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Court: Shareholder can sue DC over alleged underpayment of failed health insurer

A federal appeals court ruled that the sole shareholder of a failed health insurer can sue the District of Columbia in federal court for allegedly causing the company to fail by underpaying it.

The U.S. Circuit Court of Appeals for the District of Columbia found that the superior court that oversaw the rehabilitation of D.C. Chartered Health Plan Inc. only decided on the rehabilitation plan for the health insurer and not claims by its sole shareholder, D.C. Healthcare Systems Inc., that the district caused D.C. Chartered's financial distress and forced it to enter rehabilitation.

The appeals court also reversed a decision by the U.S. District Court for the District of Columbia that it had no subject-matter jurisdiction over D.C. Healthcare's case against the district; officials who led the rehabilitation; Mercer LLC, which served as actuary to develop so-called capitation rates every year; and AmeriHealth Caritas Health Plan, which bought D.C. Chartered's assets.

Under a contract with the district, D.C. Chartered paid for the healthcare of lower-income residents from 1987 to 2013. The company was reimbursed based on a capitation rate that must be set at "actuarially sound" levels. According to D.C. Healthcare's complaint, companies are required to maintain a minimum level of capital reserves to conduct business in the district.

Thousands more people became covered by D.C. Chartered following the enactment of the Affordable Care Act in 2010, causing the company's costs to rise. However, the district allegedly refused to adjust capitation rates.

The superior court approved the rehabilitation plan in 2013, with D.C. Healthcare Systems filing a federal lawsuit in August 2016.

D.C. Healthcare, Mercer and AmeriHealth Caritas did not immediately reply to requests for comment outside of office hours.