Suing and settling.

The Obama administration made news on Friday afternoon when it announced that it was open to discussing settlements with health plans that have sued the administration over risk corridor payments:

As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.

In some quarters, this bland statement has been taken to mean that the administration is about to “bail out” health plans. Instead of fighting these lawsuits vigorously, the story goes, the administration is capitulating in a partisan sop to private insurers.

Nonsense. I’ve explained before—at length, and repeatedly—that Congress authorized CMS to establish a risk corridor program that made binding financial commitments to health plans. Because health plans have an entitlement to payment, they can sue in the Court of Federal Claims under the Tucker Act to recover what they’re owed. Any damages that are awarded can then be paid out of the Judgment Fund, a permanent appropriation that exists for the purpose of paying court judgments.

If someone sues you for money that you owe them, shouldn’t you pay them? Under those circumstances, wouldn’t it be improper—maybe even unethical—to refuse to talk about settling?

Yes, the current Congress hasn’t supplied a full appropriation for the risk corridor money. But as I’ve explained before, a refusal to appropriate funds doesn’t undo an entitlement. If Congress really doesn’t want to pay insurers, it can amend the Judgment Fund to prohibit payment.

In the meantime, there’s nothing unseemly about using an appropriation that Congress established to discharge an obligation that Congress created. Indeed, the administration has explicit authority to use the Judgment Fund to settle cases that have been filed against it. Under 28 U.S.C. §2414, “compromise settlements … shall be settled and paid in a manner similar to judgments in like causes and appropriations or funds available for the payment of such judgments are hereby made available for the payment of such compromise settlements.”

Nor is it improper to conduct settlement negotiations on the one hand while moving to dismiss the cases with the other. Settlement discussions can and do occur at every stage of litigation, even when dispositive motions are pending.

Plus, the government hasn’t argued that the cases can’t ever be brought. It just thinks that they’re premature. But we’re only a year away from getting a final tally on what insurers are owed under the risk corridor program, and it could take at least that long to negotiate a settlement.

Why not start talking now?


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