One of the central features of the Affordable Care Act (ACA) is the requirement that all states have in place by January 1, 2014 one or more health insurance Exchanges, which are intended to operate essentially as insurance marketplaces helping small businesses and individuals access affordable health plans. Implementation of this feature is moving forward, with the federal government recently issuing a number of guidance documents. In addition, the U.S. Department of Health and Human Services (HHS) has recently approved (or conditionally approved) several states’ proposed exchange “blueprint” plans. As operation of the Exchanges becomes nearer to reality, the significance of one of the ACA’s amendments to the False Claims Act (FCA) – its extension of the FCA to cover “[p]ayments made by, through, or in connection with an Exchange,” if the payments include any Federal funds (ACA § 1313(a)(6)(A)) – deserves increasing attention.

In one recent guidance document, HHS referenced the FCA as a method of enforcement for a new proposed requirement related to the risk adjustment program that the HHS Secretary must establish under Section 1343 of the ACA. See Proposed Rule: Patient Protection and Affordable Care Act: HHS Notice of Benefit and Payment Parameters for 2014, 77 Fed. Reg. 73,117, 73,149 (Dec. 7, 2012). The purpose of the risk adjustment program (along with reinsurance and risk corridors programs also created under the ACA) is to help stabilize premiums for Exchange plans by protecting against adverse selection in the newly enrolled population. 77 Fed. Reg. at 73,118. Under the risk adjustment program, health insurance issuers can receive payments for taking on higher-risk enrollees. The intent is that such payments will spread, more evenly, the financial risk borne by issuers of Exchange plans.

HHS has proposed prosecution under the FCA as a remedy against insurers who are subject to, but not compliant with, the risk-adjustment requirements related to data validation. More specifically, HHS has proposed a data-validation process for benefit years 2014 and 2015, which would involve the issuers conducting an initial validation audit, followed by a second validation audit conducted by HHS. Recognizing the complexities involved in the program, HHS proposes that it would not adjust payments and charges based on validation findings during the first two years of the program (i.e., in the 2014 and 2015 benefit years). HHS adds that, “[a]lthough we are proposing not to adjust payments and charges as a correction based on error estimates discovered, we note that other remedies, such as prosecution under the False Claims Act, may be applicable to issuers not in compliance with the risk adjustment program requirements.” 77 Fed. Reg. 73,149.

HHS specifically requests comments on this approach and on other suggestions for improving the data validation process for risk adjustment. Id. Comments are due December 31, 2012.

As implementation of the Exchanges moves forward, regulators may well continue to look to the FCA as a tool for enforcing health insurance issuers’ (and others’) compliance with the new requirements that will apply to these developing health plan marketplaces.