Favorable ruling has national implications

NM Health Connections suit said flawed policy used to disburse funds

A federal judge in New Mexico has ruled in favor of New Mexico Health Connections in a case that raises questions about billions of dollars in payments that have been made nationally to a federal program under the Affordable Care Act.

Health Connections filed a lawsuit in 2016 arguing, among other things, that the federal government’s risk adjustment program — which redistributes money from insurers with healthier customers to those with sicker customers — relied on a flawed formula to determine how the money was disbursed.

U.S. District Judge James O. Browning

agreed with Health Connections on that point and said the methodology used by the federal Health and Human Services department was “arbitrary and capricious.”

The court ruled that the way the formula used statewide average premiums to calculate charges and payments in the program had not been adequately rationalized by the department. It rejected several other claims made by Health Connections.

It was not immediately clear what the financial implications of the ruling were for Health Connections, a not-for-profit health co-op established with Affordable Care Act loans, nor for the other organizations that have collectively submitted billions of dollars in risk adjustment payments since 2014. But the regulations that were vacated by the court applied to every state except Massachusetts for a two-year period, which had its own risk adjustment program at the time.

Former Health Connections CEO Martin Hickey, who said he was pleased by the ruling, noted that the company paid out about $30 million through the program over three years.

“We’re still trying to parse through the judgment to figure out what it all means,” said Hickey. “It will likely be up to (the Centers for Medicare and Medicaid Services) to determine what to do with the money involved here.”

CMS, part of the Health and Human Services Department, did not respond to a request for comment.

The risk adjustment payments were one contributor to Health Connections’ financial woes last year, which paved the way for the organization to sell its commercial business to the Arlington, Va.-based Evolent Health.

The deal gave rise to a new company, True Health New Mexico, of which Hickey is now CEO. True Health insures about 20,000 New Mexicans.

New Mexico Health Connections, which insures 18,000 members under the Affordable Care Act, is now run by Marlene Baca.

Hickey said there are several possible next steps for the parties involved in the ruling, including an appeal by the federal government, or an appeal by Health Connections on the claims rejected by the court. He said the company is considering its options.

Asked if he had heard from other health organizations on the potential national implications of the ruling, Hickey said that “things are heating up.”

Health Connections is one of four co-ops still in existence out of the 24 created by the Affordable Care Act. A 2016 Congressional report found that risk penalties were one of several factors that led to the demise of many of the co-ops. The payments also financially benefitted companies on the other end of the equation. In 2015, for example, Blue Cross Blue Shield of New Mexico received $6.3 million in risk adjustment payments, while the program cost Health Connections $4.8 million that year.