Vista Health Plan, Inc. v. U.S. Dep't of Health & Human Servs.

• Citation: 29 F.4th 210
• Decision Date: 17 March 2022
• Docket Number: No. 20-50963,20-50963
• Parties: VISTA HEALTH PLAN, INCORPORATED; Vista Service Corporation, Plaintiffs—Appellants, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES ; Xavier Becerra, Secretary, U.S. Department of Health and Human Services ; Centers for Medicare and Medicaid Services; Seema Verma, Administrator of the Centers for Medicare and Medicaid Services, Defendants—Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

29 F.4th 210

VISTA HEALTH PLAN, INCORPORATED; Vista Service Corporation, Plaintiffs—Appellants,

v.UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES ; Xavier Becerra, Secretary, U.S. Department of Health and Human Services ; Centers for Medicare and Medicaid Services; Seema Verma, Administrator of the Centers for Medicare and Medicaid Services, Defendants—Appellees.

No. 20-50963

United States Court of Appeals, Fifth Circuit.

FILED March 17, 2022

Jennifer Scott Riggs, Riggs & Ray, Austin, TX, for Plaintiffs—Appellants.

Jeffrey Eric Sandberg, Attorney, Alisa Beth Klein, Esq., James Ryan Powers, Trial Attorney, U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendants—Appellees.

Before Higginbotham, Stewart, and Wilson, Circuit Judges.

Cory T. Wilson, Circuit Judge:

The United States Department of Health and Human Services (HHS) implements a risk-adjustment program under the Patient Protection and Affordable Care Act (ACA) in states that choose not to implement the program themselves. The risk-adjustment program is designed to redistribute actuarial risk among health insurance plans so that sicker-than-average individuals can obtain affordable healthcare. To effectuate the program, HHS created a three-step risk-adjustment methodology. In March 2018, a district court in New Mexico vacated HHS's risk-adjustment rules for benefit years 2014 through 2018 to the extent the rules relied on the third step of HHS's methodology. In response, HHS stated that it would not collect or pay specified risk-adjustment amounts but would issue additional guidance in the near future. In July 2018, HHS announced that it would republish the previously adopted risk-adjustment rule for the 2017 benefit year. For the 2018 benefit year, HHS promulgated a new rule in December 2018.

Once the new rules were published, Vista Health Plan, Inc., a small health insurance company in Texas, was assessed risk-adjustment fees that exceeded its premium revenue, causing the company to cease operations. The company and its parent, Vista Service Corporation, (collectively, Vista) sued HHS, HHS Secretary Alex Azar, the Centers for Medicare and Medicaid Services (CMS), and CMS Administrator Seema Verma (collectively, the HHS Defendants), challenging the risk-adjustment program and the repromulgation of the 2017 and 2018 Final Rules. The district court granted summary judgment for the HHS Defendants on eight of nine claims asserted by Vista and remanded the only remaining claim to HHS. We affirm the court's summary judgment in favor of the defendants.

I.

A.

The underlying facts are undisputed. Among other provisions, the ACA prohibits insurers from denying coverage or charging higher premiums based on health status. See generally King v. Burwell , 576 U.S. 473, 479–84, 135 S.Ct. 2480, 192 L.Ed.2d 483 (2015) (summarizing the background and purpose of the ACA). Because sicker individuals generally incur higher costs for insurers, insurers are disincentivized from enrolling such individuals without charging higher premiums. To counteract this, Congress enacted 42 U.S.C. § 18063, which directs HHS to establish a permanent risk-adjustment program.

Under the risk-adjustment program, fees are assessed against plans with healthier-than-average enrollees in a given state, and then payments are made to plans with sicker-than-average enrollees in that state to redistribute actuarial risk. Congress designed the risk-adjustment program to be administered by the States. Some states opted not to do so, and in those states, Congress directed HHS to operate the program. 42 U.S.C. § 18041(c)(1)(B)(ii).

To assess actuarial risk, Congress directed HHS to "establish criteria and methods" for the risk-adjustment program. 42 U.S.C. § 18063(b). In turn, HHS created a three-step risk-adjustment methodology: First, for each individual enrolled in an insurer's plan, an actuarial risk score is computed using demographic and diagnostic data to determine the predicted cost of insuring that enrollee. 78 Fed. Reg. 15,410, 15,419 (Mar. 11, 2013). Second, the risk scores for each enrollee in a plan are aggregated to determine the plan's average risk score. Id. at 15,432. Third, a plan's risk score is multiplied by the statewide average premium, yielding the dollar amount that a given insurer will pay as a charge or receive as a payment, for that plan for that year. See id. at 15,430 –34; N.M. Health Connections v. U.S. Dep't of Health & Hum. Servs. , 946 F.3d 1138, 1148–50 (5th Cir. 2019) (detailing the risk adjustment program methodology). HHS has used an annual rulemaking process to refine its risk-adjustment rules, but it has not reconsidered its overarching methodology anew each year.

In March 2018, a district court in New Mexico vacated HHS's risk-adjustment rules for benefit years 2014 through 2018 to the extent they relied on the statewide average premium (the third step of the risk-adjustment methodology). See Minuteman Health, Inc. v. U.S. Dep't of Health & Hum. Servs. , 312 F. Supp. 3d 1164, 1207–12 (D.N.M. 2018), rev'd , 946 F.3d 1138 (10th Cir. 2019). Just prior, in January 2018, a district court in Massachusetts ruled in favor of HHS on the same issue. See Minuteman Health, Inc. v. U.S. Dep't of Health & Hum. Servs. , 291 F. Supp. 3d 174, 198–205 (D. Mass. 2018).

Addressing the conflicting judgments, HHS issued a press release on July 7, 2018, advising insurers that "the New Mexico district court's ruling ... bar[red] [HHS] from collecting or making payments under the current methodology, which uses the statewide average premium." Two days later, HHS stated it "w[ould] not collect or pay the specified amounts," but it "w[ould] inform stakeholders of any update to the status of collections or payments at an appropriate future date." HHS added that "[a]dditional guidance w[ould] be issued in the near future regarding 2017 benefit year appeals and reporting of risk adjustment transfer amounts by issuers."

Urged by members of Congress (among various other entities) "to act with the utmost urgency to resolve the $10.4 billion hold on the risk adjustment program," HHS issued a memorandum on July 27, 2018, stating that it would republish the previously adopted risk-adjustment program rule for the 2017 benefit year. The republished rule "utilize[d] statewide average premium for the 2017 benefit year as set forth in the rules published on March 23, 2012 ... and March 8, 2016." Three days later, HHS published the 2017 Final Rule, which adopted "the HHS-operated risk adjustment methodology previously published at 81 [Fed. Reg.] 12204 for the 2017 benefit year with an additional explanation regarding the use of statewide average premium and the budget neutral nature of the program." HHS clarified that the "rule d[id] not make any changes to the previously published HHS-operated risk adjustment methodology for the 2017 benefit year." HHS did not follow the notice-and-public-comment procedures outlined in the Administrative Procedure Act (APA) when it republished the 2017 rule. See 5 U.S.C. § 553.

For the 2018 benefit year, HHS published a proposed rule on August 10, 2018, following the APA's notice-and-public-comment procedures. The 2018 rule was finally promulgated on December 10, 2018. The 2018 Final Rule adopted "the same methodology that [HHS] had previously published for the 2018 benefit year."

B.

Vista Health Plan, Inc., began as a small health maintenance organization that was approved by the Texas Department of Insurance (TDI) to enter the health insurance market in May 2016. Vista Health Plan, Inc., and its parent company, Vista Service Corporation, sued the HHS Defendants on September 28, 2018. Vista challenged the promulgation of the 2017 and 2018 Final Rules, HHS's calculation of Vista's risk-adjustment charges, and the risk-adjustment program more generally. Vista contended that the charges assessed against it "far exceeded Vista's gross receipts" for the 2017 and 2018 benefit years, which "caused Vista to be placed under supervision by [TDI]," and ultimately resulted in TDI directing Vista to cease "sell[ing] policies in 2019."

After filing an administrative record that included "the non-privileged administrative records of the rulemaking proceedings" for the 2017 and 2018 Final Rules, the parties filed cross-motions for summary judgment. The district court granted the HHS Defendants' motion for summary judgment on eight of nine claims alleged by Vista¹ and remanded Vista's remaining procedural due process claim to HHS. Because Vista challenges the district court's dismissal of only five of these claims, we limit the following discussion to those appealed claims.

First, Vista argued that the 2017 and 2018 Final Rules were impermissibly retroactive. The district court disagreed, holding that the rules were not retroactive because they "simply reinstated the obligations all regulated entities had already anticipated and acted in reliance upon," and did not "increase[ ] a party's liability for past conduct, or impose[ ] new duties with respect to transactions already completed." Vista Health Plan, Inc. v. U.S. Dep't of Health & Human Servs. , No. 1:18-CV-824, 2020 WL 6380206, at *8 (W.D. Tex. Sept. 21, 2020) (quoting Landgraf v. USI Film Prods. , 511 U.S. 244, 268, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994) ).

Second, Vista contended that the 2017 Final Rule should be vacated for failing to comply with APA notice-and-comment procedures. The district court agreed that HHS was not entitled to a good-cause exception for its failure to comply with the procedures. Id. at *9–10. However, the court determined that the error was harmless because "Vista fail[ed] to present cognizable prejudice." Id. at *10 ; see United States v. Johnson , 632 F.3d 912, 930 (5th Cir. 2011).

Third, Vista asserted that HHS's creation of the risk-adjustment methodology—particularly the third step regarding the statewide average premium—was inconsistent with § 18063, or otherwise...