
,
Similar to the court’s jurisdictional analysis of Lincoln’s claim based upon Section 1342,
the merits of Lincoln’s contract claims must be separated from the court’s assessment of its
power to rule on these claims.
See Engage Learning
,
Here, Lincoln seeks risk-corridors payments of $3,925,418.48 for 2014 and $71,833,251 for 2015. Pl.’s Mot. at 2. Lincoln argues that it is entitled to these payments under an express contract theory because prior to each year of the risk-corridors program Lincoln offered a qualified health plan, and it allegedly entered into written agreements with HHS that allegedly required HHS to make full payment for the upcoming year. Compl. ¶¶ 166-78; Pl.’s Resp. and Cross-Mot. at 31-35, 39-43. Alternatively, Lincoln argues that the course of conduct *16 between the government and Lincoln gave rise to an implied-in-fact contract that would also entitle Lincoln to full annual payments from HHS. Compl. ¶¶ 180-97; Pl.’s Resp. and Cross- Mot. at 39 (“[T]he [g]overnment’s promise to make payment can induce behavior that constitutes a mutuality of intent to contract.”).
The court concludes that Lincoln has sufficiently made non-frivolous contract claims
against the government for monetary relief. Lincoln has established that it entered into written
agreements with HHS certifying Lincoln as a qualified health plan provider under the risk-
corridors program for all three years of the program.
See
Compl. Exs. 2-4. Further, the
government engaged in conduct that indicated an intent to make at least some payments under
the risk-corridors program to qualified health plans.
See, e.g.
, HHS Notice of Benefit and
Payment Parameters for 2014,
Thus, the court has jurisdiction over Lincoln’s express and implied contract claims to the
extent that the 2014 and 2015 risk-corridors payments are presently due. Under Lincoln’s
alleged 2014 contract with HHS, payment was due in 2015 after HHS determined the amount of
payment it owed to Lincoln. HHS paid approximately 12% of that amount,
see Risk Corridors
Payment Proration Rate for 2014
, AR 1254, and the remaining balance is allegedly due.
Additionally, Lincoln alleges that HHS repudiated its 2015 contract obligations when HHS
stated that it did not anticipate making any 2015 payments during 2016. Pl.’s Resp. and
Cross-Mot. at 11-12; Def.’s Mot. App. at A47. Lincoln chose to treat that repudiation as a
present breach. Pl.’s Resp. and Cross-Mot. at 11-12;
see Franconia Assocs. v. United States
, 536
U.S. 129, 143-44 (2002) (noting that a plaintiff may treat the other party’s repudiation as a
present breach by bringing suit);
Kasarsky v. Merit Sys. Prot. Bd.
,
3. Claim for money damages under the Takings Clause of the Fifth Amendment.
The court has jurisdiction via the Tucker Act over claims brought under the Takings
Clause of the Fifth Amendment.
See, e.g.
,
Preseault v. Interstate Commerce
,
4. Request for declaratory relief.
Additionally, Lincoln requests that, incidental to a monetary judgment, the court declare that the government must fulfill and fully satisfy its risk-corridors payment obligations for 2015 and 2016 within 30 days of determining payments owed. Compl. at 45; Pl.’s Resp. and Cross- Mot. at 30-31. The court does not have jurisdiction over such a request.
The Tucker Act provides the court with jurisdiction to grant equitable or declaratory
relief in three circumstances.
See Annuity Transfers
,
B. Lincoln’s Claims Are Ripe For Judicial Review
The justiciability doctrines of Article III apply in this court, including the ripeness
requirement.
Square One Armoring Serv., Inc. v. United States
,
The ripeness doctrine “prevent[s] the courts, through avoidance of premature
adjudication, from entangling themselves in abstract disagreements over administrative policies,
and also . . . protect[s] the agencies from judicial interference.”
Abbott Labs. v. Gardner
, 387
U.S. 136, 148 (1967),
abrogated on other grounds by Califano v. Sanders
,
A case will generally be fit for judicial review when “further factual development would
not ‘significantly advance [a court’s] ability to deal with the legal issues presented.’”
Caraco
Pharm. Labs.
,
Respecting hardship, the court must consider whether withholding court consideration
would have an “immediate and substantial impact” on the plaintiff.
Caraco Pharm. Labs.
, 527
F.3d at 1295 (quoting
Gardner v. Toilet Goods Ass’n
,
1. Section 1342 and the implementing regulation.
In evaluating fitness for review, the parties focus on Lincoln’s claim for damages under
Section 1342 of the Act and the implementing regulation. Lincoln asserts that qualified health
plans satisfying the conditions of Section 1342 are entitled to payment under the risk-corridors
program, and the government accepts this assertion in substantial part.
See, e.g.
, Exchange and
Insurance Market Standards for 2015 and Beyond Final Rule,
The possibility of the government’s making some or all of the risk-corridors payments in
the future does not change this calculus. In
Confederated Tribes & Bands of The Yakama
Nation
, the government argued that plaintiffs’ breach of trust and fiduciary duties claims were
*19
not fit for judicial review because the government still had the means to obtain and provide the
money requested by plaintiffs.
Lincoln has also demonstrated hardship. Lincoln is allegedly due nearly $4 million for
losses it suffered in 2014. AR 270; Pl.’s Mot. at 7. Further, Lincoln is allegedly due more than
$70 million for losses in 2015,
see
Pl.’s Mot. at 7-8 & App. 8 at A59, but HHS has stated that it
does not anticipate making any 2015 payments this year. Def.’s Mot. App. at A47. Lincoln’s
excess of claims paid compared to premiums received is not uncertain or speculative; as
previously noted, Lincoln’s adjusted risk-corridors ratios for coverages in 2015 were more than
175% over its target for 2015 and Lincoln suffered substantial losses as a result.
See supra
, at 11
n. 14. Lincoln did not have reserves to cover the deficit, and it was placed in liquidation
proceedings as of October 1, 2016. Def.’s Mot. to Strike Pl.’s Cross-Mot. for Judgment on
the Administrative Record on Counts II-V at 3-4 & Attach., ECF No. 31; Pl.’s Resp. to Def.’s
Mot. to Strike Pl.’s Cross-Mot. for Judgment on the Administrative Record on Counts II-V at 4-
5, ECF No. 34. Coupled with Lincoln’s premium-setting policies, HHS’s failure to make
timely payments at least contributed to this insolvency and liquidation.
See Inter-Tribal Council
of Ariz., Inc. v. United States
,
2. Express and implied contract claims.
Ordinarily, a breach of contract claim ripens when the breach occurs.
See Barlow &
Haun, Inc. v. United States
,
*20 Lincoln alleges that HHS had a contractual obligation to make full and annual payments under the risk-corridors program. Again, HHS made payments for the 2014 year, but did not pay in full. Further, as Lincoln would have it, HHS allegedly committed an anticipatory breach of the 2015 contract when it announced that it would not be making 2015 payments this year, and Lincoln has treated HHS’s so-called repudiation as a present and total breach. Pl.’s Resp. and Cross-Mot. at 11-12. Lincoln’s contract claims for 2014 and 2015 consequently also are ripe for review.
3. Takings claim.
Generally, a regulatory takings claim is ripe when the “government entity charged with
implementing the regulations has reached a final decision regarding the application of the
regulations to the property at issue.”
Morris v. United States
,
Lincoln submitted timely accounts of its losses and entitlement to payment for 2014 and 2015, but it has received less than full payment from the government. While HHS has stated that it intends to fulfill its 2014 payment obligations as funds become available, it did not make full payments annually. This was not a tentative decision by HHS, but rather reflected the agency’s budget-neutral scheme and determined Lincoln’s rights as a qualified health plan issuer. HHS’s actions represent a final decision on behalf of the agency, and the legal consequences of those actions have directly affected Lincoln. Lincoln’s takings claim is also ripe.
STANDARDS FOR DECISION A. Rule 12(b)(6)
Under RCFC 12(b)(6), a complaint must “contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal
,
B. Judgment on the Administrative Record
In a case dependent upon the administrative record, a party is permitted to move for
judgment on the administrative record pursuant to RCFC 52.1(c). The court reviews decisions of
a federal agency under the standards set forth in the Administrative Procedure Act (“APA”),
codified in pertinent part at 5 U.S.C. § 706(2)(A).
See Weeks Marine, Inc. v. United States
, 575
F.3d 1352, 1358 (Fed. Cir. 2009);
Meyer v. United States
,
ANALYSIS
I. THE STATUTORY ENTITLEMENT COUNT Land of Lincoln’s fundamental claim is that HHS has misconstrued Section 1342 of the Act and that the statute when properly interpreted establishes an entitlement to “payments out” on an annual basis and in full, even in the absence of an authorization for, or appropriation of, specific funding beyond the “payments in” due under the statute.
When a party challenges an agency’s interpretation of a statute administered by the
agency, the court applies the two-step process established in
Chevron
,
But, if Congress has not spoken to the precise issue, the court turns to step two and
applies the “
Chevron
standard of deference.”
Cathedral Candle Co. v. U.S. Int’l Trade Comm’n
,
In supporting its position, Lincoln relies upon a variant of the plain-meaning doctrine applicable to Chevron step one, while the government contends that Section 1342 is ambiguous because of gaps in the language and urges the court to defer to the agency’s interpretation under Chevron step two.
A. Section 1342 Provides No Specific Authorization for Use of Appropriated Funds and is
Ambiguous as to Whether HHS Is Required to Make Payments Annually
Under step one of
Chevron
, “the precise question at issue” here is whether Congress
intended for HHS to make full payments annually under Section 1342, regardless of the amount
of fees collected under the risk-corridors program. The court begins with the language of the
statute.
Sursely v. Peake
,
Paragraph 1342(b)(1) provides that if a qualified health plan reports allowable costs for “any plan year” that sufficiently exceed the plan’s target amount, “the Secretary shall pay to the plan” a percentage of those costs. 42 U.S.C. § 18062(b)(1). Lincoln emphasizes the “shall pay” language and the year-by-year reporting and calculus of its cost-revenue experience. Although Paragraph 1342(b)(1) contemplates that qualified health plans will be reporting costs on an annual basis via the phrase “any plan year,” that arrangement reflects the year-by-year transitory aspect of the temporary risk-corridors program. [19] The “[p]ayments out” and “[p]ayments in “ methodology in Subsection 1342(b) governs the amounts that HHS must pay to and receive from qualified health plans, but it does not establish when these payments are to be made. Similarly, Subsection 1342(a) states that the Secretary “shall establish and administer” the program “for calendar years 2014, 2015, and 2016,” but it does not specify the timing of the various payments over those three years. [20]
*23
Additionally, the only statutory source of funding for the risk-corridors program is
Paragraph 1342(b)(2), which refers to “[p]ayments in” from qualified health plans. 42 U.S.C. §
18062(b)(2);
see GAO Op.
,
Responsibility.” It provides:
Sec. 1563. Sense of the Senate Promoting Fiscal Responsibility (a) FINDINGS. – The Senate makes the following findings: (1) Based on Congressional Budget Office (CBO) estimates, this Act will reduce the federal deficit between 2010 and 2019.
(2) CBO projects this Act will continues to reduce budget deficits after 2019.
(3) Based on CBO estimates, this Act will extend the solvency the Medicare HI Trust Fund.
(4) This Act will increase the surplus in the Social Security Trust Fund, which should be reserved to strengthen the finances of Social Security.
(5) The initial net savings generated by the Community Living Assistance Services and Supports (CLASS) program are necessary to ensure the long-term solvency of that program.
(b) SENSE OF THE SENATE. – It is the sense of the Senate that –
*24
for other programs within the Act, but it never has done so for the risk-corridors program.
See,
e.g.
, 42 U.S.C. §§ 18031(a)(1), 18054(i);
see also National Fed’n of Indep. Bus. v. Sebelius
, __
U.S. __, __,
Lincoln additionally emphasizes that the risk-corridors program is explicitly “based on” Part D of the Medicare Program, see 42 U.S.C. § 18062(a), which requires full payments annually and is not budget neutral. Pl.’s Mot. at 12; Pl.’s Resp. and Cross-Mot. at 15-16, 18-19. However, the Medicare Program is not helpful to Lincoln’s argument. The Medicare Program sets forth a risk-corridors payment program between HHS and qualified prescription drug plans. 42 U.S.C. § 1395w-115. While Section 1342 is “based on” the Medicare Program and the (1) the additional surplus in the Social Security Trust Fund generated by this Act should be reserved for Social Security and not spent in this Act for other purposes; and (2) the net savings generated by the CLASS program should be reserved for the CLASS program and not spend in this Act for other purposes.
Affordable Care Act § 1563, 124 Stat. 270-71. In post-enactment reports, the CBO’s observations related to the risk-corridors program
have been inconsistent. See, e.g. , Congressional Budget Office, Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision , at Tables 2, 4 (July 2012), https://www.cbo.gov/sites/default/files/112th-congress- 2011-2012/reports/43472-07-24-2012-CoverageEstimates.pdf (providing spending and revenue estimates for reinsurance and risk adjustment, but not risk corridors); Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024 , at 59 (Feb. 2014), https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45010- outlook2014feb0.pdf (estimating the spending and revenue of the risk-corridors program and noting that “risk corridor collections . . . will not necessarily equal risk corridor payments, so that program can have net effects on the budget deficit”); Congressional Budget Office, Insurance Coverage Provisions of the Affordable Care Act–CBO’s January 2015 Baseline , Table B-1 (Jan. 2015), https://www.cbo.gov/sites/default/files/51298-2015-01-ACA.pdf (“The risk corridors program is now recorded in the budget as a discretionary program.”).
These post-enactment observations by CBO are of limited utility for statutory
interpretation. For purposes of determining the congressional intent underpinning Section 1342,
the CBO’s March 2010 estimate is the only pertinent report because that is what Congress relied
upon in passing the Act.
See United States v. Fausto
,
two programs share many similarities, they are not identical. The Medicare Program specifically
requires that “
[f]or each plan year
, the Secretary shall establish a risk corridor . . . .” 42 U.S.C. §
1395w-115(e)(3)(A) (emphasis added). In contrast, Congress chose to omit “for each plan year”
in Section 1342 and instead required that “[t]he Secretary shall establish and administer a
program of risk corridors.” 42 U.S.C. § 18062(a). The only mention of “any plan year” is in
reference to the qualified health plan’s reported costs, rather than HHS’s obligation to pay.
See
42 U.S.C. § 18062(b)-(c). Additionally, unlike Section 1342, the Medicare Program explicitly
provides for authorization of appropriations.
See
42 U.S.C. § 1395w-115(a)(2) (“This section
constitutes budget authority in advance of appropriations Acts and represents the obligation of
the Secretary to provide for the payment of amounts provided under this section.”). “When
Congress omits from a statute a provision found in similar statutes, the omission is typically
thought deliberate.”
Turtle Island Restoration Network v. Evans
,
In short, Section 1342 is ambiguous in terms of the “payments in” and “payments out” arrangement for risk-corridors payments because it does not contain an express authorization for appropriations to make up any shortfall in the “payments in” to cover all of the “payments out” that may be due. And, it does not explicitly require “payments out” to be made on an annual basis, whether in full or not. Chevron step two thus seemingly comes into play.
Lincoln nonetheless argues that Chevron deference is inappropriate because (1) HHS’s interpretation of Section 1342 is a post hoc rationalization that the government has merely advanced for purposes of litigation, and (2) deference is not appropriate in the context of the Affordable Care Act. Pl.’s Resp. and Cross-Mot. at 21-22.
HHS initially outlined its three-year, budget-neutral interpretation of Section 1342 in
2014, several years before this suit began.
See, e.g.
, HHS Notice of Benefit and Payment
Parameters for 2015 Final Rule,
In resisting deference, Lincoln also relies on King v. Burwell , __ U.S. at __, 135 S. Ct. at 2488-89, where the Supreme Court did not give deference to the Internal Revenue Service’s (“IRS”) interpretation of the Affordable Care Act. The Court reasoned that deference was not appropriate because that “extraordinary case[]” involved tax credits that were “central” to the Act’s statutory scheme, implicated “billions of dollars” that would affect health insurances prices, and related to an implicit delegation of authority from Congress to the IRS, which did not have expertise in health insurance policy. Id. Here, in contrast, Congress delegated the responsibilities of administering the risk-corridors program to HHS, which addresses health insurance policy in a variety of different contexts. Lincoln has failed to demonstrate that this setting is sufficiently “extraordinary” to obviate reference to Chevron deference.
B. HHS’s Three-Year, Budget-Neutral Interpretation of Section 1342 is Reasonable Under the Chevron Step-Two Standard of Deference
Under step two of
Chevron
, the court must defer to HHS’s interpretation of Section 1342
as long as that interpretation is reasonable. HHS’s interpretation was reflected in its final rule on
May 27, 2014, when it stated that it intended “to administer risk corridors in a budget neutral
way over the three-year life of the program, rather than annually.” Exchange and Insurance
Market Standards for 2015 and Beyond Final Rule,
Section 1342 directs HHS to establish the risk-corridors program and sets forth the amounts that HHS must receive and pay under the payment methodology subsection, but it does not obligate HHS to make annual payments or authorize the use of any appropriated funds. HHS’s interpretation is consistent with the CBO’s 2010 report, Congress’s decision explicitly to authorize funds for other sections of the Act but not Section 1342, and Congress’s choice to omit from Section 1342 the critical appropriation language used in the Medicare Program, as discussed supra . HHS’s three-year, budget-neutral interpretation reasonably reflects these circumstances.
Lincoln argues that HHS’s interpretation is unreasonable because HHS’s failure to make
full payments annually defeats the purpose of the risk-corridors program, which is to provide
stability and protection for qualified health insurance plans. Pl.’s Resp. and Cross-Mot. at
19-20. In this vein, HHS has repeatedly acknowledged its obligation to pay qualified health
plans that are eligible for payment under the risk-corridors program.
See, e.g.
, Exchange and
Insurance Market Standards for 2015 and Beyond Final Rule,
The primary implementing regulation for the risk-corridors program, 45 C.F.R. § 153.510, sets forth substantially similar terms to Section 1342. As to “payments out,” the regulation provides:
(b) HHS payments to health insurance issuers. QHP issuers will receive payment from HHS in the following amounts, under the following circumstances: (1) When a QHP’s allowable costs for any benefit year are more than 103 percent but not more than 108 percent of the target amount, HHS will pay the QHP issuer an amount equal to 50 percent of the allowable costs in excess of 103 percent of the target amount; and
(2) When a QHP’s allowable costs for any benefit year are more than 108 percent of the target amount, HHS will pay to the QHP issuer an amount equal to the sum of 2.5 percent of the target amount plus 80 percent of allowable costs in excess of 108 percent of the target amount.
45 C.F.R. § 153.510(b). Correlatively to Section 1342, the regulation omits any reference to when payment from HHS is due or how HHS is to fund the program. There is no deadline for *28 HHS to make payments to the qualified health plan issuers. See generally 45 C.F.R. § 153.510. The only relevant difference is that the regulation explicitly provides a deadline for qualified health plan issuers to remit overages to HHS. See 45 C.F.R. § 153.510(d). Thus, for the reasons discussed supra , the court finds HHS’s interpretation of the ambiguous statute to be reasonable. HHS’s decision not to make full payments annually cannot be considered contrary to law. The government’s motion for judgment on the administrative record with respect to Count I is granted.
II. THE CONTRACT COUNTS
A. Count II: Lincoln Has Failed to Allege a Valid Express Contract Because the Agreements Between Lincoln and HHS Do Not Establish Any Contractual Commitment Pertaining to the Risk-Corridors Program
Lincoln alleges that it entered into three one-year contracts with HHS when it agreed to be a qualified health plan issuer for 2014, 2015, and 2016 and that HHS breached those contracts by failing to make full payments annually. See Compl. ¶¶ 166-78, Exs. 2-4. The government responds that the agreements between Lincoln and HHS are not contracts and are unrelated to the risk-corridors program. See Def.’s Mot. at 31-37; Def.’s Opp’n to Pl.’s Cross-Mot. at 12-18. For the reasons set out below, the court concludes that Lincoln has failed to establish that an express contract exists between Lincoln and HHS respecting the risk-corridors program.
To establish a valid contract with the government, a plaintiff must demonstrate “(1)
mutuality of intent to contract, (2) consideration, (3) lack of ambiguity in offer and acceptance,
and (4) authority on the part of the government agent entering the contract.”
Suess v. United
States
,
Here, Lincoln entered into one-year agreements with HHS for 2014, 2015, and 2016. See Compl. Exs. 2-4. The agreements certified Lincoln as a qualified health plan issuer, as required by the Affordable Care Act and the implementing regulations. See 42 U.S.C. § 18031(d)(4)(A), (e); 45 C.F.R. § 155.20. The substance of each agreement is contained in the “Acceptance of Standard Rules of Conduct,” where the qualified health plan issuer agrees to use HHS’s internet services in accord with the conduct outlined in the agreement. Compl. Ex. 2, *29 Section II.b; Ex. 3, Section II.b; Ex. 4 Section II.b. The conduct specifically relates to the qualified health plan’s communications through the government’s internet service. The qualified health plan agrees to properly test and format transactions, submit test transactions, and abide by certain transaction standards, among other internet service-related requirements. See Compl. Ex. 2, Section II.b; Ex. 3, Section II.b; Ex. 4, Section II.b. The agreements do not explicitly refer to the risk-corridors program. See generally Compl. Exs. 2-4. Rather, they reflect Lincoln’s agreement to comply with HHS’s standards and the government’s acceptance of Lincoln into the Affordable Care Act’s Exchange program. Because Illinois elected not to establish an Exchange under the provisions of 42 U.S.C. § 18031(d), HHS stepped in to provide a federally-run Exchange in Illinois pursuant to 42 U.S.C. § 18041(c). The plain language of the agreements does not indicate any contractual commitment on behalf of HHS to make risk-corridors payments.
Lincoln presents several arguments as to why the agreements represent a contractual obligation to pay qualified health plans under the risk-corridors program, including that: (1) the agreements provide that HHS will “undertake all reasonable efforts to implement systems and processes” to support the qualified health plan issuers, (2) the agreements state that they are “governed by the laws and common law of the United States of America, including without limitation such regulations as may be promulgated by HHS,” and (3) the agreements state that HHS “will recoup or net payments due” to qualified health plan issuers “against amounts owed” to HHS with respect to the “payment of [f]ederally-facilitated Exchange user fees.” See Compl. Exs. 2-4; Pl.’s Resp. and Cross-Mot. at 33-34. These arguments do not constitute persuasive support to Lincoln’s position for the reasons set forth below.
First, HHS’s obligation “to implement systems and processes,” see Compl. Ex. 2, Section II.d; Ex. 3, Section III.a; Ex. 4, Section III.a, must be read in the context of the agreements as a whole. The agreements explicitly relate to the qualified health plan’s use of HHS’s “Data Services Hub Web Services.” Compl. Ex. 2, Section II.b; Ex. 3, Section II.b; Ex. 4, Section II.b. The qualified health plan agrees to abide by certain requirements so that it can be certified to offer insurance through this internet service. Given this context, “systems and processes” must relate to the electronic system that HHS and the qualified health plan will be using, and the processes that support this electronic system. This interpretation is reinforced by the language of the “Companion Guide,” which is explicitly cited within the agreement. See, e.g. , Compl. Ex. 2, Section II.b; Ex. 3, Section II.b; Ex. 4, Section II.b. The guide identifies the various processes that are implicated by HHS’s internet service, such as the testing process and validation process. *30 See Def.’s Opp’n to Pl.’s Cross-Mot. at 13-14, App. at A1-A5. The “systems and processes” language does not give rise to any risk-corridors obligations.
Second, the general reference to “the laws and common law of the United States,
including . . . such regulations as may be promulgated from time to time by the Department of
Health and Human Services or any of its constituent agencies,” Compl. Ex 2, Section V.g; Ex. 3,
Section V.g; Ex. 4, Section V.g, does not incorporate the risk-corridors program into the
agreement. For a contract to incorporate a document, “the incorporating contract must use
language that is
express
and
clear
, so as to leave no ambiguity about the identity of the document
being referenced, nor any reasonable doubt about the fact that the referenced document is being
incorporated into the contract.”
Northrop Grumman Info. Tech., Inc. v. United States
, 535 F.3d
1339, 1344 (Fed. Cir. 2008) (emphasis in original). A reference to the laws of the United States,
or to statutes or regulations generally, will typically not suffice to incorporate a specific statutory
provision or regulation.
See, e.g.
,
St. Christopher Assocs., L.P. v. United States
,
Third, HHS’s obligations regarding “[f]ederally-facilitated Exchange user fees,” see Compl. Ex. 2, Section II.c; Ex. 3, Section III.b; Ex. 4, Section III.b, do not relate to the risk- corridors program. Neither Section 1342 of the Act nor Section 153.510 of the regulations refer to such fees. See 42 U.S.C. § 18062; 45 C.F.R. § 153.510. Rather, the term “user fees” is included in Section 1311 of the Act, which permits the Exchanges “to charge assessments or user fees to participating health insurance issuers.” 42 U.S.C. § 18031(d)(5)(A). [27] The implementing regulations, under a provision entitled “Requirement for [f]ederally-facilitated Exchange user fee,” explain that participating health insurance issuers offering plans through a federally- facilitated Exchange “must remit a user fee to HHS.” 45 C.F.R. § 156.50(c)(1), (2). [28] HHS is *31 obligated to adjust or reduce the user fee if the issuer satisfies certain conditions, such as making payments for a contraceptive service. See id. § 156.50(d). Thus, the agreements between HHS and Lincoln simply acknowledge that Lincoln will pay the user fee set forth in Section 156.50 of the implementing regulations. The reference to HHS’s recouping or netting payments reflects the agency’s obligations described in Section 156.50(d), which states when an adjustment to the user fee is applicable. The risk-corridors program is not mentioned as a basis for an adjustment. See generally 45 C.F.R. § 156.50(d).
Thus, Lincoln has failed to allege that the agreements between Lincoln and HHS created a valid express contract pertaining to risk-corridors payments. The government’s motion to dismiss Lincoln’s claim of breach of an express contract is granted.
B. Count III: Lincoln Has Failed to Allege a Valid Implied-in-Fact Contract Because Mutuality of Intent and Offer and Acceptance are Lacking, and Even if an Implied-in- Fact Contract Did Exist, the Scope of the Contract Would be Limited by the Implementing Regulations
Lincoln alleges that it formed an implied-in-fact contract with the government and that the government implicitly agreed to make full risk-corridors payments annually, which it has failed to do. See Compl. ¶¶ 180-97; Pl.’s Resp. and Cross-Mot. at 35-39. The government responds that Section 1342 and the implementing regulations and the course of conduct of the parties do not establish the existence of any contract between the government and qualified health plans. See Def.’s Mot. at 37-42.
An implied-in-fact contract is based upon a meeting of the minds, which is inferred from
the conduct of the parties and the surrounding circumstances.
Night Vision Corp. v. United
States
,
alleged offer to make risk-corridors payments when Lincoln chose to participate on the Illinois
Exchange. Pl.’s Resp. and Cross-Mot. at 36. However, detrimental reliance is not an
*32
burden of proving that a valid contract exists.
Harbert/Lummus Agrifuels Projects v. United
States
,
“[A]bsent some clear indication that the legislature intends to bind itself contractually,
the presumption is that a law is not intended to create private contractual or vested rights but
merely declares a policy to be pursued . . . .”
National R.R. Passenger Corp. v. Atchison Topeka
& Santa Fe Ry.
,
Here, similarly, Section 1342 and the implementing regulations do not provide any
express or explicit intent on behalf of the government to enter into a contract with qualified
health plan issuers. Although the provisions may mandate payment from HHS, albeit not
annually, when a qualified health plan satisfies statutory and regulatory conditions, that alone
does not demonstrate intent to contract.
See ARRA Energy Co. I
,
Congress, not any promissory undertaking or offer to qualified health plans issuers such as Lincoln. Thus there is no apparent mutuality of intent to contract.
To support its implied contract claim, Lincoln primarily relies on
Radium Mines, Inc. v.
United States
, where the court construed a regulation as an offer that invited acceptance by
performance.
Additionally, Lincoln relies on
New York Airways, Inc. v. United States
,
Alternatively, even assuming Lincoln could show that Section 1342 and the
implementing HHS regulations constituted a contractual offer relating to risk-corridors payments
that Lincoln accepted, thus giving rise to an implied-in-fact-contract, Lincoln cannot establish
that HHS breached a contractual obligation.
See Anderson v. United States
,
*35 Thus, the government’s motion to dismiss Lincoln’s breach of implied-in-fact contract claim is granted.
C. Count IV: Lincoln Failed to Allege a Breach of the Implied Covenant of Good Faith and Fair Dealing Because No Valid Contract Exists
Lincoln alleges that the government breached the implied covenant of good faith and fair
dealing by failing to make full risk-corridors payments annually.
See
Compl. ¶¶ 199-209. Every
contract contains an implied “duty of good faith and fair dealing in its performance and
enforcement.”
Metcalf Constr. Co. v. United States
,
III. THE TAKINGS COUNT
Lincoln alleges that HHS’s failure to make full risk-corridors payments annually violated
the Fifth Amendment because it resulted in a taking of Lincoln’s property for public use without
just compensation. Compl. ¶¶ 211-17. The Takings Clause of the Fifth Amendment
provides that private property shall not be taken without just compensation. U.S. Const. amend.
V, cl. 4. In evaluating a takings claim, the court must first determine whether the plaintiff has a
cognizable interest in the property at issue.
Karuk Tribe of Cal. v. Ammon
,
Here, Lincoln does not have a valid property interest in receiving full risk-corridors
payments annually. Lincoln’s statutory entitlement claim does not give rise to a takings claim
because Lincoln is not entitled to full payments annually, and because a statutory right to
payment is not a recognized property interest.
See Adams
,
CONCLUSION
For the reasons stated above, the government’s motion for judgment on the administrative record is GRANTED with respect to Count I, and the government’s motion to dismiss plaintiff’s complaint pursuant to RCFC 12(b)(6) is GRANTED with respect to Counts II, III, IV, and V. Plaintiff’s motion and cross-motion for judgment on the administrative record are DENIED. The clerk will enter judgment in accord with this disposition.
No costs.
It is so ORDERED.
s/ Charles F. Lettow Charles F. Lettow
Judge
Notes
[1] The Act assigns HHS the responsibility for implementing many aspects of the Act. HHS delegates some of those responsibilities to the Centers for Medicare & Medicaid Services (“CMS”), including the responsibility to establish and administer the risk-corridors program. See Delegation of Authorities, 76 Fed. Reg. 53,903, 53,904 (Aug. 30, 2011). For purposes of this opinion, both HHS and CMS will be referred to as “HHS.”
[2] Lincoln is a nonprofit issuer that provided health plans through the government’s Consumer Operated and Oriented Plan program, which was intended to “foster the creation of qualified nonprofit health insurance issuers.” See 42 U.S.C. § 18042(a); Pl.’s Mot. for Judgment on the Administrative Record and Mem. in Support (“Pl.’s Mot.”) at 3, ECF No. 20. Nonetheless, as an Illinois health insurance provider, Lincoln must file its rates, along with other information, with the State of Illinois and receive approval from the State before it can issue health insurance. See 215 Ill. Comp. Stat. 5/355, 5/143 (2016).
[3] “AR__” refers to the administrative record certified by HHS and filed with this court in compliance with Rule 52.1(a) of the Rules of the Court of Federal Claims (“RCFC”).
[4] If a health insurer chooses not to offer coverage through an Exchange, then it is not subject to the risk-corridors program. See 45 C.F.R Part 155 (“Exchange Establishment Standards and Other Related Standards under the Affordable Care Act”), Subpart K (“Exchange Functions: Certification of Qualified Health Plans”), § 155.1000(b) (“The Exchange must offer only health plans which have in effect a certification issued or are recognized as plans deemed certified for participation in an Exchange as a QHP, unless specifically provided for otherwise.”).
[5] The HHS regulations implementing the payment-out methodology set forth “substantially similar terms” to those set out in the statute. Def.’s Mot. at 7 (citing 45 C.F.R. § 153.510(b)-(c)). As HHS explained: For example, a [qualified health plan] has a target amount of $10 million, and the [qualified health plan] has allowable costs of $10.5 million, or 105 percent of the target amount. Since 103 percent of the target amount would equal $10.3 million, the amount of allowable costs that exceed 103 percent of the target amount is $200,000. Therefore, HHS would pay 50 percent of that amount, or $100,000 to the [qualified health plan] issuer. Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 76 Fed. Reg. 41,930, 41,943 (July 15, 2011), AR 11295. And further: For example, a [qualified health plan] has a target amount of $10 million. The [qualified health plan] has allowable costs of $11.5 million, or 115 percent of the target amount. Since 108 percent of the target amount would be $10.8 million, the amount of allowable costs that exceed 108 percent of the target amount is $700,000. Therefore, HHS pays 2.5 percent of the target amount, or $250,000, plus 80 percent of $700,000, or $560,000, for a total of $810,000. Id . The regulations follow the Act in setting forth the obverse methodology when a qualified health plan issuer reports gains in a calendar year, but the issuer is required to make payments rather than receive payments. The issuer is required to pay HHS under the same formulas, but the allowable cost-to-target amount ratios are 97 and 92 percent, rather than 103 and 108 percent. 45 C.F.R. § 153.510(b), (c).
[6] Allowable costs are also reduced by “any risk adjustment and reinsurance payments received” by the qualified health plan issuer under Sections 1341 and 1343 of the Act. 42 U.S.C. § 18062(c)(1)(B).
[7] HHS had no direct role in the premiums Lincoln charged for its health insurance coverage, either for individuals or for small groups. Hr’g Tr. 47:4-8 (Nov. 7. 2016) (“HHS has no legal say in what any QHP charges in its premiums.”) (The date will be omitted from subsequent citations to the transcript of the hearing held on Nov. 7, 2016.). Rather, by providing coverage (and participating on the federally-run Exchange for Illinois), Lincoln agreed to offer qualifying plans ( e.g. , platinum, gold, silver, bronze) and to accept applications notwithstanding pre-existing conditions. Hr’g Tr. 47:12 to 48:19; see also 42 U.S.C. § 18022(d) (levels of coverage). The premium rates for those plans were subject to regulation by the State of Illinois’ Department of Insurance. See supra , at 2 n. 2; Hr’g Tr. 47:5-8. Federal law and regulations require plans seeking premium increases to provide justification for the increases and to post the justification on the issuers’ website. See 42 U.S.C. § 18031(e)(2); 45 C.F.R. § 155.1020. The regulations require consideration of specified factors in determining rate increases. 45 C.F.R. § 155.1020(b); see also Hr’g Tr. 13:22 to 14:25. An Exchange can take the justification into account in deciding whether to make a plan available through the Exchange. 42 U.S.C. § 18031(e)(2).
[8] GAO drew upon its prior appropriation precedents for its reasoning:
At issue here is whether appropriations are available to the Secretary of
HHS to make the payments specified in section 1342(b)(1). Agencies may
incur obligations and make expenditures only as permitted by an
appropriation. U.S. Const., art. 1, § 9, cl. 7; 31 U.S.C. § 1341(a)(1); B-
300192, Nov. 13, 2002, at 5. Appropriations may be provided through
annual appropriations acts as well as through permanent legislation.
See
e.g.
,
[9] The parties have reported that CMS’s program-management appropriation for 2014 was spent. Hr’g Tr. 8:8-19.
[10] The appropriation for 2014 specifically provided:
For carrying out, except as otherwise provided, titles XI, XVIII, XIX, and
XXI of the Social Security Act, titles XIII and XXVII of the PHS Act, the
Clinical Laboratory Improvement Amendments of 1988, and other
responsibilities of the Centers for Medicare and Medicaid Services, not to
exceed $3,669,744,000, to be transferred from the Federal Hospital
Insurance Trust Fund and the Federal Supplementary Medical Insurance
Trust Fund, as authorized by section 201(g) of the Social Security Act;
together with all funds collected in accordance with section 353 of the
PHS Act and section 1857(e)(2) of the Social Security Act, funds retained
by the Secretary pursuant to section 302 of the Tax Relief and Health Care
Act of 2006; and such sums as may be collected from authorized user fees
and the sale of data, which shall be credited to this account and remain
available until September 30, 2019.
Consolidated Appropriations Act, 2014, Pub. L. No. 113-76, Div. H, Title II, 128 Stat. 5, 374
(2014). GAO found that the appropriation “made funds available to CMS to carry out its
responsibilities, which, with the enactment of [S]ection 1342, include the risk corridors
program.”
GAO Op.
,
[11] The 2015 Appropriations Act specifically stated: None of the funds made available by this Act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services—Program Management” account, may be used for payments under section 1342(b)(1) of Public Law 111–148 (relating to risk corridors). Pub. L. No. 113-235, § 227, 128 Stat. 2130, 2491 (2014).
[12] Like plaintiff’s motion, defendant’s motion is accompanied by a sequentially paginated appendix, but one that consists of only two documents, viz ., CMS’s “Standard Companion Guide Transaction Information[:] Instructions related to the ASC X12 Benefit Enrollment and Maintenance (834) transaction, based on the 005010X220 Implementation Guide and its associated 005010X220A1 addenda for the Federally [F]acilitated Exchange (FFE)[- -] Comparison Guide Version Number: 1.5[,] March 22, 2013,” Def.’s Mot. App. at A1-A46, and a memorandum from CMS dated September 9, 2016 styled “Risk Corridors Payments for 2015,” id. at A47-A48. The index to the appendix notes that this memorandum is incorrectly dated September 9, 2015.
[13] Notably, the title of the agreement changed from “Agreement Between Qualified Health Plan Issuer and [CMS]” in 2014 to “Qualified Health Plan Certification Agreement and Privacy and Security Agreement Between Qualified Health Plan Issuer and [CMS]” in the 2015 and 2016 agreements. Compl. Exs. 2, 3, 4.
[14] In 2015, Lincoln’s experience deteriorated to the point that its adjusted risk-corridors ratio for individual coverage was 183.5% and that for small-group coverage was 177.7%, Pl.’s Mot. App. 8 at A59, far removed from the target amounts.
[15] Lincoln requested an amount of “at least $72,859,053” when it filed its complaint in June 2016, Compl. at 44-45, but Lincoln subsequently adjusted that figure in September 2016 to reflect Lincoln’s final 2015 costs. Pl.’s Mot. at 2; Pl.’s Reply in Support of Mot. for Judgment on the Administrative Record (“Pl.’s Reply”) at 6 n.4, ECF No. 37.
[16] The government embellishes its contention that the court lacks jurisdiction over Count I
by referring to HHS’s three-year framework for applying “payments in” and “payments out,”
urging that no further payments for 2014 are now due, and averring that the “presently due”
standard consequently has not been satisfied. As the government would have it, the decision by
HHS to apply a three-year framework is entitled to deference under
Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc.
,
[17] This conclusion is not inconsistent with the holdings of
Todd
and
Annuity Transfers
, as
relied upon by the government. Lincoln is requesting monetary relief attributable to HHS’s
alleged anticipatory breach. In contrast, the plaintiff in
Todd
was seeking non-monetary relief,
see
[18] See Agreed Order of Liquidation with a Finding of Insolvency, Illinois v. Land of Lincoln Mut. Health Ins. Co. , No. 16 CH 09210 (Ill. Cir. Ct., Cook Cnty., Chancery Div. Sept. 29, 2016), appended as the attachment to Def’s Mot. to Strike Pl.’s Cross-Mot. for Judgment on the Administrative Record on Counts II-V, ECF No. 31-1.
[19] Lincoln also points to several other annual aspects of the program to support its argument that HHS is required to make full payments annually, see Pl.’s Resp. and Cross-Mot. at 14-15; Pl.’s Reply at 4, but those aspects concern HHS’s requirement that qualified health plans must submit data to HHS annually, see 45 C.F.R. § 153.530(d), and must be certified annually, see 45 C.F.R. § 155.1045; Compl. Exs. 2-4. Those provisions for annual qualification for participation and for consideration of data over a calendar year do not control what is to happen with the data submitted by qualified plans and do not refer to payments to and from issuers.
[20] Lincoln argues that the plural “corridors,” as opposed to “corridor,” demonstrates that Congress intended to implement multiple risk corridors for each calendar year, with separate
[23] Correlatively, the statute does not indicate the disposition of any potential excess of “payments in” over “payments out” for any given year, but that rather unlikely scenario is perhaps only of academic interest.
[24] As the Supreme Court observed in
Board of Governors of Fed. Reserve Sys. v.
Dimension Fin. Corp.
,
[25] The three agreements are not identical, but they are substantially similar and contain the same language in pertinent part.
[26] The government also notes that Lincoln’s express contract claim, if accepted, would result in an “artificial policy distinction” between the qualified health plans using federally- facilitated Exchanges and the qualified health plans using state-established Exchanges. See Def.’s Mot. at 36-37. The risk-corridors program applies to all qualified health plans. See generally 42 U.S.C. § 18062; 45 C.F.R. § 153.510. However, only qualified health plans under the federally-facilitated Exchanges, not the state-established Exchanges, enter into the types of agreements with HHS that are at issue here. See Def.’s Mot. at 36-37. Thus Lincoln’s express contract theory, if adopted, would create an inconsistent and unintended result where some qualified health plans have an allegedly express contractual basis for risk-corridors payments, but others do not.
[27] The cited Subparagraph relates to state-established Exchanges, but as noted supra , at 3, 6 n. 7, HHS provided an Exchange in Illinois when the State did not.
[28] In 2014, HHS and GAO described risk-corridors payments as “user fees.” Letter
from William B. Schultz, Gen. Counsel, HHS, to Julia C. Matta, Assistant Gen. Counsel, GAO
(May 20, 2014) (“Schultz-Matta Letter”), AR 1482-84;
GAO Op.
,
[30] Assuming that Lincoln could show mutuality of intent and offer and acceptance,
consideration and authority to contract would not bar Lincoln’s 2014 and 2015 contract claims,
but the latter element would bar a claim for 2016. As consideration for HHS’s payments,
Lincoln provided health insurance on the government Exchange and complied with various
regulatory requirements. Pl.’s Resp. and Cross-Mot. at 39-40. Additionally, HHS may have
had authority to contract when it entered into the 2014 and 2015 agreements with Lincoln. One
caveat to that observation is that the Anti-Deficiency Act prevents an agency from authorizing an
expenditure that exceeds available appropriations or contracting for a monetary payment in
advance of available appropriations, unless authorized by law. 31 U.S.C. § 1341(a)(1)(A), (B);
see Hercules Inc. v. United States
,