The ACA's Muddled Application of the FCA to Health-Insurance Exchanges

Two courts of appeals recently split over whether these tax subsidies are available to persons purchasing insurance through federal government-run exchanges. Compare Halbig v. Burwell, No. 14-5018 (D.C. Cir. July 22, 2014) (rehearing en banc granted Sept. 4, 2014), with King v. Burwell, No. 14-1158 (4th Cir. July 22, 2014).

A far less publicized example of the ACA’s rushed enactment and poor drafting is new section 18033(a)(6) of Title 42, which purports to apply the False Claims Act (FCA) to health-insurance exchanges, one of the hallmarks of the ACA. Indeed, so rushed was the passage of the ACA that it actually contained one provision enhancing FCA damages and another provision declaring the damages enhancement “null, void, and of no effect.” Compare ACA § 1313 with ACA § 10104(j)(1). These two sections are combined and codified at 42 U.S.C. § 18033.

Putting aside the “null, void, and of no effect” damages provision in section 18033(a)(6), the subsection reads in its entirety:

Payments made by, through, or in connection with an Exchange are subject to the False Claims Act (31 U.S.C. § 3729 et seq.) if those payments include any Federal funds. Compliance with the requirements of this Act concerning eligibility for a health insurance issuer to participate in the Exchange shall be a material condition of an issuer’s entitlement to receive payments, including payments of premium tax credits and cost-sharing reductions, through the Exchange.

42 U.S.C. § 18033(a)(6)(A).

A congressional enactment amending a federal statute normally, and unsurprisingly, does so by directly altering the language of that statute. Section 18033(a)(6), however, does not take this common path; instead, it merely declares that the FCA applies to certain exchange-related payments. By taking this expedient path—the “easy way out” for Congress, so to speak—section 18033(a)(6) has created a confused legislative scheme that is going to either render the subsection effectively meaningless or, more likely, engender costly litigation and conflicts among courts.

The ACA’s Premium Assistance Tax Credit
To start, it is entirely unclear when “payments include any Federal funds.” A key aspect of the ACA is that it provides a tax credit to certain lower income individuals to purchase insurance through an exchange—a credit that the individual can claim on a tax return or have the federal government pay the credit amount directly to an insurance issuer as an “advance payment.” 26 U.S.C. §§ 35, 36B, 7527.

A natural reading of section 18033(a)(6) is that even if the “advance payments” are now covered by the FCA because they involve funds furnished by the federal government, payments that an individual makes for insurance obtained through an exchange that are subsequently reimbursed by the federal government through a tax credit are not covered. The reason is that those payments, when made, simply do not “include any Federal funds”; they are the funds of the individual, only subject to being later “reimbursed” by the federal government though a tax credit.

Indeed, the FCA expressly recognizes this distinction: It covers both payments made with money provided by the federal government and payments made by another entity to be reimbursed later by the federal government, but it addresses these different types of payments in different subsections of the FCA. 31 U.S.C. § 3729(b)(2)(A). Nothing in section 18033(a)(6) encompasses payments of private funds later reimbursed by the federal government.

The ACA’s “Stabilization” Programs
The ACA also sets up a number of programs that can result in funds being channeled to issuers of health plans offered on an exchange—namely, a risk-adjustment program, a reinsurance program, and a risk-corridors program. ACA §§ 1341–1343, codified at 42 U.S.C. §§ 18061–18063.

While these programs vary in their operation, they are all designed—at least in part—to lessen the risk to issuers of insuring individuals as to whom they know little in terms of how much medical treatment they may need or how they will use available services. But these programs are also designed to prevent issuers from obtaining excess profits in the event they end up insuring individuals who are healthier, or use fewer services, than other health-plan participants. Thus, the programs function as forced private-party transfer systems: They require payments from one set of issuers (the ones with lower-than-expected costs) and transfer those payments to another set of issuers (the ones with higher-than-expected costs). These programs, as a result, quite arguably do not “involve any Federal funds.” ( The Department of Health and Human Services has not taken a firm position on this, though it has suggested that it views payments made pursuant to these programs as potentially involving federal funds that could trigger FCA exposure. See, e.g., Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13744, 13771 & 13785 (Mar. 11, 2014) (stating that "[e]nforcement remedies . . . with respect to the risk adjustment program . . . may be available through . . . the False Claims Act" and that "noncompliance with risk corridor data submission requirements may be subject to enforcement actions under the False Claims Act"); see also Centers for Medicare & Medicare Services (CMS), "The Transitional Reinsurance Program: Submission of Annual Enrollment and Contributions Through Pay.gov," (quoting an acknowledgement required for participation in transitional program that includes the statement "I acknowledge that the provisions of [ACA] specifically make payments made by or in connection with an Exchange subject to the [FCA] if those payments include any Federal funds. This includes, but is not limited to, the transitional reinsurance program established under [ACA §] 1341").)

The Department of Health and Human Services has not taken a firm position on this, though it has suggested that it views payments made pursuant to these programs as potentially involving federal funds that could trigger FCA exposure. See, e.g., Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13,744, 13,771, 13785 (Mar. 11, 2014) (stating that “[e]nforcement remedies . . . with respect to the risk adjustment program . . . may be available through . . . the False Claims Act” and that “noncompliance with risk corridor data submission requirements may be subject to enforcement actions under the False Claims Act”).

At the very least, specific payments made pursuant to these programs would not involve federal funds if the programs are operating as expected pursuant to the ACA’s legislative scheme (i.e., if the federal government does not have to “bail out” a program to cover a private funding shortfall).

The ACA’s Premium Assistance Tax Credit and the FCA
Returning to the ACA’s tax credit for lower-income individuals, it is not clear that these payments are subject to the FCA at all, whether an individual takes the credit on his or her tax return or gets an “advance payment” of the credit from the federal government. The FCA establishes broad liability in connection with false claims, but it also contains a broad carve-out relating to the Internal Revenue Code: “This section does not apply to claims, records, or statements made under the Internal Revenue Code of 1986.” 31 U.S.C. § 3729(d). Courts have not yet grappled with the question of whether FCA claims predicated on allegedly false statements by a qualified health plan receiving payments relating to the ACA tax credit qualify as “claims . . . or statements made under the Internal Revenue Code.” If they do, they would be exempted from FCA liability.

The ACA and Implied Certification
A number of courts have held that a claim containing only accurate information may nevertheless be a false claim under the FCA if a statute or regulation imposes conditions on when such a claim may be presented or paid, and the party submitting the claim knows that it has not complied with those conditions. See, e.g., United States ex rel. Wilkins v. UnitedHealth Grp., 659 F.3d 295 (3d Cir. 2011); United States ex rel. Hutcheson v. Blackstone Med., 647 F.3d 377 (1st Cir. 2011); Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999). This doctrine of false “implied certifications” is not based on the express language of the FCA; it is a judicially created gloss on, or interpretation, of the FCA.

In an apparent attempt to invoke this implied certification doctrine, section 18033(a)(6) of the ACA provides that, for purposes of the FCA, “[compliance with the requirements of this Act concerning eligibility for a health insurance issuer to participate in the Exchange shall be a material condition of an issuer’s entitlement to receive payments.” 42 U.S.C. § 18033(a)(6)(A). The ACA, however, does not in fact state that liability exists under the FCA in the event of an inaccurate “implied certification,” and courts are not in agreement as to whether this doctrine is an appropriate gloss on the FCA. See, e.g., United States ex rel. Steury v. Cardinal Health, Inc., 735 F.3d 202 (5th Cir. 2013). In those jurisdictions where the relevant courts have rejected, or substantially limited, the implied-certification doctrine, the above-quoted passage from the ACA does not serve to create any separate or independent basis for FCA liability.

The language of section 18033(a)(6) also does not match with the other, very detailed provisions of the ACA. “Eligibility” under the ACA is largely a concept relating to individuals seeking health insurance. Under the ACA, more relevant concepts to health-insurance issuers are certification and qualification—the ACA does not expressly provide for eligibility of issuers to participate in exchanges, but it does provide for the certification of health plans to be qualified for being offered through the exchanges. 42 U.S.C. §§ 18021, 18031.

At least one reading of the ACA—though admittedly a narrow one—is that its only eligibility requirements for a health-insurance issuer to participate in an exchange is that the issuer comply with the requirements for being a “health insurance issuer” under the Public Health Service Act. See 42 U.S.C. § 18021 (defining “health insurance issuer” as having the meaning given to that phrase in section 2791 of the Public Health Service Act).

Those requirements are simply that an entity be (a) “an insurance company, insurance service, or insurance organization”; (b) “licensed to engage in the business of insurance in a State”; and (c) “subject to State law which regulates insurance.” 42 U.S.C. § 300gg-91. This would render the “implied certification” provision in section 18033(a)(6) of limited breadth, and hence of limited utility to the federal government or relators bringing qui tam actions.

An alternative reading of section 18033(a)(6) that still avoids oppressive outcomes is that a health insurance issuer has “eligibility . . . to participate in [an] Exchange” if it has the requisite certification for at least one of its health plans from the exchange. Under this approach, a health insurance issuer that loses its certification would have increased FCA exposure as a result of section 18033(a)(6), but an issuer with the proper certification for one or more of its health plans to be offered on an exchange could rely on that to avoid massive FCA exposure pursuant to section 18033(a)(6).

Either of these alternatives is plainly preferable to an expansive reading of section 18033(a)(6) that noncompliance with any of the numerous requirements for plans to be certified as “qualified health plans” to be offered on an exchange opens up a health-insurance issuer to FCA liability. Such an expansive reading would have consequences far too draconian to be imposed on issuers absent more clear direction from Congress.

There are countless requirements imposed by the Secretary of Health and Human Services and the individual exchanges on qualified health plans and the entities that offer such plans. Many of these requirements—such as timely furnishing voluminous information to the exchanges, making plan materials accessible to persons with limited language proficiency, or posting sufficient cost-sharing information on the Internet (and making the information available to those without Internet access)—are entirely divorced from whether an issuer should be paid for services or coverage it provided to health-plan members.

A middle ground interpretation of section 18033(a)(6) would be that a health-insurance issuer has “eligibility . . . to participate in [an] Exchange” if it has the requisite certification from the exchange. Under this approach, a health insurance issuer that loses its certification would have increased FCA exposure as a result of section 18033(a)(6), but an issuer with the proper certification for one or more of its health plans being offered on an exchange could rely on that certification to avoid massive FCA exposure pursuant to section 18033(a)(6).

An expansive reading of section 18033(a)(6) that would subject issuers to liability if any of these requirements was unmet would be patently unjust.

There are severe repercussions to violating the FCA: A transgressor faces civil penalties, trebled damages, and potential exclusion from participating in federal programs. Moreover, FCA enforcement actions can be brought by private-party relators not required to exercise prosecutorial discretion or restraint. For these reasons, government contractors and those who receive government funds are entitled to clarity in terms of being able to identify the conduct or actions that may subject them to FCA liability, as well as the conduct or actions safely outside the “zone of danger” for violating the FCA.

Congress’s attempt in the ACA, via section 18033(a)(6), to extend the FCA to cover exchange-related activity plainly fails in this regard: It lacks clarity, consistency with other provisions of the ACA, and coherence with the structure of the FCA. At best, it warrants a narrow reading to minimize its potentially disruptive impact on issuers of qualified health plans and the danger that it will dissuade issuers from fully participating in, and engaging with, the exchanges.

Keywords: litigation, health law, Affordable Care Act, ACA, False Claims Act, FCA, health care

Christopher R.J. Pace is an attorney in the Miami, Florida, office of Jones Day.

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