Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

New Mexico Health Connections v. United States Department of Health and Human Services

United States District Court, D. New Mexico

October 19, 2018

NEW MEXICO HEALTH CONNECTIONS, a New Mexico Non-Profit Corporation, Plaintiff,
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; CENTERS FOR MEDICARE AND MEDICAID SERVICES; SYLVIA MATHEWS BURWELL, Secretary of the United States Department of Health and Human Services, in her official capacity and ANDREW M. SLAVITT, Acting Administrator for the Centers for Medicare and Medicaid Services, in his official capacity, Defendants.

          Nancy Ruth Long Long Komer & Associates, P.A. Santa Fe, New Mexico -- and -- Barak A. Bassman Leah Greenberg Katz Marc D. Machlin Sara Richman Pepper Hamilton, LLP Philadelphia, Pennsylvania Attorneys for the Plaintiff

          Chad A. Readler Acting Assistant Attorney General Joel McElvain Assistant Branch Director Arjun Garg Serena Orloff James R. Powers Trial Attorneys United States Department of Justice Civil Division, Federal Programs Branch Washington, D.C. Attorneys for the Defendants


         THIS MATTER comes before the Court on: (i) the Defendants' Motion to Alter or Amend Judgment Pursuant to Federal Rule of Civil Procedure 59(e), filed March 28, 2018 (Doc. 57)(“Motion”); (ii) the Plaintiff's Motion to Strike the Declaration of Jeffrey Wu or in the Alternative Grant Plaintiff Leave to Take Discovery, filed April 23, 2018 (Doc. 61)(“Motion to Strike”), and Plaintiff's Memorandum of Law in Support of its Motion to Strike the Declaration of Jeffrey Wu or in the Alternative, Grant Plaintiff Leave to Take Discovery, filed April 23, 2018 (Doc. 62)(“Strike Mem.”); and (iii) the Motion of America's Health Insurance Plans and Blue Cross Blue Shield Association for Leave to File Statement on New Developments in Support of Rule 59(e) Motion as Amici Curiae, filed July 19, 2018 (Doc. 80)(“Motion for Leave”). The Court held a hearing on the Motion and the Motion to Strike on June 21, 2018. The primary issues are: (i) whether the Court should reconsider its determination in the Memorandum Opinion and Order, 312 F.Supp.3d 1164, filed February 28, 2018 (Doc. 55)(“MOO”), that Defendant United States Department of Health and Human Services' (“HHS”)[1] risk adjustment formula is arbitrary and capricious, because, HHS contends, it had no obligation to explain its decision to operate the program in a budget-neutral manner, it never stated budget neutrality was compelled by statute, and its decision not to use any budget authority to operate the program was unreviewable; (ii) whether the Court should reconsider its decision to vacate HHS' risk adjustment formula and instead remand without vacatur because, as HHS contends, the Court has equitable discretion to remand without vacatur or to limit the vacatur to New Mexico; (iii) whether the Court may consider the remarks in the Declaration of Jeffrey Wu (executed March 3, 2018), filed March 28, 2018 (Doc. 57-1)(“Wu Decl.”), because, as Plaintiff New Mexico Health Connections (“Health Connections”) contends, it is improper evidence under rule 59 of the Federal Rules of Civil Procedure and the Administrative Procedure Act; and (iv) whether the Court should grant America's Health Insurance Plans (“AHIP”) and Blue Cross Blue Shield Association (“Blue Cross”) leave to file a joint statement as amici curiae, because, as Health Connections contends, the request is untimely, irrelevant, and moot.

         While the Court carefully reconsiders its MOO, the Court stands by both its determination that HHS' risk adjustment formula is arbitrary and capricious, and that vacating the formula and remanding to HHS for further consideration is the appropriate remedy. The Court also concludes that it is appropriate to consider recent developments and the consequences of its decision in this case and, thus, may consider the remarks in the Wu Decl. and the statement that AHIP and Blue Cross wish to file as amici curiae. Accordingly, the Court denies the Motion and the Motion to Strike, and grants the Motion for Leave.


         Congress enacted The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010)(codified at 42 U.S.C. §§ 300gg-1 to -19, 18001-18022)(“ACA”) “to expand coverage in the individual health insurance market.” King v. Burwell, 135 S.Ct. 2480, 2485 (2015)(Roberts, C.J.). To affect that goal, the ACA: (i) bars insurers from considering preexisting medical conditions when deciding whether to sell insurance and when determining prices; (ii) requires individuals to make an individual shared responsibility payment to the Internal Revenue Service unless they maintain health-insurance coverage; and (iii) gives certain individuals tax credits to make health insurance more affordable for them. See King v. Burwell, 135 S.Ct. at 2485; 26 U.S.C. § 5000A (describing the individual shared responsibility payment requirement).

         The ACA expands healthcare access, but it also increases health-insurance-industry risk. That the ACA requires insurers to cover all individuals, healthy or otherwise, means an insurer could end up providing coverage to a particularly sickly group of customers. See 42 U.S.C. § 300gg-1(a) (“[E]ach health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.”). The ACA prohibits those same insurers from responding to the increased cost of providing healthcare coverage to sicker individuals by charging those individuals higher prices. See 42 U.S.C. § 300gg(a) (prohibiting price discrimination based on factors other than geography, age, tobacco use, and whether coverage extends to an individual or to a family). Taken together, those two ACA requirements “threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but prohibited from charging them rates necessary to pay for their coverage.” Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 548 (2012).

         The ACA contemplates three kinds of programs -- two temporary and one permanent --to ameliorate that problem. See 42 U.S.C. §§ 18061-63. First, under transitional reinsurance programs, which operated only from 2014 to 2016, insurers make payments to “an applicable reinsurance entity, ” typically HHS, and reinsurance entities use those funds to provide “reinsurance payments” to insurers “that cover high risk individuals in the individual market.” 42 U.S.C. § 18061(b)(1). According to HHS, “The reinsurance program will reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers' risk associated with high-cost enrollees.” HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15, 410, 15, 411 (dated March 11, 2013)(A.R.000228)(“2014 Final Rule”). “Each State is eligible to establish a reinsurance program, ” but “HHS will establish a reinsurance program for each State that does not elect to establish its own reinsurance program.” 45 C.F.R. § 153.210(a), (c).

         Second, under the temporary risk corridor program, which also operated only from 2014 to 2016, sufficiently profitable insurers must make payments to HHS while HHS must make payments to sufficiently unprofitable insurers. See 42 U.S.C. § 18062. Those payments, HHS predicts, “will protect against uncertainty in rate setting for qualified health plans by limiting the extent of issuers' financial losses and gains.” 2014 Final Rule, 78 Fed. Reg. at 15, 411 (A.R.000228).

         Third, under permanent risk adjustment programs, “each State shall assess a charge” on insurers “if the actuarial risk of [their] enrollees . . . for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year.” 42 U.S.C. § 18063(a)(1). Likewise, “each State shall provide a payment” to insurers “if the actuarial risk of [their] enrollees . . . is greater than the average actuarial risk of all enrollees in all plans and coverage in such State for such year.” 42 U.S.C. § 18063(a)(2). Risk adjustment programs are “intended to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, and reduce the incentives for issuers to avoid higher-risk enrollees.” 2014 Final Rule, 78 Fed. Reg. at 15, 411 (A.R.000228).

         While the ACA refers to “States” assessing charges and providing payments in risk adjustment programs, 42 U.S.C. § 18063(a), it also tells HHS to “issue regulations setting standards for meeting” the ACA's requirements “with respect to . . . the establishment of the reinsurance and risk adjustment programs.” 42 U.S.C. § 18041(a). When a state establishes a risk adjustment program, it must use “the Federal standards” or “a State law or regulation that the [HHS] Secretary determines implements the standards within the State.” 42 U.S.C. § 18041(b). If a state does not establish a risk adjustment program or if a state establishes a risk adjustment program but does not take “the actions the [HHS] Secretary determines necessary to implement” federal risk adjustment standards, then “the [HHS] Secretary shall take such actions as are necessary to implement” those standards. 42 U.S.C. § 18041(c).

         HHS regulations implementing that open-ended mandate in 42 U.S.C. § 18041(c) declare that the agency will operate risk adjustment programs for “[a]ny State that does not elect to operate an Exchange, or that HHS has not approved to operate an Exchange, ” 45 C.F.R. § 153.310(a)(2); for “[a]ny State that elects to operate an Exchange but does not elect to administer risk adjustment, ” 45 C.F.R. § 153.310(a)(3); and for, “[b]eginning in 2015, any State that is approved to operate an Exchange and elects to operate risk adjustment but has not been approved by HHS to operate risk adjustment, ” 45 C.F.R. § 153.310(a)(4). Only Massachusetts, however, elected to operate its own risk adjustment program, see HHS Notice of Benefit and Payment Parameters for 2016, 80 Fed. Reg. 10, 750, 10, 759 (dated February 27, 2015)(A.R.005691)(“2016 Final Rule”), and that program did not last long, see HHS Notice of Benefit and Payment Parameters for 2017, 81 Fed. Reg. 12, 204, 12, 230 (dated March 8, 2016)(A.R.007774)(“2017 Final Rule”)(“We are not recertifying the alternate State methodology for use in Massachusetts for 2017 risk adjustment. Massachusetts and HHS will begin the transition that will allow HHS to operate risk adjustment in Massachusetts in 2017.”). The bottom line is that HHS now operates New Mexico's -- and forty-nine other states' -- risk adjustment program. See 2017 Final Rule, 81 Fed. Reg. at 12, 230 (A.R.007774)(“HHS will operate risk adjustment in all States for the 2017 benefit year.”).

         Each year, HHS publishes the methodology it uses to calculate the risk adjustment payments that insurers make to HHS or receive from HHS. See 45 C.F.R. § 153.320(c) (“HHS will specify in the annual HHS notice of benefit and payment parameters for the applicable year the Federally certified risk adjustment methodology that will apply in States that do not operate a risk adjustment program.”). That annual publication must describe: (i) how HHS calculates individual risk scores, see 45 C.F.R. § 153.320(b)(1), which are “relative measure[s] of predicted health care costs” for particular individuals, 45 C.F.R. § 153.20; (ii) how HHS determines a plan's average actuarial risk from individual risk scores, see 45 C.F.R. §§ 153.20, .320(b)(2); and (iii) how HHS uses a plan's average actuarial risk to determine the plan's risk adjustment payments and charges, see 45 CFR §§ 153.20, .320(b)(3).

         HHS' risk adjustment methodology[2] “predict[s] plan liability for an enrollee based on that person's age, sex, and diagnoses (risk factors), producing a[n individual] risk score.” 2014 Final Rule, 78 Fed. Reg. at 15, 419 (A.R.000236). HHS calculates a health plan's average risk score by averaging its enrollees' individual risk scores; each individual risk score is weighted by the number of months that the relevant individual was enrolled in the health plan. See 2014 Final Rule, 78 Fed. Reg. at 15, 432(A.R.000249). HHS multiplies the “State average premium” by several plan-cost factors -- “relative measures that compare how [a] plan[] differ[s] from the market average with respect to cost factors” -- including the plan average risk score to produce its first plan-premium estimate. 2014 Final Rule, 78 Fed. Reg. at 15, 431 (A.R.000248). See 2014 Final Rule, 78 Fed. Reg. at 15, 430-31 (A.R.000247-48)(describing the plan-cost factors: plan average risk score, actuarial value, permissible rating variation, geographic cost differences, and induced demand). “Multiplying the plan average risk score by the State average premium shows how a plan's premium would differ from the State average premium based on the risk selection experienced by the plan.” 2014 Final Rule, 78 Fed. Reg. at 15, 430 (A.R.000247). HHS then produces a second plan-premium estimate by multiplying the state average premium by plan-cost factors other than the plan average risk score. See 2014 Final Rule, 78 Fed. Reg. at 15, 430 (A.R.000247). HHS' payment transfer formula takes the first plan-premium estimate and subtracts the second, which “provides a per member per month (PMPM) transfer amount for a plan.” 2014 Final Rule, 78 Fed. Reg. at 15, 431 (A.R.000248). Finally, HHS multiplies a plan's per member, per month transfer amount by its number of “billable member months . . . to calculate the plan's total risk adjustment payment.” 2014 Final Rule, 78 Fed. Reg. at 15, 431 (A.R.000248).

         Health Connections is a Consumer Operated and Oriented Plan (“CO-OP”)[3] insurer that has operated in New Mexico since 2014, and thus falls under the programs established under the ACA. See Declaration of Martin Hickey, MD ¶ 27, at 5 (dated October 5, 2016)(NMHC000867)(“Hickey Decl.”). Health Connections signed a loan agreement with HHS to fund Health Connections' initial formation and its New Mexico operations. See Hickey Decl. ¶ 27, at 5 (NMHC000867). Health Connections began enrolling members in October 2013, and providing coverage in January 2014. See Hickey Decl. ¶ 27, at 5 (NMHC000867). Health Connections has grown from 14, 000 members in 2014, to 44, 500 members in 2016. See Hickey Decl. ¶ 33, at 6 (NMHC000868).

         Health Connections offers -- and has offered since its inception -- the lowest or second-lowest cost health insurance plan in New Mexico. See Hickey Decl. ¶ 31, at 6 (NMHC000868). It has offered such affordable plans even while serving unhealthy enrollees -- such as many who suffer from Hepatitis C, since New Mexico has the highest prevalence of it in the nation. See Patient Protection and Affordable Care Act Comments to HHS Notice of Benefit and Payment Parameters for 2018 at 19-20 (dated October 6, 2016)(NMHC0000853-54)(“2018 Comments”). “At a meeting of the National Association of Insurance Commissioners, the Superintendent of Insurance of New Mexico stated” that Health Connections' entry into the health-insurance marketplace increased competition and saved New Mexicans “over half a billion dollars over the last three years.” Hickey Decl. ¶ 36, at 7 (NMHC000869).

         While many health-insurance companies aim for a profit margin between 2% and 5% of their premiums, see Hickey Decl. ¶ 19, at 4 (NMHC000866), for 2014, many small health-insurance companies were required to pay over 10% of their premiums as risk adjustment charges, see Letter from CHOICES to Centers for Medicare & Medicaid Services, United States Department of Health and Human Services (dated April 22, 2016)(NMHC001018). For that year, HHS assessed Health Connections a $6, 666, 798.00 risk adjustment charge, which is equal to 21.5% of Health Connections' 2014 premiums. See Hickey Decl. ¶ 17, at 3 (NMHC000865). For 2015, HHS assessed Health Connections a $14, 569, 495.74 risk adjustment charge, which is equal to 14.7% of Health Connections' 2015 premiums. See Hickey Decl. ¶ 18, at 4 (NMHC000866).

         Risk adjustment charges have, thus, forced several CO-OP program participants to close their doors. See 2018 Comments at 3 (NMHC000837); U.S. House of Representatives Committee on Energy and Commerce, Implementing Obamacare: A Review of CMS' Management of the Failed CO-OP Program at 19-22 (dated September 13, 2016)(NMHC000910-13); CHOICES, Technical Issues with ACA Risk Adjustment and Risk Corridor Programs, and Financial Impact on New, Fast-Growing, and Efficient Health Plans at 11-13 (NMHC001000-02); Connecticut Insurance Department, Insurance Department Places HealthyCT Under Order of Supervision (dated September 26, 2016)(NMHC001351-52). Several state insurance commissioners have expressed concern about the risk adjustment program. For example, Maryland's Insurance Commissioner testified to Congress:

Over the past few years, new innovative health insurance plans have been created that are providing enhanced competition and patient care. And it is working. For year-end 2014, CareFirst had a 91% market share of the individual market in Maryland. Today, it is 57%, due in part to a more competitive marketplace. These carriers have the potential to continue but their ability to do so is severely jeopardized by the adverse and perhaps fatal financial impact caused by the technical shortcoming of the current risk adjustment and risk corridor programs. . . .
The risk adjustment formula is of concern to state regulators because it has proven to place newer carriers at a distinct disadvantage. For example, the risk adjustment formula quantifies an enrollee's health status based on age, sex and diagnoses recorded during the course of the year. New carriers have very limited information on the health status or previous claims history of the applicants. Therefore, the carrier's population may appear healthier than it actually is if some diagnoses are not captured which may result in improper risk adjustment payments.

See Written Testimony for: Mr. Al Redmer, Jr., Commissioner, Maryland Insurance Administration (NMHC001331). The New York Superintendent of Financial Services had similar concerns:

DFS [(New York State Department of Financial Services)] is concerned that the risk adjustment program has created inappropriately disparate impacts among health insurance issuers in New York and unintended consequences.
Specifically, it is DFS's understanding that, based on the data accumulated by [Centers for Medicare & Medicaid Services (“CMS”)] for the upcoming report on June 30, 2016, new and smaller issuers generally are considered to have had relatively healthy members than their larger and more established competitors. CMS's anticipated determination appears to be unduly impacted by the dates of diagnoses or recording of diagnoses of members' medical conditions rather than actual relative health of the members. This disparity may be because the new and smaller health insurers have not been in operation long enough to have amassed the long term data and records management systems that have helped to allow the large, established health insurers to convince CMS that their members are relatively unhealthy and, concomitantly, will allow them to receive large payments from the risk adjustment program.

         Letter from Maria T. Vullo, Superintendent of Financial Services of the State of New York, to Sylvia M. Burwell, Sec'y of HHS, and Andrew Slavitt, Acting Adm'r for CMS at 1-2 (dated June 28, 2016)(NMHC001335-36).


         Health Connections filed its initial complaint on July 29, 2016, see Complaint for Declaratory and Injunctive Relief at 1, filed July 29, 2016 (Doc. 1), and it filed an amended complaint approximately six months later, see Amended Complaint for Declaratory and Injunctive Relief at 1, filed January 12, 2017 (Doc. 21)(“Complaint”). The Complaint invokes the judicial review provisions that the Administrative Procedure Act, Pub. L. No. 79-404, 60 Stat. 237 (1946)(“APA”) contains. See Complaint ¶ 193, at 55 (citing 5 U.S.C. § 706). See also 5 U.S.C. § 706(2) (requiring a reviewing court to “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”). Both Health Connections and HHS moved the Court for summary judgment and filed memoranda in support of those motions. See Plaintiff's Motion for Summary Judgment, filed April 13, 2017 (Doc. 32); Defendants' Cross-Motion for Summary Judgment, filed June 1, 2017 (Doc. 34); Memorandum of Law in Support of New Mexico Health Connections' Motion for Summary Judgment, filed April 13, 2017 (Doc. 33)(“MSJ”); Defendants' Memorandum in Support of its Cross-Motion for Summary Judgment and Opposition to Plaintiff's Motion for Summary Judgment, filed June 1, 2017 (Doc. 35)(“Cross MSJ”). Because the Complaint seeks judicial review of agency action, however, the MSJ and Cross MSJ are properly characterized as appellate briefs.

Reviews of agency action in the district courts must be processed as appeals. In such circumstances the district court should govern itself by referring to the Federal Rules of Appellate Procedure. Motions to affirm and motions for summary judgment are conceptually incompatible with the very nature and purpose of an appeal.

Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir. 1994)(emphasis in original). See Fed. R. App. P. 28 (providing rules for appellate briefs).

         In the MSJ, Health Connections argues -- among other things[4] -- that HHS' decision to base risk adjustment payments on statewide average premiums and not on each insurer's own average premium is both contrary to law, and arbitrary and capricious. See MSJ at 16. It is contrary to law, according to Health Connections, because “use of the statewide average premium is an unlawful departure from Congress's mandate that risk adjustment assessments be based solely upon actuarial risk.” MSJ at 17. HHS' use of statewide average premiums is arbitrary and capricious, according to Health Connections, because “HHS never coherently confronted the requirements of the ACA, and never offered any justification for developing a methodology driven by factors unrelated to actuarial risk.” MSJ at 22.

         In the briefing leading up to the Court's MOO, no third-party filed a motion for leave to file an amicus brief or filed an amicus brief. Indeed, in the United States District Court for the District of Massachusetts, when the Honorable F. Dennis Saylor IV decided Minuteman Health, Inc. v. United States Department of Health and Human Services, 291 F.Supp.3d 174 (D. Mass. 2018), on January 30, 2018, [5] no one filed a motion for leave to file an amicus brief or filed an amicus brief.

         1. The MOO.

         In its MOO, the Court determines that HHS' decision to use statewide average premiums is not contrary to law, but it is arbitrary and capricious. See MOO at 59-60, 312 F.Supp.3d at 1205. The Court concludes that HHS' decision is not contrary to law, because the ACA does not require HHS to base its risk adjustment methodology solely on actuarial risk. See MOO at 61, 312 F.Supp.3d at 1206.

That the ACA commands “[t]he Secretary, in consultation with States, [to] establish criteria and methods to be used in carrying out the risk adjustment activities” indicates that the ACA does not oblige HHS to use actuarial risk as the sole actuarial risk criterion. 42 U.S.C. § 18063(b). Telling HHS to establish risk adjustment criteria would make no sense otherwise. The ACA's language stating that health plans and health insurance issuers must make a risk adjustment payment if their enrollees have below-average actuarial risk, see 42 U.S.C. § 18063(a)(1), while health plans and health insurance issuers must receive a risk adjustment payment if their enrollees have above-average actuarial risk, see 42 U.S.C. § 18063(a)(2), does not mean that criteria other than actuarial risk cannot be used when determining the magnitude of those payments. . . . The statute does not say anything about how to calculate the charge; it says only “each state shall assess a charge. . . .” 42 U.S.C. § 18063(a)(1). From the text, the charge assessed could be any amount.

MOO at 61-62, 312 F.Supp.3d at 1206 (alterations in original).

         The Court also concludes, however, that HHS' decision was arbitrary and capricious, because the agency did not give adequate reasons for its decision to use statewide average premiums and not each insurer's own average premium when calculating risk adjustment payments. See MOO at 64, 312 F.Supp.3d at 1208. Under HHS' reading of the ACA, its risk adjustment methodology must be budget neutral, i.e., the risk adjustment payments that HHS receives from insurers with healthier-than-average customers must be equal to the risk adjustment payments that HHS makes to insurers with sicker-than-average customers. See MOO at 25, 312 F.Supp.3d at 1184 (citing Cross MSJ at 22-23). The Court declines to adopt that reading of the ACA -- notwithstanding the deference it owes to an administrative agency that reasonably interprets an ambiguous statute that is within the agency's remit -- because the ACA's provisions regarding risk adjustment are unambiguous insofar as they do not require budget neutrality. See MOO at 60-61, 312 F.Supp.3d at 1206 (citing Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984)(“Chevron”)). See also Transcript of Motion Proceedings at 49:12-13 (taken January 22, 2018)(Powers), filed February 1, 2018 (Doc. 49)(conceding that “the statute does not require budget neutrality”). The Court then explains that HHS' erroneous reading of the ACA infects the agency's analysis of the available alternatives, because HHS considered only alternatives that were budget neutral. See MOO at 67-68, 312 F.Supp.3d at 1209-10. Finally, the Court acknowledges that the ACA does not forbid HHS to design its risk adjustment methodology to be budget neutral and that “there may be excellent policy reasons for making the risk adjustment plan budget neutral, ” but those facts do not alter the Court's analysis:

The problem with invoking those policy rationales here, however, is that HHS never articulates any public policy decision to operate risk adjustment in a budget neutral way; HHS' only decision is to comply with a supposed statutory requirement. That HHS, in designing its risk adjustment methodology, never considered whether budget neutrality was sound public policy means that HHS cannot now appeal to budget neutrality's public policy benefits to justify its decision. That HHS can reasonably conclude that budget neutrality is a worthy public policy goal does not permit the Court, in reviewing HHS' decisionmaking, to act as though HHS actually considered the issue and reached that conclusion.

MOO at 68-69, 312 F.Supp.3d at 1210 (citations omitted). The Court, accordingly, sets aside and vacates “the agency action as to the statewide average premium rules, ” and remands the case for further proceedings. MOO at 71, 312 F.Supp.3d at 1211-12.

         There was very little published as to the Court's ruling. See, e.g., Marie C. Baca, Favorable NM Health Connections Ruling Has National Implications, Las Cruces Sun News (March 2, 2018, 1:07 PM), mexico/2018/03/02/favorable-nm-health-connections-ruling-has-national-implications/39011900 2/; John Kennedy, HHS Must Reconsider Formula for ACA Payments, Law360 (March 1, 2018, 9:02 PM), payments; Shelby Livingston, New Mexico Co-op Scores Partial Victory in ACA Risk-Adjustment Case, Mod. Healthcare (March 2, 2018), article/20180302/NEWS/180309960; Paige Minemyer, FierceHealthcare (March 2, 2018, 10:47 AM), adjustment-hhs-affordable-care-act; Federal District Court Vacates Part of CMS's ACA Risk Adjustment Methodology, Covington & Burling LLP (March 6, 2018),; Judge: HHS Mistakenly Envisioned ACA Risk-Adjustment Program as Budget Neutral, Lexis Legal News (March 2, 2018, 2:46 PM),; U.S. District Court Rules in Favor of New Mexico Health Connections in Risk Adjustment Case, Grant County Beat (March 1, 2018), No. third party attempted to file an amicus brief or filed an amicus brief.

         2.The Motion.

         HHS argues that the Court should reconsider its determination that HHS' decision to use statewide average premiums in its risk adjustment transfer formula “is arbitrary and capricious because HHS did not explain its reasons for designing the program in a budget-neutral manner.” Motion at 1. HHS gives three reasons why, in its view, reconsideration is appropriate. First, HHS argues that, “under black-letter principles of administrative law, HHS was not required to explain -- and NMHC was largely foreclosed from challenging -- HHS's budget-neutral approach to the risk adjustment program, because at no point during the 2014-2017 rulemakings did NMHC or any other commenter challenge or question that approach.” Motion at 2. See Motion at 11 (“Furthermore, when NMHC did finally raise the budget neutrality issue to the agency during the 2018 rulemaking (after it filed this lawsuit), it largely argued only that budget neutrality is not statutorily mandated, not that it is irrational.”). HHS asserts that, when commenters finally objected to the budget-neutral approach during the 2018 rulemaking, it adequately addressed the objections by explaining that “the absence of additional funding for the HHS-operated risk adjustment program” requires budget neutrality. Motion at 2 (internal quotations and emphasis omitted)(quoting HHS Notice of Benefit and Payment Parameters for 2018, 81 Fed. Reg. 94, 058, 94, 101 (dated Dec. 22, 2016)(A.R.009638)(“2018 Final Rule”)).

         Second, HHS asserts that, even though the ACA does not explicitly require risk adjustment to be budget neutral, HHS' budgetary restraints mean that, as a practical matter, budget neutrality is the agency's only option. See Motion at 2-3. HHS avers that risk adjustment charges are the only funding source from which the agency can make risk adjustment payments, because Congress has not made a risk-adjustment-specific appropriation or permitted HHS to use its program management appropriation to fund risk adjustment. See Motion at 15-16, 15 n.4.[6] See also Motion at 14-15 (“[T]he ACA neither authorized nor appropriated additional funding for risk adjustment payments beyond the amount of charges paid in, nor authorized HHS to obligate itself for risk adjustment payments in excess of charges collected.”). It follows, according to HHS, that “the Court clearly erred in holding that HHS's budget-neutral approach . . . was a discretionary policy choice subject to notice and comment rulemaking as opposed to a straightforward application of binding appropriations law.” Motion at 18 (citation omitted). Third, HHS contends that, “[e]ven if HHS had the authority to design the risk adjustment program in a non-budget neutral manner, its decision not to exercise that authority would be committed to agency discretion as a matter of law and thus exempted from judicial review.” Motion at 19.

         HHS then argues that -- if the Court stands by its determination that HHS acted arbitrarily and capriciously -- the Court should reconsider the remedy it imposed. See Motion at 3-4. HHS faults the Court for “assuming that vacatur was mandatory and declining to weigh the equities before entering such an extraordinarily disruptive remedy.” Motion at 3. According to HHS, “The Tenth Circuit has made clear that a court has the discretion to remand without vacatur based on equitable considerations, and courts have consistently held that when an agency's only error is inadequate explanation, the proper course is to remand for additional explanation without vacating the agency's action.” Motion at 3-4. See Motion at 21 (“The Tenth Circuit recently confirmed that a court may decline to vacate agency action even if it finds that action arbitrary and capricious.” (citing WildEarth Guardians v. U.S. Bureau of Land Mgmt., 870 F.3d 1222, 1239-40 (10th Cir. 2017))); Motion at 22 (“[R]emand without vacatur is appropriate when the only defect in an agency's decision is inadequate explanation.” (citing Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46, 60 (D.C. Cir. 2015)(Henderson, J.); Black Warrior Riverkeeper, Inc. v. U.S. Army Corps of Eng'rs, 781 F.3d 1271, 1289-91 (11th Cir. 2015); Cent. & S. W. Servs., Inc. v. U.S. EPA, 220 F.3d 683, 692 (5th Cir. 2000))). HHS asserts that “vacatur creates significant uncertainty, financial hardship, and undue burden for hundreds of health insurance issuers and millions of enrollees nationwide.” Motion at 4. In the alternative, HHS suggests that, “if the Court declines to remand without vacatur, it should limit the relief it orders to the operation of the risk adjustment program in New Mexico, so that its relief does not sweep more broadly than that needed to address NMHC's claims.” Motion at 4.

         3. The Wu Decl.

         HHS filed the Wu Decl. as an attachment to the Motion. See Wu Decl. ¶ 1, at 1. Wu is the Associate Deputy Director for Policy Coordination at the Center for Consumer Information and Insurance Oversight, an HHS component. See Wu Decl. ¶ 2, at 1. Wu describes the risk adjustment program as a permanent program under ACA meant “to mitigate the potential impact of adverse selection, stabilize the price of health insurance in the individual and small group markets, and ensure that premiums are not based on the health status of enrollees.” Wu Decl. ¶ 6, at 2. He states that the risk adjustment program, like the temporary reinsurance and risk corridors programs, “are each funded entirely from amounts that insurance entities pay into them. Congress did not enact separate appropriations for these provisions.” Wu Decl. ¶ 7, at 2. According to Wu, the Court's vacatur of the 2014-2018 rules will impose administrative burdens on health insurance companies and create uncertainty for them. See Wu Decl. ¶¶ 6-22, at 2-6.

         4. The Response.

         Health Connections' response explains why, in its view, the Court should not grant the Motion. See Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Alter or Amend Judgment Pursuant to Rule 59(e) at 1, filed April 23, 2018 (Doc. 63)(“Response”). Health Connections begins by responding to HHS' argument that Health Connections waived its challenge to “HHS's use of the statewide average premium in the risk adjustment transfer formula as opposed to an issuer's own premium.” Response at 5. Health Connections contends that HHS' focus on whether it or other commenters challenged HHS' budget-neutral approach to risk adjustment is misplaced:

HHS's argument is premised on an artificial distinction between the agency action challenged -- the use of the statewide average premium instead of an issuer's own premium -- and the agency's justification for that action. However, the action engaged in by the agency, challenged by NMHC, and addressed by this Court was the decision to use the statewide average premium instead of a plan's own premium. The agency's justification for its choice -- budget neutrality -- is not in and of itself an agency action subject to separate challenge under the APA.

Response at 6. According to Health Connections, HHS “confuses the agency action being challenged with the proffered justification for the action.” Response at 7. Health Connections asserts: “There can be no dispute that NMHC and other commenters challenged the agency's decision to use the statewide average premium instead of an issuer's own premium in both the 2017 and 2018 rulemaking periods.” Response at 7 (listing examples). Health Connections also asserts that the fact “that commenters may not have squarely addressed the issue during the 2014-2016 rulemakings is immaterial[, ] because the agency considered the issues on its own initiative.” Response at 8. See Response at 8 (“If an agency considered the issue sua sponte, the Court will not invoke the waiver rule because the agency had the opportunity to consider the issue and apply its expertise.” (citations omitted)). Health Connections further asserts that “parties are not required to challenge ‘key assumptions' used to justify the agency's rule” or obvious problems underlying their claim. Response at 8 (quoting Nat. Res. Def. Council v. EPA, 755 F.3d 1010, 1023 (D.C. Cir. 2014)). Finally, Health Connections argues that “the Court may excuse waiver in ‘exceptional circumstances.'” Response at 8 (quoting Portland Gen. Elec. Co. v. Bonneville Power Admin., 501 F.3d 1009, 1024 (9th Cir. 2007)).

         Health Connections then addresses HHS' argument that budgetary constraints prevent it from adopting a risk adjustment formula that is not budget neutral. See Response at 9-10. Health Connections argues that HHS can use its program management appropriation to fund the risk adjustment program if HHS adopts a budget-negative formula. See Response at 14-15. Health Connections contends that HHS' assertion that the agency's program management appropriation cannot fund the risk adjustment program is “entitled to no deference, ” because it is a post-hoc litigation position that “contradicts the [Government Accountability Office (“GAO”)], which is the actual expert agency in the field of government appropriations, whose views are entitled to deference.” Response at 14-15 (citing Motion at 16). Health Connections adds that its argument regarding HHS' program management appropriation is not a challenge to HHS' “decision not to allocate funds” for risk adjustment; instead, that argument regarding fund availability is part of a challenge to “the agency's action in adopting a formula using the statewide average premium instead of each issuer's own premium.” Response at 16.

         Finally, Health Connections contends that the Court should vacate HHS' risk adjustment formula and remand for further consideration, because that is “the standard remedy when a Court finds regulatory action to violate the APA.” Response at 16 (citing Se. Alaska Conservation Council v. U.S. Army Corps of Eng'rs, 486 F.3d 638, 654 (9th Cir. 2007), rev'd on other grounds, 557 U.S. 261 (2009); St. Lawrence Seaway Pilots Ass'n v. U.S. Coast Guard, 85 F.Supp.3d 197, 208 (D.D.C. 2015)(Chutkan, J.)). Health Connections continues by arguing that equitable considerations do not indicate that vacatur is an inappropriate remedy in this case:

The bulk of Mr. Wu's argument [on HHS' behalf] is that vacatur upsets settled expectations and reliance interests in the previously issued risk adjustment regulations. But this harm is self-inflicted: the Court has not prohibited HHS from continuing the same risk adjustment formula, but only required it to justify its policy choices in compliance with the APA. Mr. Wu nowhere explains why HHS has not simply commenced a new rulemaking to address the errors found by the Court. The only conclusion is either that the agency does not consider risk adjustment important enough to act upon, in which case the cry of disruption rings hollow, or the agency cannot address the Court's critique, in which case the remedy is wholly appropriate to address a serious deficiency.
In addition, the reliance interests are overstated. The administrative record contains substantial evidence that carriers are unable to predict risk adjustment transfers and thus cannot rely upon them. . . . NMHC's 2018 comments pointed out that every carrier in New Mexico built into its 2017 premium the assumption that it would make a risk adjustment payment -- a mathematical impossibility under the risk adjustment formula which always has a balance of payments in and out within a state. These rate-setting assumptions can only be explained by the carriers' inability to predict how the formula will work and a desire to have a cushion if the outcome were adverse.

Response at 19-20 (citing Hickey Decl. ¶¶ 52-55, at 11-12 (NMHC000873-74)). Health Connections concludes by commenting: “[T]here is no reason to limit the vacatur to New Mexico. The regulations apply nationwide. Courts regularly vacate and enjoin enforcement of nationwide regulations even when challenged by an individual plaintiff.” Response at 24 (citing Earth Island Inst. v. Ruthenbeck, 459 F.3d 954, 966 (9th Cir. 2006), rev'd on other grounds, 555 U.S. 488, 500 (2009)).

         5.The Reply.

         HHS filed a reply. See Defendants' Reply in Support of Their Motion to Alter or Amend the Judgment, filed May 17, 2018 (Doc. 68)(“Reply”). In the Reply, HHS renews its argument that Health Connections “cannot challenge HHS's budget neutral approach to the risk adjustment program in the 2014-2017 Rules because neither it nor any other commenter objected to that approach with respect to those Rules, ” and that it adequately responded when the budget-neutral approach was challenged during the 2018 rulemaking. Reply at 2. HHS avers that no exception to the exhaustion requirement applies in this case. See Reply at 3-4.

         HHS also renews its argument that, “because of black-letter constraints on the authority of agency officials to obligate federal funds absent or in advance of an appropriation, ” the agency had to “devise a risk adjustment program that could be funded with amounts the agency then knew would be available to make risk adjustment payments, ” i.e., risk adjustment charges. Reply at 5. HHS contends that, at least in its risk adjustment rule for 2018, it “explained that its budget-neutral approach to the risk adjustment program is necessitated by a lack of funding.” Reply at 6. HHS also contends that the Wu Decl. confirms that “the absence of additional funding for the risk adjustment program” requires the agency to “balance payments and charges across plans.” Reply at 6 (internal quotations omitted) (quoting Wu Decl. ¶ 9, at 3).

         HHS then recites the reasons why, in the agency's view, it could not have used its program management appropriation to design risk adjustment in a way that was not budget neutral:

[HHS] could not have relied on those funds because they (a) had not yet been appropriated when HHS was finalizing the rules at issue, (b) are for “responsibilities of CMS, ” not the responsibilities of the state governments for whom HHS acts under 42 U.S.C. § 18063, and (c) are designated for administrative and operational expenses of CMS, not program payments.

Reply at 8 (quoting Motion at 16). It also notes that the GAO decision Health Connections cites to “addressed a different program and an entirely different legal question”; it did not analyze “whether HHS itself could create a payment formula requiring expenditures exceeding amounts available in existing appropriations.” Reply at 8-9 (emphasis in original) (citing Dep't of Health & Human Services-Risk Corridors Program, B-325630, 2014 WL 4825237 (Comp. Gen. Sept. 30, 2014)(“GAO Report”)). HHS then underscores its belief that, even if it could have used its program management appropriation to make the risk adjustment rules, its decision not to allocate funds from the appropriation is within agency discretion and outside the purview of the Court's review under the APA. See Reply at 9-10 (citing Motion at 19-21).

         Finally, HHS argues that its “only error is a failure to adequately explain the rationale underlying a decision, ” so the Court should have followed “the presumptive approach, ” i.e., to “remand without vacatur.” Reply at 10-11 (emphasis in original)(citing Motion at 22-24). HHS also asserts that “the Court did not weigh the equities or otherwise demonstrate that it was exercising that discretion here” in deciding whether to vacate. Reply at 11. It postulates that vacatur is not equitable here, because many issuers “have structured their business plans around the methodology as it currently exists and have specifically asked HHS to prioritize consistency and stability in the applicable methodology, ” and, even if the “methodology is not perfectly predicable, this does not militate in favor of depriving issuers of important payments they would otherwise receive.” Reply at 11-12 (citing 2018 Final Rule, 81 Fed. Reg. at 94, 085; Wu Decl. ¶¶ 13-22, at 4-6).

         6. The Motion to Strike.

         In addition to contesting the Motion's substance, Health Connections argues that the Wu Decl. is “improper extra-record evidence outside of the Court's purview in an Administrative Procedures Act case.” Motion to Strike at 1. The APA, Health Connections asserts, limits judicial review to “the administrative record already in existence, not some new record made initially in the reviewing court.” Strike Mem. at 5 (internal quotation marks omitted) (quoting Bar MK Ranches v. Yuetter, 994 F.2d 735, 739 (10th Cir. 1993)). Health Connections also argues that the Wu Decl. is “inappropriate under Rule 59 [of the Federal Rules of Civil Procedure] because it improperly expands upon and repackages facts and arguments that were previously available and asserted.” Motion to Strike at 1. Health Connections argues: “That HHS opted not to expound upon its arguments against vacatur” at the summary judgment stage “does not grant it license to revive its arguments in more detail with newly submitted evidence at the Rule 59 stage.” Strike Mem. at 4 (citing Williams v. HSBC Bank USA, N.A., No. 15-9372, 2016 U.S. Dist. LEXIS 99858, *3 (D. Kan. July 29, 2016)(Robinson, J.), aff'd, 681 Fed.Appx. 693 (10th Cir. 2017)(unpublished)). Accordingly, Health Connections asks the Court to strike the Wu Decl. See Motion to Strike at 1. Alternatively, Health Connections asks the Court for “leave to conduct discovery into the allegations contained in the Wu Declaration.” Motion to Strike at 1. Health Connections argues that the Court should “conduct any new fact-finding on the question of remedy” with “a full record.” Strike Mem. at 3. A full record, Health Connections avers, requires that it have “the opportunity to conduct discovery into Mr. Wu's statements and examine him under oath so that NMHC has a full and fair opportunity to present opposing arguments.” Strike Mem. at 6.

         7. The Motion to Strike Response.

         HHS responds to Health Connections' Motion to Strike. See Defendants' Opposition to Plaintiff's Motion to Strike or for Discovery, filed May 7, 2018 (Doc. 64)(“Motion to Strike Response”). HHS asserts that it provided the Wu Decl. “solely to inform the Court's exercise of its equitable discretion in setting a remedy if the Court concludes that the agency erred in its explanation of its use of a budget neutral approach.” Motion to Strike Response at 2. HHS contends that the APA's “bar on extra-record evidence concerns judicial review of the merits of agency action, not the evidence a court may consider in determining how to exercise its equitable discretion in fashioning a remedy.” Motion to Strike Response at 2. In fact, HHS contends, the Court should consider “the facts as they exist at the time of the judicial order” when fashioning its remedy. Motion to Strike Response at 6. HHS adds that “permit[ing] post-judgment discovery with regard to Mr. Wu's declaration” would be inappropriate, because “NMHC cites no legal authority for why it should be granted such post-judgment discovery, and it has said nothing about what facts it hopes to discover or what role they would play in the Court's evaluation of the remedial issues to which Mr. Wu's declaration was directed.” Motion to Strike Response at 2. HHS also notes that the “Court has repeatedly held that motions to strike are disfavored and will only be granted where the motion concerns a pleading or a document prohibited by the Court's local rules.” Motion to Strike Response at 3. The Wu. Decl., HHS avers, “falls into neither category, and the motion to strike should be denied.” Motion to Strike Response at 3.

         8. The Motion to Strike Reply.

         Health Connections replies to the Motion to Strike Response. See Plaintiff's Reply Brief in Further Support of Its Motion to Strike the Declaration of Jeffrey Wu or in the Alternative, Grant Plaintiff Leave to Take Discovery, filed May 21, 2018 (Doc. 69)(“Motion to Strike Reply”). First, Health Connections asserts that it is not moving to strike under rule 12(f) but, rather, under the Court's “inherent power to control [its] docket[].” Motion to Strike Reply at 2 (internal quotation marks omitted)(quoting Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d 506, 516 (6th Cir. 2003)). According to Health Connections, courts regularly grant “motions to strike extra-record material in [APA] cases.” Motion to Strike Reply at 4. Health Connections asserts that “HHS notably fails to articulate any substantive basis for the Court to consider the Wu Declaration as part of its Rule 59 analysis.” Motion to Strike Reply at 5. Health Connections contends that, notwithstanding HHS' “claims that . . . the Wu Declaration can be considered by the Court because it addresses the remedy and not the merits of the risk adjustment challenge, ” the Wu Decl. “contains a number of statements purporting to support HHS' theories on budget neutrality -- an issue that is squarely on the merits of both the underlying case and the Rule 59 motion.” Motion to Strike Reply at 7. Health Connections adds that, “if the Court decides to consider HHS's new evidence outside of [the administrative] record, it should also consider additional new evidence submitted by NMHC in its [Response] that provides a more fulsome context and rebuts the Wu Declaration.” Motion to Strike Reply at 7 n.3. Finally, Health Connections argues that, should the Court consider the Wu Decl., the Court should allow Health Connections to conduct discovery as “to investigate and challenge one-sided, cherry-picked testimony that is being proffered without the opportunity to cross-examine Mr. Wu.” Motion to Strike Reply at 9.

         9. The First Notice of Supplemental Authority.

         After the parties completed their briefing regarding the Motion and the Motion to Strike, Health Connections brought a recently decided case to the Court's attention. See Notice of Supplemental Authority at 1, filed June 15, 2018 (Doc. 74)(“Notice”). According to Health Connections, in Moda Health Plan, Inc. v. United States, 892 F.3d 1311 (Fed. Cir. 2018)(Prost, C.J.)(“Moda”), “HHS argued, like here, that the lack of a specific appropriation necessitated budget neutrality for the risk corridors program, ” but the United States Court of Appeals for the Federal Circuit rejected that argument, “explaining ‘it has long been the law that the government may incur a debt independent of an appropriation.'” Notice at 1 (quoting Moda, 892 F.3d at 1321). Health Connections states: “The Federal Circuit also rejected HHS's arguments (which mirror those made in this case) that the Anti-Deficiency Act and the structure of Medicare Part D's risk stabilization programs supported its budget neutral operation of the risk corridors program.” Notice at 1-2. Health Connections concludes by distinguishing the Federal Circuit's conclusion “that certain appropriations riders mandated budget neutrality for the risk corridors program, ” because “these riders were silent as to risk adjustment.” Notice at 2 (emphasis in the original).

         10. The Notice Response.

         HHS filed a response to the Notice. See Defendants' Response to Plaintiff's Notice of Supplemental Authority, filed June 20, 2018 (Doc. 75)(“Notice Response”). HHS argues that Moda recognizes that Congress -- and not an administrative agency -- can create a legally enforceable obligation without providing an associated appropriation. See Notice Response at 1. HHS explains that “the Moda decision relied on 42 U.S.C. § 18062(b), which the court read to establish a set formula of mandatory payments that was not limited by the amount of payments into the program, ” but the risk adjustment statute “does not dictate a formula for mandatory payments.” Notice Response at 2 (citing 42 U.S.C. § 18063(b)). It follows, according to HHS, that “the Moda decision concluded that Congress, in certain circumstances, can create an enforceable payment obligation absent an appropriation, ” but “nothing in Moda supports Plaintiff's suggestion that HHS could have done so via regulation.” Notice at 2 (emphasis in original) (citing Moda, 892 F.3d at 1320-22).

         11. The Hearing.

         The Court held a hearing on June 21, 2018. See Transcript of Motion Proceedings at 1 (taken June 21, 2018), filed July 3, 2018 (Doc. 77)(“Tr.”). At the hearing, HHS began by asserting that it is entitled to reconsideration of the judgment in the MOO under rule 59, because the judgment was “based on misapprehensions of the parties' positions and the controlling law, and that they result in manifest injustice.” Tr. at 5:8-14 (Powers). HHS then repeated its argument that Health Connections “was foreclosed from challenging the budget neutrality determination for the 2014 to 2017 rules, ” because “there were no comments to the agency in those rules challenging the decision to structure the program in a budget neutral fashion.” Tr. at 6:23-7:3 (Powers). According to HHS, “there needs to be some sort of raising of the issue before the agency out of the simple fairness to the agency to allow them to apply their expertise in the first instance, and to explain themselves further or to change their decision as the case may be.” Tr. at 7:11-16 (Powers). HHS conceded, however, that this issue exhaustion requirement is satisfied as long as someone -- and not necessarily “the particular party before the court” -- raises the issue before the agency. Tr. at 7:7-11 (Powers).

         The Court then asked for Health Connections' perspective regarding HHS' argument on the issue exhaustion requirement. See Tr. at 9:22-10:2 (Court). Health Connections contended that “the comment rule exists to give the agency an opportunity to address an issue, and exercise its expertise and its reasoned decision making and rule making.” Tr. at 10:5-8 (Bassman). Health Connections asserted that this rationale means that, “when an agency actually addresses an issue, and does it itself without needing a comment or product, there is no exhaustion requirement from commenters.” Tr. at 10:9-12 (Bassman). See Tr. at 10:22-23 (“There is no requirement for a commenter to ask an agency to engage in analysis it already did.”). Health Connections then averred that “the agency action being challenged [is] the decision the agency made in setting the original formula to use the statewide average premium instead of each issuer's own premium, ” and “[t]hat was a decision that the agency made itself and analyzed.” Tr. at 10:13-19 (Bassman). Health Connections contended that there is no issue exhaustion issue, because HHS recognized and addressed the statewide average premium decision, so there was no need for commenters to challenge it from 2014-2016, and that, in 2017 and 2018, commenters had “directly challenged” the decision. Tr. at 15:12-15 (Bassman).

         In reply, HHS clarified that “we don't contend there has been waiver with respect to challenging statewide average premium itself.” Tr. at 16:8-10 (Powers).

The argument we're making is that there is waiver as to challenging the budget neutrality determination. Now, we recognize that [Health Connections] contends that it is challenging the statewide average premium. But the Court's decision relied on the fact that there was a failure to explain the budget neutrality determination. And we believe that . . . is necessarily a determination that that decision, that antecedent decision, was arbitrary and capricious, because if the budget neutrality determination was simply a parameter of the program, we believe the agency was entitled to treat that as one of the kind of factors that it would consider in deciding how to proceed. And that would be a sufficient basis to support the use of the statewide average premium.

Tr. at 16:11-25 (Powers). HHS then contended that “the sua sponte exception” does not apply, because “[i]t concerns when the agency has actually addressed the particular challenge that's raised, ” which HHS asserted “is that the program could have been nonbudget neutral because it could have been backfilled with lump sum appropriations or with resort to the Judgment Fund.” Tr. at 17:19-22 (Powers). HHS contended that it “did not address those points, so it has not sua sponte addressed” the issue. Tr. at 17:22-24 (Powers). HHS then averred that when it did address the budget neutrality issue, with the 2018 rule, it did so “sufficiently, ” in “an application of binding appropriations principles, ” because the rule “says that, ‘[i]n the absence of additional appropriations the program will be operated in a budget neutral fashion.'” Tr. at 20:4-9 (quoting 2018 Final Rule, 81 Fed. Reg. at 94, 101).

         Health Connections rejoined:

[I]n coming up with the original 2014 rule, Your Honor's opinion does an extremely thorough analysis of what the agency said then. And what the agency said then was that it was under the belief that the Risk Adjustment Statute mandated budget neutrality, and that that was Congress' intent in the text of the statute. That was the explanation they gave. There was not an absence of explanation for why they took the position they did. It's laid out in the 2011 white paper. Defendants don't seem to be willing to defend anymore what the agency actually said in its contemporaneous reasoning. But that's the reason that was given.
This is not a case where the agency failed to explain itself. The agency wrote a very thick white paper explaining itself, and then detailed rule making in 2014.

Tr. at 23:3-20 (Bassman). Health Connections then noted that the justification to which HHS points for budget neutrality in the 2018 rule does not seem to be sufficient, because it raises the question whether “the agent [is] adopting a new position and rationale, ” Tr. at 25:3 (Bassman), because “the prior position was the statute mandated it, ” Tr. at 25:12-13 (Court). Health Connections stated: “If it were changing its rationale, then under the Supreme Court's opinion in Encino Motorcars[, LLC v. Navarro, 136 S.Ct. 2117 (2016)], it was required to acknowledge that there was [a] change in position and give a reasoned explanation for the change in position.” Tr. at 25:6-10 (Bassman). Health Connections continued by addressing HHS' argument that, “to have a nonbudget neutral formula, even though the statute doesn't require a budget neutral formula, there needs to be some separate, new Congressional appropriations bill that says: Thou shalt spend X dollars on risk adjustment.” Tr. at 26:20-24 (Bassman). Health Connections pointed to Moda as authority showing that the absence of a line-item appropriation for risk adjustment does not require risk adjustment to be budget neutral. See Tr. at 28:18-23 (Bassman)(“[T]he DOJ argued to the Federal Circuit[ that] the Risk Corridor Program had to be budget neutral from the get-go because there was no separate specific line item appropriations bill for it. And the Federal Circuit said that was hogwash.”). Health Connections then asserted that the CMS' lump sum appropriation was available to fund risk adjustment payments. See Tr. at 28:24-29:24 (Bassman).

         HHS responded that budget neutrality is “mandated by the absence of the authority or appropriations that would have permitted the agency to operate the program in a different fashion, ” not that it was “commanded by Congress.” Tr. at 32:6-10 (Powers). HHS then attempted to distinguish Moda:

         [In t]he Moda decision by the Federal Circuit, the Court held or concluded that the Risk Corridor statute sets forth a payment formula that, you know, is mandatory and does create an obligation.

Now, as the plaintiff has raised, the DOJ has disagreed with that conclusion as well. But even if you take that conclusion on its face and move from there, that is something where Congress has loosened the purse strings, so to speak, rather than the agency. And under the appropriations clause of the Constitution and the Antideficiency Act, administrative agencies, executive officials, are limited in their capacity to obligate the government or to authorize spending in advance of statutory authorization to do so. And so the fact that the Moda Court held that there could have been an obligation by product of statute is irrelevant to the question here of whether or not the agency itself could have created such an obligation of its own, you know, exercise of discretion. And I think that that really shows the distinguishing characteristics there, the dispositive distinguishing characteristics to Moda, and why that is largely irrelevant to the Court's consideration here of the issues.

Tr. at 32:15-33:13 (Powers). HHS also argued that CMS' lump sum appropriation was not available to fund risk adjustment payments, because “those lump sum appropriations are for things like salaries, for administrative expenses of the agency.” Tr. at 43:6-8 (Powers). Alternatively, HHS asserted that, “even if they were available, and the Court were to conclude they're available, the agency's discretion to tap those funds for any particular program is not reviewable under the APA.” Tr. at 43:11-15 (Powers). See Tr. at 55:22-25 (Powers)(“[W]hen it comes to the allocation of a lump sum appropriation, the agency is not obligated to explain its decision making in regard to how it will allocate that.”).

         The Court then turned from the merits to the remedies issue. See Tr. at 57:1-10 (Court). The Court began by stating that its understanding is that “vacatur is the general rule” when a court concludes that a regulation is arbitrary and capricious, Tr. at 57:6 (Court), and HHS agreed that the Court's understanding is correct, see Tr. at 57:11-16 (Powers). The Court then asked HHS why -- in its view -- the general rule does not apply to this case. See Tr. at 57:17-21 (Court). HHS replied:

I think it comes from a weighing of the equities, of evaluating the error identified by the Court, which is a failure to explain the budget neutrality determination, and weighing the disruption that will be caused by vacatur, in light of the potential that that error can be rectified on remand.
And so I think that, you know, when one weighs those equities in that manner, the clear, you know, equitable outcome would be remand without vacatur, here the only area, as I said, is a failure to explain. And there is little doubt, in our view, that the agency can adequately resolve this and adequately explain the decision to treat the program in a budget neutral fashion.

Tr. at 57:22-58:11 (Powers). The Court asked HHS for “the strongest case that you would say that I got . . . this relief issue wrong.” Tr. at 59:20-22 (Court). HHS indicated that WildEarth Guardians v. United States Bureau of Land Management, 870 F.3d 1222 (10th Cir. 2017), supports its view “that when an error has been identified . . . equitable considerations may inform the Court's decision about whether or not to simply remand without vacating the challenged agency action.” Tr. at 62:18-22 (Powers). As to the equities, HHS averred that, “absent a change to the Court's order or further administrative proceedings, ” it would not be able to collect charges or to make payments under the 2017 rule, as it planned to do in August through October. Tr. at 65:16-19 (Powers). HHS noted that the Court's order affects “the whole nation” and not just New Mexico. Tr. at 66:8-9 (Powers).

         The Court then noted that its order “doesn't really impact the government, ” yet it appears that “nobody else seems to be too interested in this case.” Tr. at 68:8-11 (Court). The order, in the Court's mind, “really impacts . . . the recipients of these risk adjustment payments; that's who would want this to be a remand rather than a vacatur.” Tr. at 68:11-14 (Court). The Court then asked: “Why have I not seen, for example, Blue Cross and other large insurance companies that are the typical recipients of these payments coming in and telling me, [‘]Look, you've just got to change this part of the relief, because it's just going to be so inequitable to us.[']” Tr. at 68:19-24 (Court).

         In response, HHS reiterated that “it's important to evaluate in reflection of the particular error identified, ” Tr. at 69:7-9 (Powers), although it agreed that the Court will also have to “consider the equities of the parties that are the recipients or payers of the funds, ” Tr. at 69:12-15 (Court, Powers). HHS argued that issuers “are expecting to receive hundreds of millions of dollars or at least millions of dollars in payment to help cover the exorbitant cost of covering higher than average actual risk folks [and] are going to be harmed by delays in receiving these funds, which they have anticipated receiving.” Tr. at 71:2-8 (Powers). Vacatur of the rules for previous years in which charges and payments have been completed, HHS asserted, also “create[s] some uncertainty about the status of payments and charges already issued for those years.” Tr. at 72:5-9 (Powers). Remanding without vacatur would, as HHS stated, “help the Department, because it would mean that there was no question that the rules had ever ceased to be effective, but rather that the agency then would undertake administrative process that would be consistent with the Court's opinion.” Tr. at 72:13-17 (Powers). HHS also argued that its error -- lack of explanation on the budget neutrality decision -- could be fixed with just a remand. See Tr. at 76:1-5 (Powers).

         The Court questioned why, if the error is “such a minor defect that . . . it's not worth any sort of remedy, ” HHS has not corrected it. Tr. at 77:4-7 (Court). HHS responded: “[B]ecause we have been pursuing this relief here.” Tr. at 77: 8-9 (Powers). Health Connections argued against HHS' classification of this case as “a failure to explain case. This is a case where the explanation given was found to be arbitrary and capricious.” Tr. at 81:18-20 (Bassman). Health Connections asserted that vacatur is proper here, because HHS provided an explanation for budget neutrality and that explanation was insufficient under the APA. See Tr. at 82:4-13 (Bassman). Further, that “the Blue Crosses of the world” have not appeared as amici curiae, Health Connections averred, calls into doubt HHS' assertion that vacatur will cause a “great disruption.” Tr. at 82:14-83:3 (Bassman). Heath Connections also averred that the big insurance companies receiving the payments do not really care that payments are halted, because they are “very well capitalized.” Tr. at 85:1-16 (Bassman). Health Connections then noted that HHS has not identified any insurance company that is “actually upset that . . . risk adjustment is right now on hold.” Tr. at 83:10-12 (Bassman). Health Connections also argued the equities weigh in favor of vacatur, because HHS has not acted in the four months since the Court's MOO -- when it would have been easy to issue a notice of proposed rulemaking and review comments, especially in light of the fact that HHS has already “thought through these issues really well, [and] got their answers at the ready.” Tr. at 83:13-84:10 (Bassman). See Tr. at 84:7-8 (Bassman)(“The disruption is either a self-inflicted wound or an admission of a serious deficiency.”).

         HHS then moved to argue its alternative request that, because Health Connections “point[s] to the particular situation involving this state, . . . we've also requested that Your Honor narrow the relief to New Mexico to only accord full relief to the plaintiff.” Tr. at 70:6-10 (Powers). It asserted that “the Court in exercising its equitable discretion also has discretion to fashion narrower relief than a full vacatur, ” Tr. at 90:16-18 (Powers), and should do so here so to avoid “having an effect on plans across the county that have nothing to do with the New Mexico marketplace” while still granting Health Connections' relief, Tr. at 90:25-91:2 (Powers). HHS argued that a limited vacatur is consistent with the APA, because “the APA does not disturb courts' equitable discretion to deny equitable relief on any ground.” Tr. at 93:6-8 (Powers). Health Connections noted that HHS' rules are “not New Mexico-specific, ” Tr. at 94:1 (Bassman), but allowed “that for our particular injuries as one plaintiff, an order about New Mexico, as opposed to an order about the United States, would leave us equally whole and in the same position, ” Tr. at 94:5-9 (Bassman). Neither party could, however, point to a time where HHS has made a similar argument or any case in which a court has granted a limited vacatur. See Tr. at 91:14-92:18 (Court, Powers); Tr. at 94:14-21 (Court, Bassman).

         As to the Motion to Strike, Health Connections argued that the Wu Decl. is “improper under Rule 59, because this is not newly discovered evidence that was not previously available” and, thus, HHS should have presented this evidence in the motion-for-summary-judgment briefing. Tr. at 96: 9-15 (Bassman). Health Connections also requested that, should the Court consider the Wu Decl., it should also consider the “additional affidavits and other materials” it attached to its Response. Tr. at 96:18-24 (Bassman). HHS conceded that it would be fair for the Court to consider the Wu Decl. only on the equity issues, but argued that the declaration is properly considered under rule 59 for the reasons stated in its Motion. See Tr. at 13-23 (Court, Powers). Health Connections then asked the Court for the opportunity to cross-examine Mr. Wu should the Court “engage in fact finding and find based on Mr. Wu's declaration that the defendants have proven some sort of remedy equity facts that entitle them to a change in relief.” Tr. at 107:22-108:2 (Bassman). HHS then reiterated its position that “[t]here is no need for discovery.” Tr. at 109:18-19 (Powers).

         12. Suspension of Risk Adjustment Transfers.

         On July 7, 2018, sixteen days after the Court's June 21, 2018, hearing, CMS suspended risk adjustment transfers for the 2017 benefits year, “[i]n light of the current status of litigation” in the United States District Court for the District of New Mexico. Center for Consumer Information & Insurance Oversight, Department of Health and Human Services, Summary Report on Permanent Risk Adjustment Transfers for the 2017 Benefit Year at 2, available at (dated July 9, 2018), filed July 19, 2018 (Doc. 78-2)(“2017 Risk Adjustment Summary Report”).[7] The New York Times, however, reported that “[t]he Trump administration said Saturday that it was suspending a program that pays billions of dollars to insurers to stabilize health insurance markets under the” ACA. Robert Pear, Health Insurers Warn of Market Turmoil as Trump Suspends Billions in Payments, N.Y. Times (July 7, 2018), 07/07/us/politics/trump-risk-adjustment-payments-obamacare.html. “Trump administration officials said they decided to suspend payments under the program because of a ruling in February in Federal District Court in New Mexico. Pear, supra.

         “Billions of dollars in risk-adjustment payments and collections are now on hold, ” and AHIP stated that the Court's “decision will have serious consequences for millions of consumers.” Zachary Tracer et al., Trump Health Officials Toss Obamacare Insurers Another Curveball, Bloomberg (July 7, 2018), CMS Administrator Seema Verma told the Wall Street Journal: “We are disappointed by the court's recent ruling.” Stephanie Armour & Anna Wilde Matthews, Trump Administration Halts Payments Expected by Health Insurers, Wall Street J. (July 7, 2018, 5:46 PM), administration-halts-payments-expected-by-health-insurers-1530992052 (internal quotation marks omitted). The Wall Street Journal notes that the risk adjustment program “plays a major role in the ACA markets” as, in 2016, the “transfers were valued at 11% of total premium dollars in the individual market.” Armour & Matthews, supra. It also quoted AHIP as being “very discouraged by the new market disruption” and Blue Cross as stating that “this action will significantly increase 2019 premiums for millions of individuals and small business owners.” Armour & Matthews, supra (internal quotation marks omitted). Deep Banerjee, analyst with S&P Global Ratings, stated that, because many insurers had already input estimates of the 2017 payouts into their books, the abrupt suspension of the risk adjustment payments “would be a big hit to their financial position.” Armour & Matthews, supra (internal quotation marks omitted)(quoting Deep Banerjee). Tom Snook, actuary with Milliman Inc., notes that rising uncertainty in the market may provide cause for insurers to “argue that they need a bigger profit margin built into their 2019 rates.” Armour & Matthews, supra. The New York Times mirrored much of what the Washington Post wrote, and also pointed to HHS officials saying: “[T]hey were caught between two conflicting court rulings, ” with the New Mexico Court voiding the current formula, and the Massachusetts court upholding it. Pear, supra.

         Dr. Martin Hickey, the CEO of Health Connections when it filed the lawsuit, however, welcomes a revised methodology and states “it's always been unpredictable. We need a new formula that has less of a negative impact and encourages more entrance and competition in the marketplace.” Marie C. Baca, NM Lawsuit Central to “Obamacare” Change, Albuquerque J. (July 9, 2018, 10:30 PM), Dr. Hickey also says the decision “will allow more companies to get into the insurance market. That will increase competition, and competition will help keep prices down.” Pear, supra. The Albuquerque Journal notes that risk adjustment payments “were one of several factors that led to the demise of many of the” twenty CO-OPs, of the twenty-four which the ACA created, that are now defunct. Baca, supra. On July 9, 2018, the Albuquerque Journal also reached out to “two of New Mexico's large insurance organizations, ” who replied that “they were still weighing the consequences of the CMS announcement.” Baca, supra. One of these organizations is BlueCross BlueShield of New Mexico, which wrote that it is “currently assessing the implications and any potential impacts as a result of this development.” Baca, supra. Presbyterian Health Plan, another large insurance company in New Mexico, wrote “we do not believe it will impact our operations extensively.” Baca, supra.

         In response to HHS' decision to halt the program, Nicholas Bagley, a professor of law at the University of Michigan Law School, notes that

the government had several options . . . . [I]t could have adopted a rule that addressed the judge's concerns. Second, it could have sought a stay of the judge's order while it prepared an appeal. Finally, the government might have narrowly interpreted the order to apply only to New Mexico Health connections, or any New Mexico insurer, and acted accordingly . . . .[8]

Joseph Ditzler, New Mexico Lawsuit Puts “Obamacare” Provision on Chopping Block, Santa Fe New Mexican (July 14, 2018), andscience/new-mexico-lawsuit-puts-obamacare-provision-on-chopping-block/articleedb2979 d-edc7-594e-9e36-72b1a55d81e8.html. “The administration had options at its disposal that would cause less confusion and uncertainty for insurers than halting the program entirely.” Ditzler, supra. As the Albuquerque Journal notes, HHS “could have just issued a new ‘interim' rule, ” especially because it “already [has] such language handy.” Catherine Rampell, Repealing Obamacare Didn't Work, So Republicans Try Sabotage, Albuquerque J. (July 13, 2018, 12:02 AM), try-sabotage.html. “It is unclear why the administration didn't choose one of its less disruptive options, especially since previous court filings suggested it wanted to keep the program running. As of Monday morning, administration officials had not responded to my questions about their reasoning or timing.” Rampell, supra. Professor Bagley also writes that the Court's MOO “wasn't compelling, to put it mildly” and that “the court's decision is weak.”[9] Nicholas Bagley, Taking a Dive on Risk Adjustment, Incidental Economist (July 9, 2018, 9:43 AM), wordpress/taking-a-dive-on-risk-adjustment/. He says:

The point of risk adjustment isn't to subsidize insurers with especially unhealthy populations. The point is to adjust risk among insurers. That's why risk adjustment has to be “budget neutral.” It's totally senseless to compel CMS to explain something that was obvious to the agency and to every stakeholder in the process.[10] As I see it, the judge's decision typifies the kind of ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.