RISK CORRIDORS

[00:00:00] JOHN QUINN: This is Law Disrupted and this is John Quinn. And today we're talking with J. D. Horton and Steve Swedlow, partners at Quinn Emanuel, Urquhart Sullivan. And we're going to be talking about... a major case that they prosecuted where they got a judgment for over 3. 5 billion dollars all in it may turn out to be a 4.

7 billion dollar case they're going to tell you about the case we know it by the shorthand risk corridors and they will explain all that steve jd thanks very much for joining us thank you 

[00:00:39] STEPHEN SWEDLOW: thank you for having us Gentlemen, 

[00:00:41] JOHN QUINN: how did this case start and what's it all about? 

[00:00:44] J.D. HORTON: So the beginning of the case was I was reading the Wall Street Journal and the LA Times, which I do every morning.

And I saw that there was a big push in the Senate to not fund the risk corridors element of the Affordable Care Act. And what that was, was to entice health plans into the market. Right. When the Affordable Care Act came out, they did what was called a risk corridor, which meant that you couldn't make too much money on your contract and you couldn't lose too much money on your contract.

[00:01:16] JOHN QUINN: We're talking about, we're talking about health insurers, I assume at this point. 

[00:01:20] J.D. HORTON: That's correct. Um, that would join the Affordable Care Act. When the Affordable Care Act came out, um, insurers were required to cover anybody. who signed up and they weren't used to that. If you had any kind of pre existing condition, historically, they just wouldn't cover you.

They were being forced to take people now that were much less healthy than normal. And the result of that was they didn't know how to price it. So the government knew that. So to get people to sign up health insurers to sign up, they said, Look, we'll have a period of time for three years in which you won't lose too much money because we'll put a cap on how much you can lose and you won't make too much money.

and we'll put a cap on how much money you can make and all this stuff will fund it and it'll make a good market and then as time goes on by the fourth year you will be able to price these things appropriately. So that was the whole idea behind it. It was based upon a medicare supplemental drug program that had been done before the risk quarters program and it had worked very well 

in that.

[00:02:29] JOHN QUINN: These were provisions of The Obamacare law basically said to the insurance industry, we're going to expect you to cover these people who you haven't covered in the past. You're going to be required to do it. And we, the government recognizes there's uncertainty in the pricing, but we're going to backstop you, your losses.

We're going to make sure that you're not going to lose money on this essentially. Is that essentially what the law said? Essentially. 

[00:02:55] J.D. HORTON: That is correct. 

[00:02:56] STEPHEN SWEDLOW: Let me, this is Steve. Let me just. Try to clarify one thing. So the reason this was so important is because private health insurance companies didn't have to participate in the exchanges and nonprofit entities were being created to participate in these exchanges.

And so this is where we found our ultimate, uh, clients are class representatives. If you're a nonprofit and you enter into a what the exchange would mean offering insurance in a particular state, let's say, Illinois or Oregon. If you are going to insure the previously uninsured or uninsurable, uh, the sick, the people with pre existing condition, you don't, as J.

D. said, you don't know what to price it at, but you're not going to participate if you're just going to go bankrupt when you price it wrong, so it was, it was the incentive for entities to participate, uh, and make the Affordable Care Act actually a thing that worked, because the two aspects of the Affordable Care Act that were, was like the whole thing, Was people who weren't insurable and didn't have insurance previously would get insurance and you wouldn't get kicked out of your insurance or be unable to get insurance for a pre existing condition.

Well, those make it very hard to figure out what to charge. So the idea was people are going to make mistakes, charge the wrong amount. And then this is where the claim comes in. The government guaranteed that you weren't going to lose too much and they promised to make the payment. And then I'll turn it back over to you.

[00:04:26] JOHN QUINN: So JD, you were saying that, uh, you're reading the wall street journal and you saw an article. 

[00:04:31] J.D. HORTON: That's correct. And what had happened was there was no funding. in the Affordable Care Act for this. It said the government shall pay the risk corridors amounts, but they didn't have an appropriation for it. And what had occurred was Marco Rubio, the Senator from Florida, decided that he was going to put a rider on all appropriations bills and say no funds from Health and Human Services can be used to pay these risk corridors amounts.

Now, when they first envisioned this, the idea was that the people who made too much money. It would have to give some of that money back and that would offset the people who lost too much money, but that wasn't how it worked. So I think for the first three years, there was a 12 billion deficit and how much the government got in on risk corridors and how much they had, they were on the only three years for the, yeah, for the 

only three years.

That's correct.

[00:05:24] STEPHEN SWEDLOW: So, so politically this one, this, this was fascinating to me because the total number of Republicans who voted for the affordable care act was zero. Uh, That it was passed in 2010 for that brief window where the House and Senate and presidency were all Democrats. And as J. D. said, it wasn't funded.

Uh, it was, a funding obligation was created, but the funds weren't allocated. How, 

[00:05:50] JOHN QUINN: how, how is it, I don't get this, that Congress can pass... A law, which on its face, as you described it, establishes a liability, but makes no provision to fund that. Is that something that happens often? Or was this unusual? 

[00:06:06] STEPHEN SWEDLOW: Here comes Quinn Emanuel then.

So, J. D. forwarded me the article and he said, I mean... 

[00:06:11] JOHN QUINN: So , so just briefly, J. D., you read this, and basically a light bulb lights up in your mind. 

[00:06:17] J.D. HORTON: Absolutely. I mean, so I thought, look, when the government included the language, shall pay, That obligated them to pay. And they had literally taken the whole healthcare industry 

and said, look, we're going to backstop all these 

losses.

And then they didn't do it. And that's, that can't be right. That cannot be right. 

[00:06:36] STEPHEN SWEDLOW: This also isn't that rare though. So that the government creates obligations to pay all the time and then can't pre fund it. You know, the government spends trillions of dollars. But those funds aren't always appropriated, 

[00:06:51] JOHN QUINN: so there might be more.

There might be more claims like this lurking out there. 

[00:06:55] STEPHEN SWEDLOW: Well, I mean, we have it. We have count two of our of our complaint, which is account like this that, uh, that I mean, this is publicly disclosed that The government now is interested in, in settling. So, all right. 

[00:07:07] JOHN QUINN: All right. So anyway, JD, you, you get the article, you forward it to your partner, Steve.

Now had, I'm interested in the personal dynamics here. Why Steve? I mean, had you worked with Steve before you thought he's the perfect guy for this or what? I mean, cause you guys are in different offices, JD, you're in LA, Steve, you're in Chicago. 

[00:07:25] STEPHEN SWEDLOW: When Steve was 

[00:07:26] J.D. HORTON: a plaintiff's attorney before he came to Quinn Emanuel, Steve and I partnered on a number of cases, including a case in the healthcare industry.

And having known Steve, Steve's a very good trial attorney, but Steve is also a guy that if you light a fire under him, he's going to go out and do whatever he can to win. And I thought Steve is the absolute perfect guy for this case. I mean, there was nobody else. I even really considered than Steve because I know he would see an opportunity here and he would go get it and he'd do whatever he could to do it.

And I mean, I know, and I learned this from you, John, part of being a successful attorney is recognizing what you need in a certain circumstance. As far as an attorney goes and going and getting that person, because there are some people who are great at one thing and not others. And they can fill that niche for you in a trial or whatever.

And it's fantastic. And Steve fit the role here and not get anything wrong. He was going to come in as being the lead trial. Council on this, and he served them. Obviously, look, the results speak for themselves, but 

[00:08:34] JOHN QUINN: just in the back of your mind, J. D. You discovered this. Was there a little bit, uh, something a little inside you that thought, well, this is my baby.

You have any reluctance to forward this on to to one of your 

[00:08:47] J.D. HORTON: partners. No, that's not the Quinn Emanuel way. I mean, the Quinn Emanuel way is to get the best result possible. And I knew Steve was going to be the guy to do it. I mean, he's a first chair trial attorney who's very aggressive and has a lot of experience in the healthcare world.

So he was the perfect guy to do this. And to be honest, I thought we would get a better result with Steve Swedlow as the lead trial attorney on this. And like I said, the results speak for themselves. I mean, it seems a good friend of mine. 

[00:09:20] STEPHEN SWEDLOW: Yeah. I, I don't know why we're burying the lead on our friendship.

We were in trial for eight weeks. Okay. Great. So you 

[00:09:30] JOHN QUINN: guys were not, you were not strangers JD forwards this article to you, Steve, and, and tell me about, you know, what your reaction to it was and what you did. I mean, did you immediately see, Hey, this is a great opportunity or did you kind of scratch your head and say, look, I need to dig into this.

[00:09:48] STEPHEN SWEDLOW: So it wasn't a secret and it was, it was very much. Disrupting the health care industry. All of the nonprofit. Um, I'll call them health insurance companies that were providing health insurance. We're going to go out of business. So it was, it was a giant problem. That was, as J. D. says, in the Wall Street Journal and the L.

A. Times. Why hadn't anybody sued the government yet? Because the claim was ready to be filed, but nobody filed the case. So we looked into why nobody was 

[00:10:17] JOHN QUINN: suing. So let me just interrupt you. So before you got the article, you knew this was 

[00:10:21] STEPHEN SWEDLOW: an issue. No, no, I did not know this was an issue at all. When I got the article, I was like, well, this is so obvious.

Because health insurance companies know that this is an issue, not me, but all the 240 health insurance companies that could file the lawsuit, how come nobody filed a lawsuit? So I did my own Google research. And there was a, an article had been published by one of my, uh, old law professors, a guy named Tim Jost, and he's, he's a, now he's an emeritus professor of healthcare law, where he kind of outlined what the problem is and why it would be a claim.

And then we, then we started researching why hasn't anyone sued yet. What would the claim be, where would we file it. The problem with filing this kind of class action against the government is often class action. Which means you got to go out like you're selling vinyl siding and get all these health insurance companies to actually take an affirmative action and agree to hire you.

So you file a class action but then you got to get hired. 

[00:11:23] JOHN QUINN: You have a, you've identified a claim but at this point you don't. You don't have a client. 

[00:11:28] STEPHEN SWEDLOW: Uh, we don't have a client and we don't really have a claim. I mean, we, we then developed the claim and it turned out to be a claim under the Tucker Act. Did you 

[00:11:35] J.D. HORTON: ever, 

[00:11:36] JOHN QUINN: you must have learned over the course of developing the claim and signing up clients why it was that healthcare companies hadn't brought claims themselves before?

And what was the answer? What was the answer to 

[00:11:49] STEPHEN SWEDLOW: that? So the reason is other, other law firms knew of it. potential claim. They didn't articulate it correctly. We'll get into that in the second part, maybe. But the reason is because the government is by far the largest client and customer of almost every health insurance company.

And nobody wants to sue the government or, or, you know, bite the hand that feeds them. So this clearly was The government was doing something wrong, and it was totally partisan, meaning the Republicans didn't want to pay a bill that the Democrats had created, and the Republicans now control Congress. So what we had to do was find an entity that didn't care anymore, and either fortunately or unfortunately, this failure to pay had put a lot of the non profits out of business.

So we had to find a non profit. It didn't care about suing the government, so we flew out to, uh, Oregon, uh, and tried to get hired by a company called Health Republic. 

[00:12:48] J.D. HORTON: And just to follow up with what Steve said there is, so our initial client only had a claim for the first year because they went bankrupt or they went into insolvency.

So we then had to find another company that was willing to bring claims for the other two years. 

[00:13:06] STEPHEN SWEDLOW: And, you know, again, 

[00:13:07] J.D. HORTON: that was another circumstance in which Most companies didn't want to sue. But Steve went and located a company in 

[00:13:14] STEPHEN SWEDLOW: Wisconsin that was going to go bankrupt if they didn't get paid. And, you know, that that made all the difference.

[00:13:22] J.D. HORTON: I mean, so we found another company that was willing to sue because they were not going to be an ongoing affair. 

[00:13:28] STEPHEN SWEDLOW: Actually, I would say this is more like a karma thing. So that company is common ground. And what we did. Without charging them anything. You know what I did without charging that thing is they needed to sell their claim or finance part of their claim to stay in business, and we connected them with with an entity that would do that.

Uh, we didn't charge him anything or, you know, we just advised them basically, and because they were able to stay in business, their board felt indebted to us. And so when we needed somebody to bring the claim for 2016 We made a presentation to their board and they said, Yeah, you guys kept us in business for free.

And so now we'll be your class rep. And it wound up being, it was going to be difficult to find another entity to file a lawsuit at that time. It ultimately turned out once we started to, once it was clear that we had crafted a basically perfect claim, and then law firms convinced other individual clients to file their own claim.

So, we were the, we were the first to file by what, six months, five and a half months? Yes. And then other law firms started calling us saying, hey, we want to talk to you about the claim you filed. Why did you add this count? Why didn't you add this count? Uh, we think maybe it's a contract claim. Why didn't you bring it as a contract claim instead of a what's called a Tucker Act claim against the government?

And then those law firms were, for their individual clients, just ticking our brain to figure out how to file their own case. Well, 

[00:15:03] JOHN QUINN: let's stop there for a minute and talk. Tell us a little bit about the thinking that went into the extent you can that went into framing the claims and the decisions you had to make.

You said that you had to frame the case in a certain way. Uh, you must've concluded that pursuing it in other ways was not optimal. Tell us a little bit about that. I assume that you had figured that out before you started signing up clients. We 

[00:15:28] STEPHEN SWEDLOW: had our complaint ready. With the claims we wanted to include and all of the claims that we drafted but decided they either weren't susceptible to class treatment, or they just weren't the winning claim because there were there were problems with some of the other potential ways of claiming it.

Yeah, we had our complaint ready and we had the accounts rejected that we wanted to reject. And then we went out, I don't think that the clients we were trying to get to participate in class reps really cared about that part that's the lawyer part. We made the claim as simple as possible. There's something called the Tucker Act, which is the way that you sue the government for a mandatory obligation that they have to pay, whether that be, you can use the Tucker Act for a contract claim or a statutory claim.

We were using the Tucker Act for a statutory claim. The sort of mistake the other lawyers made when they filed their Sudo copycat claims where they included other counts that were losers. Uh, and I think we were ultimately vindicated by the Supreme Court because our claim as crafted and filed by us was the claim that the Supreme Court said.

That's the valid claim. That's the one that went on. Then everybody went. That's the thing. We we filed the first complaint. We got 150 entities to affirmatively opt in. But that that turned out to be, I think, I think it's actually already. Uh, paid out is 4. 5 billion in judgment. But there was another 7. 5 billion in judgment that other entities got because once once the claim was crafted in one And then then the government was willing to pay everybody.

So part of the 

[00:17:10] J.D. HORTON: reason why we didn't end up getting more of that 12 billion was there were a lot of big companies that had outside counsel that said, Look, we cannot pay any fee. We can just wait and see what happens if they win. We'll then file a case in the federal court of claims and we'll win immediately.

The government will stipulate to judgment and you'll just pay us by the hour and it'll be maybe a few. Yeah. So a lot 

[00:17:36] STEPHEN SWEDLOW: of the, I tell an interesting story about that though. There was, so I, John, you'll remember we did. You and I went and tried to get a giant claimant to hire us. And they said, good luck. We hope you win.

And then we'll get 2 billion for ourselves, which might've been the right move at that point, because they had waited so long. Another problem that we faced was we got the class certified. We were, we were during the, during this opt in period, other firms who are understandably competitors with ours.

We're going to their clients, their health insurance company clients and saying, you should hire us on contingency and pay us. We'll take a percent. Let's say 15 percent because Quinn Emanuel could seek up to a third, which we weren't going to see. So I had a law firm, a guy I feel who who helped our cause a lot came in to meet with us.

He represent he was representing a bunch of health insurance entities And he wanted to see whether they should opt in. They ultimately, all of his clients did opt in. And he said, you know, other firms are saying that you're going to seek one third. And frankly, that's too much. So if you're going to seek one third, we don't want to opt into the class.

I, uh, I went, I was really upset, angry, ballistic. Uh, so we wound up filing a supplemental class notice literally that day while this lawyer, Frank O'Loughlin, was in our office. Indicating that we were going to seek 5 percent and no more than 5 percent because that's what we were going to see. And there were a bunch of individual cases that were getting filed by other law firms.

Uh, and we later found out at a higher contingency rate than 5%. And once we issued the supplemental notice, once we knew that that was happening in the marketplace. Then all of those filing stops because now we had publicly stated, the best deal you're gonna get is the 5% deal with us. And so then we were able to capture a much more significant part of the market.

Yeah, FI 

[00:19:40] JOHN QUINN: 5% is, is a, a much lower percentage than you usually see for contingent fee cases. Of course, given the size of this claim, it's understandable why the, uh, percentage might be lower, but I take it from the beginning, this was seen as a contingent fee case. Is that true? 

[00:19:56] STEPHEN SWEDLOW: Uh, well, we were our first class for a client was essentially a bankrupt entity that wasn't doing business, so they wouldn't pass.

I think that it wasn't interesting enough. This, you know, Quinn Emanuel as a firm has an appetite for plaintiff side contingency work, and most firms in our tier don't have the same appetite as an hourly case. We would get hired by a client to pursue the claim and make some money. But at the contingency class action, this could lead to 185 million in fees or more so or less or zip.

Yeah, I remember when J. D. When J. D. And I were doing the math and when we decided that we should do the supplemental notice for 5 percent we said 5 percent of Of 10 billion is it's still a good number. It's 500 million. So if we get everyone else to sign up, then we're going to get 500 million. And then I think we even said, even if we only get a third of them, we're still going to get 200 million.

And that's almost exactly where we wound up. So, so I, 

[00:21:08] JOHN QUINN: I, I'm not familiar with this, uh, uh, procedure where you file something, disclosing what your fee arrangement is. Well, it 

[00:21:16] STEPHEN SWEDLOW: was invented in the 10 minutes between when Frank told me someone else was asking. 

[00:21:21] JOHN QUINN: Okay, so you, you made a decision. You wanted to signal to the marketplace, to these potential opt in clients who were being told by other lawyers, essentially, that you are greedy pigs.

You want to signal, we're not. 

[00:21:36] STEPHEN SWEDLOW: We're prepared to do this. This is exactly how greedy we are. We may be greedy, but we're greedy at this number, which was a lower number than individual clients were hiring law firms.

[00:21:49] J.D. HORTON: Yeah. I mean, if you have a class action and you have all these aggregate claims, I mean, it makes sense that you can charge a lower number than for an individual client, for an individual claim. So, I mean, we had that 

[00:22:01] STEPHEN SWEDLOW: economy that was going, 

[00:22:03] J.D. HORTON: um, that allowed us to get a lot more clients. Uh, one thing we should also talk about at some point, Steve, is the, uh, the secondary market of how we created this, uh, litigation funders buying claims.

That was a huge market. We made so much money for litigation funders by 

[00:22:20] STEPHEN SWEDLOW: creating the market. That kind of started with common ground. So yeah, the market for buying these, you know, there's 12 billion in claims. A bunch of funders came to us saying, Can we just buy or invest in your contingency fee? And we said no, because we can afford it where you know, we have enough money.

We don't need money to fund the litigation, at least not this one. So there were times during the litigation where funders would pay 50 percent of the total claim. And then there were other times in litigation where funders would pay 5%. Yeah. Because this claim was dead. This claim is totally dead. No pulse.

And we were trying to give this claim CPR and bring it back. And our hope we're going to skip forward a little bit with that. The Supreme Court would grant cert on one of these cases and reverse the federal circuit who had killed this claim. The claim was dead. The way this claim was dead made no sense, no legal sense, but it was dead, probably for political reasons, and then a largely Republican.

Supreme court reverse eight to one. 

[00:23:25] JOHN QUINN: All right. Well, we'll get, we're getting ahead of ourselves. Let's back up. So you have filed this case. You've got your class representative. It's an opt in class, so you need insurance companies to sign up, raise their hands and say, I want in, uh, were you just waiting for the phone to ring at that point, or were there things that you did to outreach to the, uh, the industry, we 

[00:23:47] STEPHEN SWEDLOW: did an outreach.

One unfortunate circumstances, our trial judge at the time. Her husband was, was dying during the period where we were seeking certification and opposing the motion to submit. So while we were, we filed six months ahead, the case didn't move fast for that understandable reason. And then we won, we defeated the initial motion to dismiss, we got the class certified, and then there was that opt in period.

So during that opt in period, I'm I'm still a one K from that period. I flew all over the place. I remember I fly to I fly in and out, for example, to Denver in one day and meet in like a community center room with the decision makers for a Colorado health insurance entity or fly to New York back and forth in one day because these companies would not pay attention.

And then Would say we need to present this to our board right now But we also want to assess whether you're a good enough attorney for us to give you the claim And we were as I said, we were competing with several very sophisticated Healthcare oriented law firms that wanted to be hired either by the hour or contingency.

So it was a getting 150 clients to sign up with I never felt more like a used car or siding salesman than flying around saying, you should opt into this case. And we're the best. It was like I had a spiel put together, but it was exhausting because and we weren't asking for any money, but we were asking them to assign a claim worth hundreds of millions of dollars to us instead of some other firm that was also saying they had, you know, they have a 10 year relationship with them and they understand healthcare better than we do.

So we had to show up and actually understand their claim better than the other firms did. I mean, 

[00:25:44] J.D. HORTON: that's Steve's point there that there were all these outside council who had represented these companies for years, and they had their federal contracting people come in and say, Look, we know how to do all these cases in the federal court of claims.

These guys haven't done cases in the federal court of claims. So we had a lot of you know, push back trying to get these guys signed up by all the institutional attorneys that represented these companies for years. And as you know, in the healthcare industry, you know, the non litigators who do huge amounts of work for these companies have amazing relationships with them.

And they're good attorneys, 

[00:26:22] STEPHEN SWEDLOW: right? I don't know about the second part. 

[00:26:26] JOHN QUINN: All right. So it's a very, very competitive situation. You succeeded in, in, in getting 150, uh, entities to opt into the case that you filed the first case. But I gather there were a number of other cases that were filed by other 

[00:26:40] STEPHEN SWEDLOW: lawyers.

Yeah, there were 20 plus. In the end, there were basically everybody filed and everyone got paid. But during the pendency of our case, individual cases got filed, uh, assigned to other judges. Those other lawyers didn't really want their case designated as related to ours because they didn't want us to take any part of their fee, understandably, you know, we're all in the business.

So other judges decided the case, some of the other cases, they denied the motion to dismiss by the government, but in other ones, they granted the motion to dismiss filed by the government. So now you had. Uh, other cases that leapfrogged ahead of our case and were decided already that could then be appealed.

So, those cases, a couple of those cases wound up going up on appeal. And getting consolidated. Uh, was that was 

[00:27:29] JOHN QUINN: that a scary dynamic for you seeing these other adverse decisions of cases going up to the Court of Appeals? Were you concerned that there might be some bad law created that would come back to haunt you?

[00:27:42] STEPHEN SWEDLOW: Yes, very scared. I mean, we weren't. It wasn't like we were. This was our baby. You know, we made this. We made this from nothing. So it wasn't like we just said, Good luck. I hope you do well with our claim that you Modified in ways that we didn't like you to modify it. So we participated pretty significantly in all of the appeals and other for, you know, at that point, it was pretty collaborative.

The other firms knowing we had come up with this. Uh, we're happy to have our input. Um, if we start at the appellate level, you know, like we were line by line, we would edit and discuss and then debate. They want to include it. Argument a. We don't think argumentation be in there. Um, and you know, it wasn't our appeal ultimately, but we then also participated as an interested party amicus.

And so from, so from a professional, 

[00:28:32] JOHN QUINN: from a professional standpoint, you would say, at least at the appellate level, it was a good experience. 

[00:28:37] STEPHEN SWEDLOW: Uh, yeah, it was very collaborative. We were, there was so much money at stake for the law, for the lawyers, in addition to the claimants. That everybody wanted to get the right answer.

And like we said, at the before it got to the, uh, the federal circuit, I thought we were going to win. And we were a huge favorite. And in fact, you know, the likelihood of success was always being measured by what are claims selling it. And when we were going up on appeal, the claims still had a really healthy market.

People could sell their claims before the federal circuit then ultimately affirmed the dismissal of another individual claim. And then, then the market dropped to like... three cents on the dollar. 

[00:29:22] JOHN QUINN: Yeah, as it turned out, that would have been a good time to invest. But what happened to the case that you filed in the trial 

[00:29:29] STEPHEN SWEDLOW: court?

So our case was stayed by by stipulation. Uh, we knew that our trial court judge loved our claim and hated the government from the prior hearings. We have been, for example, the motion dismissed here. 

[00:29:43] J.D. HORTON: And the order on the motion to dismiss right here. We were going to win. 

[00:29:47] STEPHEN SWEDLOW: We were going to win the claim on the merit.

The government came up with some, some explanations that ultimately the federal circuit accepted that she was shaking her head saying. That's not even a real argument. You can't say that as a reason why you wouldn't pay. So we knew we were going to win. She stayed the case. There were times where we asked for the stay to be lifted.

And here's how, uh, maternal she was over the claim. We were at a hearing before her and we were, we wanted to proceed with some aspect of the claims just to go ahead of the, of the individual case. Her position was. Well, I don't know if you're going to win on a, if they're going to win on a field or how they're going to win on a field, and I want to preserve your ability to modify your complaint.

To be whatever the version of the winning theory is. So she loved our case. And so we wound up, the case was stayed during this whole time, even when it was dead, it was still stayed and not dismissed. She wasn't, 

[00:30:44] JOHN QUINN: it was stayed because there were other cases that were going up on appeal to the, uh, federal circuit, I guess, which hears appeals from the court of claims and what happened.

I mean, you've told us in the federal circuit that we lost. We lost. 

[00:30:59] STEPHEN SWEDLOW: Yeah, we lost in a crazy. I don't want to. Well, because I might someone from the federal circuit, my listeners, I disagreed with the reasoning of the federal circuit in that opinion. And ultimately, uh, then we the party in interest petition.

for cert to get the Supreme Court interested and they took it. If my 

[00:31:21] J.D. HORTON: memory serves me right, there was a dissent from the federal circuit which essentially mimicked a lot of the arguments we had raised. exclusively in our amicus brief. And that kind of set the tone for giving the Supreme Court something to hold on to and grant cert what the dissent had said.

And as I said, it was stuff that didn't quite make it into the appellate briefs, but it made it into our amicus briefs. 

[00:31:47] STEPHEN SWEDLOW: Yeah, we should probably go a little bit like we were really playing chess while others were playing checkers here. Like we had hired a healthcare economist from Stanford before we filed the case.

To look at the economics and the sort of social and economic policy reasons why the government shouldn't be allowed to avoid payment, even if that's what the Congress at the time decided she also worked with us to create an expanding group from basically, I wouldn't say all the good schools, but Stanford and Harvard and Penn and I don't want to leave one out, but a lot of good schools with a lot of Uh, health care economists, professors to also file an amicus to explain why this was such a significant issue, not only in the health care field.

And this is why I think it was such an important decision. It's report, but basically in any industry where the government wants to create a subsidy or impact the market. If the government promises to make a payment to private participants and then doesn't pay, Okay. Then the government will never get anyone to participate in whatever market they're trying to create.

[00:32:58] JOHN QUINN: That'll have consequences. So, I mean, we all know that getting the Supreme Court to, uh, grant cert is always a long shot or in most cases is very much a long shot. Did you, did you regard this one as a long shot or did you think this had chances better than your average, uh, cert petition? Well, 

[00:33:16] STEPHEN SWEDLOW: I think part of the reason JD The reason we make a good team is I am once I'm on a case, I'm an internal optimist and I was, I was confident that Supreme Court was going to grant search, regardless of the statistics which makes every single one of them a long shot.

But, uh, you know, we got other appellate lawyers that are firm involved and yeah, it was a long shot, but it turns out the long shot came in and 

[00:33:41] JOHN QUINN: then the Supreme Court who argued that who argued the case. Paul 

[00:33:45] STEPHEN SWEDLOW: Clement from Kirkland Ellis argued it he he mooted or mocked it with us a few times for at first and I will I would like to pay him a compliment in case you listen to it.

He did an excellent job. He did an excellent job accepting not really constructive criticism, just guidance on what the most important issues were. And during the oral argument, this was during COVID. So you had to like get in line early and get a ticket for a reserve, you know, to 

[00:34:13] J.D. HORTON: have a seat 

[00:34:14] STEPHEN SWEDLOW: or not get a ticket or not because JV was late.

So he didn't get a seat. He was, he was not early enough. Uh, but so Paul Clement did an amazing job accepting the questions that were asked and understanding which way, like what mattered to the justice, I think. He we knew what was going to matter to the justice. But Kavanaugh, for example, he was mainly concerned.

He wanted us to get our money and he wanted to protect the integrity of Congress participation in any market, but he didn't want the government to have to pay out too much more money for other cases. So he basically asked if you have to pay if we make the government pay here, this 12 billion, is the government gonna have to pay a lot more?

Or can we just cabinet to this one? And I mean, Thankfully for us, Clements answer was they'll have to pay a little bit more because there's other provisions in the ACA, but that's about it. And that's made Kavanaugh happy. It's like, okay, I can rule in your favor because it won't be too expensive for my government.

[00:35:20] J.D. HORTON: And Paul Clement's pro business reputation. I think really served well in the Supreme Court as well. I mean, he did an excellent job, but yeah, I mean, but he could come out and say, look, this is about business. This isn't about the affordable care act. This is promises made by the government for businesses to invest tens of billions of dollars.

And then the U S government pulled the rug out from under 

[00:35:44] STEPHEN SWEDLOW: Imagine in COVID, if the government said, we shall pay for the vaccine now go make it. And then the vaccine was made. And then political climate shifted and they said, well, we don't want it anymore. So we, we will not pay and we're just not going to appropriate the money.

So too bad. That can't be the way it works. 

[00:36:06] JOHN QUINN: All right. And if there had been a history of that, if the government had said, go make a vaccine, we'll pay. Well, people might not have powered up their labs and started to make a vaccine. 

[00:36:16] STEPHEN SWEDLOW: They would have said you better pre pay and the government doesn't have to pre pay when the government says our government says we will pay.

That's why there's the Tucker Act. You should be able to go get your money from the government. Alright, so was it a unanimous decision? It was 8 1, wasn't it? Yes. Who was the dissenter? I can't remember. Elido? Elido. Yeah. Okay. Alright. I blocked it out, but I remember. 

[00:36:40] JOHN QUINN: Alright. So, so they, they reverse and basically at that point it's, it's game over.

You just have to go back to the court of claims to have a judgment entered and... 

[00:36:49] STEPHEN SWEDLOW: So interestingly, yes, it didn't have to be game over, but DOJ and the government recognized that they lost and so then they... We work together to figure out how to stipulate a judgment in an amount for 150 companies. totaling 4.

5 billion. So it was a lot of accounting at that. But 

[00:37:08] J.D. HORTON: as Steve referenced earlier, that didn't end our case because we had amended our complaint previously to add claims for cost sharing reduction, which was another element under the Affordable Care Act that had the shell pay language. But Didn't have appropriations.

And while Obama paid it for the first few years and Trump paid it to start with in 2017, he decided not to pay it anymore. And so we amended our complaint. They have those claims. This 

[00:37:41] STEPHEN SWEDLOW: is pretty unbelievable. So And it really was Trump. Trump hated the Affordable Care Act, which, you know, he called Obamacare and just decided in the last quarter of 2017.

I'm just not going to pay this anymore. I'm just going to stop making a payment that had been Similarly, it wasn't appropriated, but there are billions and billions of dollars that the government is obligated to pay in different ways that isn't pre appropriated. So he just decided I don't have to pay this.

I won't pay it. Uh, and has not paid it. Now. The reason that didn't we should say that most of the nonprofit versions of health care companies that participate in exchanges did actually go out of business. Some of them were saved. Common ground was saved, but many of them went out of it. The reason the cost share reduction failure to pay by the government by the Trump administration in particular, the reason it didn't put the rest of them out of business is because health care at the state and federal level just changed the way health care was charged and paid for to modify itself.

In other words, if the money wasn't coming in through CSR Then, uh, entities engaged in what's called silver loading, which I don't think that would be a podcast for another day, they just found the money another way. Uh, and, and so they didn't have to, 

[00:39:06] J.D. HORTON: right. For the secondary years, not for the first year of 2017, 

[00:39:11] STEPHEN SWEDLOW: it was too late.

All right. 

[00:39:12] JOHN QUINN: So there was some other claims that were not resolved, which I gather from what you said earlier are in the process of being resolved, but our clients got, they got the judgment and they got the 4. 7 billion. They got the money. Well, thanks very much for giving us this, uh, anatomy and tour of this very interesting case, which J.

D., you discovered, uh, and both of you, uh, prosecuted to a successful conclusion all the way up to the highest court in the land. Any lessons learned from this experience that, that you learned, some takeaways that, you know, you think will help you in your practice going forward? 

[00:39:53] STEPHEN SWEDLOW: I mean, the takeaway that I got was that a good lawyer can be any kind of lawyer at the highest level.

In other words, JD and I had done healthcare stuff before we had sued on behalf of healthcare companies for specific things, you know, pharmaceutical companies. We weren't experts in this area and then we learned it and then we went on roadshows and got hired by 150 clients. So I think it's true for our business model.

If you're willing to put in the work. And you're a good lawyer. You can be any kind of lawyer at the highest level. You just have to put in the work to learn. And 

[00:40:31] J.D. HORTON: I would say that I, two lessons from this that I, I don't, won't say I learned, but I think we're really highlighted by this case. One is you have to pay attention to what's going on in the world, especially business.

And so read the newspaper, look at what's going on and have an open mind as to, you know, what kind of claims you could bring, because there's all sorts of things out there that you could potentially bring and make money for and vindicate the rights of clients. The second thing is that, and this is something that goes back to what we started on.

And that is as an attorney at a high level, you cannot just try to move everything to yourself and say, Oh, this is my case. I'm not going to share it with anybody. I'm not going to do this. More likely than not, you're not going to get as good a result. In those cases, if you try to just keep everything to yourself, you're much better served to highlight people that, you know, and have specific skillsets and bring them into your case 

[00:41:35] STEPHEN SWEDLOW: and share in it and have everybody go forward.

[00:41:39] J.D. HORTON: In this case, the relationship that Steve and I had gotten the best results for the client. And I don't think I would have gotten the same result without having brought Steve on. And, uh, the platform of Quinn Emanuel, where that is encouraged, made this result happen. 

[00:41:55] STEPHEN SWEDLOW: Well, those are 

[00:41:55] JOHN QUINN: great thoughts. Thank you very much, Steve and JD, for joining us.

It's a fascinating case, fascinating process. Congratulations on the result. You've been listening to Law Disrupted with me, John Quinn. You can sign up to receive an email when a new episode drops at our website, lawdisrupted. fm. If you enjoyed the show, please share a link on social media and follow at jbqlaw or at Quinn Emanuel.

Thank you for tuning in.

[00:42:25] STEPHEN SWEDLOW: Well, 

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