Reed Smith's Sher Talks About Molina's $52 Million ACA Win and What's Next

Painful uncertainty is increasing companies' hunger for legal guidance

Lawrence Sher (Photo: Reed Smith) Lawrence Sher (Photo: Reed Smith)

Last week was eventful for Molina Healthcare Inc. On Friday, a federal judge ruled that the insurer is owed more than $52 million under the Affordable Care Act risk corridors program meant to incentivize insurer participation in the public exchanges.

Just two days before, however, the company announced that it will exit the marketplaces in Utah and Wisconsin by year's end. It experienced losses of $230 million in the second quarter. It's a long way from the same Long Beach, California-based insurer that in 2014, its first year of selling ACA plans, doubled its revenue to $12 billion. And it is not alone: Months before Molina began announcing its intent, insurance giants, including Aetna, Humana and UnitedHealth, began exiting the marketplaces, saying they are unable to turn a profit on the individual plans they sell on the state and federally run exchanges.

(Related: Judge Backs Health Insurer Molina in $52M ACA Suit, but It's Not the End)

From two failed legislative attempts to reform health care to litigation over various ACA provisions, the health care industry faces increasing uncertainty. Although Molina notched a win last week with its victory in the risk-corridor lawsuit, a remaining claim against the government in its case means it is among more than two dozen insurers continuing to wind their way through the U.S. Court of Federal Claims.

More than two dozen health insurance companies, some of which already have failed, have sued the government over the last couple of years over its failure to make risk-corridor payments—money that Congress statutorily agreed to pay certain insurers if they signed up to sell policies under the ACA but did not explicitly appropriate in the statute.

Reed Smith represents Molina, as well as four other insurers, in the risk-corridor litigation. They are Blue Cross of Idaho, Blue Cross and Blue Shield of Kansas City, Blue Cross and Blue Shield of North Carolina and Highmark Inc. Partner Lawrence Sher, lead attorney on the cases, spoke with Corporate Counsel about how he and his firm became major players in the space, and what it's like to help health care clients navigate these uncertain times. The interview has been edited for length and clarity.

Corporate Counsel: How did you come to represent the companies in these matters?

Lawrence Sher: In the fall of 2015, our clients were concerned they weren't going to get paid the risk corridors due. They asked us to look at this, and we started analyzing: "Are these obligations enforceable? Where would they be enforceable? In what court would they be enforceable? Where is there jurisdiction? What would be the causes of action?"

The first action we filed was on behalf of Highmark, which is a big claim (nearly $233 million). So we developed a lot of expertise for a large insurer in developing case law for our first complaint, which really appears to have become the template from which many of these lawsuits have followed. Then from that first lawsuit, other clients saw our work and retained us to represent them, which led us to represent the five companies that have filed so far.

CC: Personally, what is it like to be part of such high-stakes, high-profile litigation?

LS: These cases present really fascinating issues that intersect health care law, government contracts and constitutional law. They also present some really interesting fundamental legal issues that go really to the core of our government: "How is the government bound? How are its obligations enforceable? Can the government be held to its statutory and contractual promises? Should the government be treated differently than a private entity? What is the expectation for companies that are invited and induced to participate in a government program like the health care exchanges created by the ACA?

Law books (Photo: John Kroetch)

(Photo: John Kroetch)

How are they to be treated when with one hand the government says, "Please create qualified health plans and offer insurance on these new uncertain exchanges and in exchange we shall pay you a certain amount if your losses exceed a target"? And, with the other hand the government subsequently decides to renege on that promise, will the courts step in and hold them to their obligations?

CC: So do these cases present unique challenges?

LS: Yes, these are not run-of-the-mill cases. They're very complex issues, and the briefs tend to be very intricate and high-level. We're citing cases from the 1870s about the obligations of Congress and how they are enforceable. Those rules still apply today. In one case we cited, the arguments the government made in that case in the 1870s are almost verbatim the arguments the government makes today: "Even though there's a statutory promise, there's no appropriation, so we don't owe it to you."

CC: More generally, with all the uncertainty surrounding the health care industry right now, how do you advise clients?

LS: This is an incredibly unstable regulatory environment for health care providers, health care insurers and managed care companies. They're really hanging in the balance on a daily basis before Congress. Think about it in terms of another sector. Can you imagine if, for example, financial companies did not know whether they would be regulated, how they would be regulated, whether they could offer securities at all, how investors could invest—what would that do to the markets? That's a good analogy to show the uncertainty these health care companies live with in a heavily regulated, uncertain environment. And these insurers are still obligated to comply with the law, to issue compliant plans, to insure people and to pay claims.

CC: So how does that affect the day-to-day work in the health care practice at Reed Smith?

LS: We're trying to advise them as to where we, as litigators, think the cases are going in all of this litigation involving the ACA. But then we're also advising other health care companies—not just insurers but also providers—as to what the regulatory environment is like for them, what their obligations are and then what their obligations will be in the near future.

It's an intricate web between insurers and providers and the health care that is provided to citizens. The uncertainty affects everybody. You see people scared that they're going to lose their benefits under Medicare or Medicaid, but you also have providers that are obligated to provide care and insurers that are obligated to pay for those claims. And you have all of that riding on a lot of political winds.

CC: So it's very much about education—informing clients: "This is what you are still obligated to do, and this is what would happen if this were adopted, and this is what would happen if this were not adopted"?

LS: Absolutely. We're continually watching legislation, watching regulations, seeing how they're developed and implemented. We're looking at whether regulations that were passed under the Obama era are being enforced or if they're being rolled back, and trying to predict with as much accuracy as we can the way the new administration is going to enforce or not enforce certain regulations.

CC: How do you track all of these issues?

LS: It's sort of daily diligence. We have teams of people who review proposed rulemakings, new guidance that comes out on a daily basis, and when it affects issues that concern our clients, we report on it to them and counsel them as necessary.

Anytime there's uncertainty, the industry needs guidance. But there's been so much uncertainty since January that there's just more need for guidance.

--- Read Feds: ACA Risk Program May Pay Just 13% of 2014 Claims on ThinkAdvisor.

Originally published on Corporate Counsel. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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