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Over a Decade in the Making: CMS Releases Long-Awaited Medicaid Managed Care Rule

On May 27, 2015, the Centers for Medicare and Medicaid Services (“CMS”) published a 653-page proposed rule affecting the thirty-nine states (plus the District of Columbia) that use managed care organizations (“MCOs”) to administer their Medicaid benefits. This represents the first major overhaul of the Medicaid managed care system since the rules were established in 2002, now covering approximately seventy percent of all Medicaid enrollees.

Public comments are due July 27, 2015, which gives health plans, providers, consumer groups, and even state Medicaid directors a narrow window to identify potential areas of concern and to propose solutions for formal CMS consideration. While some issues will align important stakeholder groups, others are likely to remain contested during the comment period and up to publication of the final rule.

As a backdrop leading to the publication of the proposed rules, the managed care landscape has become much more complex and variable among the states that have adopted this approach in their Medicaid programs. Because of this, CMS has been contemplating ways to ensure more consistent rules that promote adequate access to health services while also creating more synergy between Medicaid, Medicare, and even the commercial sector via delivery system reforms that improve quality and lower costs.

The proposed rule also addresses some areas of perceived inequity in the Medicaid program that range from behavioral and substance-abuse treatment to long-term care and insurance reforms akin to those in the Affordable Care Act (“ACA”), which was mostly targeted at commercial health plans.

But CMS’s ambitions in proposing the rules need to be tempered by the reality that state Medicaid programs are administered by the individual states: through federal regulations CMS can establish minimal standards for the state Medicaid managed care systems but states may enact state regulations or impose managed care contract terms that go farther than the federal requirements. The managed care community must view federal regulations as a starting, not an end, point.

CMS categorizes the massive Medicaid managed care proposed rule into several issue areas in its Fact Sheet:

Beneficiary Experience

Requires states to improve access to care through regular assessment and certification of a health plan’s provider network and time/distance standards to providers including behavioral health, pediatric dental, and pharmacy.

Updates communication rules directed towards Medicaid/CHIP beneficiaries to include electronic methods, non-English language options, and additional information in provider/drug formulary directories,

Sets standards for care coordination, assessments and treatment plans that include care transition services, initial health risk assessments within 90 days of enrollment, and regularly updated assessments and treatment plans for beneficiaries with special health care needs or long-term services and supports.

Creates a new enrollment selection period of 14 days to allow beneficiaries to research and select managed care plan options.

State Delivery System Reform

Encourages participation in Medicare-led alternative payment models and initiatives.

Establishes minimum reimbursement standards or fee schedules for providers that deliver a particular covered service.

Clarifies “short-term stay” rule that managed care plans are able to receive capitated payments for beneficiaries who are admitted to an institution for mental disease (“IMD”) for no more than 15 days so long as the facility is an inpatient hospital or sub-acute short-term crises residential service.

Quality Improvement

Creates a public notice and comment period to determine a core set of performance measures and improvement projects for states related to managed care plans.

Establishes a Medicaid managed care quality rating system in each state that would report performance information on all health plans, akin to the Medicare Advantage (“MA”) and marketplace ratings.

Program and Fiscal Integrity

Requires certain types of data to be used for rate setting purposes and the level of documentation and detail about the development of the capitation rates such as trend factors, adjustments and the development of non-benefit costs.

Establishes a medical loss ratio (“MLR”) for both Medicaid and CHIP plans using standards similar to Medicare Advantage and the commercial market.

Adds several components to fraud prevention efforts by implementing procedures for internal monitoring, auditing, and prompt referral of potential compliance issues, etc.

Managed Long-Term Services and Supports (“MLTSS”) Programs

Affirms recent updates such as Olmstead, stakeholder engagement requirements, and provider credentialing in the development and implementation of MLTSS programs.

Requires MLTSS-specific elements to be included in a state’s quality improvement strategy and reporting systems to protect MLTSS enrollees.

Children’s Health Insurance Program (“CHIP”)

CMS proposes to align the CHIP managed care regulations, where appropriate.

Alignment with Medicare Advantage and Private Coverage Plans

Importantly, CMS proposed where appropriate and possible, to align the Medicaid managed care regulations with those governing MA and private health insurance plans including the MLR, appeals and grievances, and marketing rules.

Finally, other highlights from the proposed rule include a requirement that Medicaid managed care entities offering outpatient drug coverage must now collect the necessary information for the states to include those managed care drugs in rebate invoices to drug manufacturers pursuant to the Medicaid Drug Rebate Program (“MDRP”) as well as modifications to the rules governing plan appeals and grievance procedures to increase uniformity with the procedures that apply to MA and commercial plans.

Discussion

Alignment with Medicare Advantage and Private Coverage Plans

CMS proposes numerous changes aimed at aligning Medicaid managed care with other health care programs… click here to continue reading…

ARTICLE BY Susan W. Berson, Andrew J. Shin, Ellyn L. Sternfield, Pamela Kramer, Lauren M. Moldawer & Bridgette A. Wiley of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Time to Exclude the IMD Exclusion – Institutions for Mental Disease

Some rules are borne out of the best of intentions, and the Institutions for Mental Disease Exclusion (“IMD exclusion”) bears the hallmarks of such a beginning. The IMD exclusion bars federal funding for care of patients between the ages of 21 and 65 who receive inpatient treatment in an IMD, a hospital, nursing facility or other institution with more than 16 beds that primarily treats those with mental illness. This provision came into being in 1965, primarily as a way to prevent dubious institutions from stocking up on mentally ill patients for the purposes of collecting federal funds en masse, but also to put the onus on states, rather than the federal government, to care for the mentally ill.

IMD Exclusion, Institutions for Mental Disease

In modern times, however, the IMD exclusion is arguably one of the larger impediments to expansion of mental and behavioral health treatment, particularly in the area of substance abuse disorders, where a brewing epidemic of opioid addiction demands a proportional institutional response. Not only does this exclusion apply to standard mental health institutions, a Center for Medicare & Medicaid Services (“CMS”) interpretation applies the exclusion to other facilities such as substance abuse treatment center. The irony is that states which have accepted the Medicaid expansion to cover a wide range of newly-eligible patients for mental and behavioral health disorders such as substance abuse find themselves stymied by a lack of appropriate facilities in which to treat them. The Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) provides that covered individuals receive the same coverage for mental and behavioral health as for other medical and surgical benefits, yet medical and surgical facilities are not limited to a maximum of 16 beds, rendering much of the benefit of this law illusory.

The Medicaid expansion provides mental and behavioral health providers with a steady new flow of patients in dire need of assistance – so long as that inpatient treatment is provided in increments of 16. Substance abuse victims now have the coverage to receive the services they desperately need, and behavioral health providers now have more tools than ever to combat the problem. The obstacle in care comes in the limitation of the facilities.

Even an exception for behavioral health provider facilities for substance abuse treatment would provide significant relief, and CMS went so far as to allow eight states to include IMD benefits under Medicaid managed care programs for a period of ten years. Although this exception hasn’t been allowed recently, it at least provides a ray of hope that CMS can adapt regulatory policies to reflect a growing problem, understanding that it may be standing in the way of progress with draconian measures.

True parity can only be attained when mental and behavioral health facilities are free from the limitations imposed by the IMD exclusion. Until then, rather than protecting patients from unscrupulous institutions, this policy will only continue to hurt those who need real care.

ARTICLE BY Molly Nicol Lewis of McBrayer, McGinnis, Leslie and Kirkland, PLLC

DaVita Agree to $495 Million Settlement in Alleged Medicare Fraud Lawsuit Filed by Qui Tam Whistleblowers

On Monday, May 4, 2015, DaVita Kidney Care, a division of DaVita Healthcare Partners, Inc. (DaVita), and one of the leading dialysis services providers in the United States, agreed to pay the U.S. Government $450 million for allegedly violating the False Claims Act (FCA) when it continuously discarded good medicine and then billed Medicare and Medicaid for it. DaVita also agreed to pay $45 million for legal fees.

According to the lawsuit filed in 2011 by two former employees of DaVita, between 2003 and 2010, when DaVita administered iron and vitamin supplements such as Zemplar, Vitamin D, and Venofer, vials containing more than what the patients needed were used and the rest was thrown away. For example, if a patient only needed 25 milligrams of medicine, DaVita allegedly used a 100 milligram vial, administered only 25 mg, and tossed the rest in the trash. Although before 2001, this practice was condoned by the National Centers for Disease Control and Prevention (CDC) in order to prevent infectious outbreaks caused by the re-entry of the same vial of medicine, the CDC subsequently changed it policies to outlaw this practice.

This FCA lawsuit alleging that DaVita misused and mishandled of medicine, and overbilled Medicare and Medicaid is not the first such allegation against DaVita, which is not a stranger to FCA lawsuits. In fact, DaVita previously settled two other lawsuits in which it allegedly violated the FCA. In October 2014, DaVita agreed to pay the U.S. Government $350 million for allegedly persuading physicians or physician groups to refer their dialysis patients to DaVita by offering kickbacks for each patient referred. And in 2012, DaVita agreed to pay $55 million to the federal government for overbilling the government for Epogen, an anemia drug. These lawsuits were filed by former employees who decided to come forward as whistleblowers and to help to uncover what they considered to be illegal practices by DaVita. Under the FCA, such whistleblowers can bring what is known as a “qui tam” lawsuit, which is brought by a private citizen to recover money obtained by fraud on the government. As an incentive to bring qui tam lawsuits, the FCA provides that qui whistleblowers receive between 15 and 30 percent of the amount of funds recovered for the government.

Provisions of the FCA make it unlawful for a person or company to defraud governmental programs, such as Medicare or Medicaid.

Posted by the Whistleblower Practice Group at Tycko & Zavareei LLP

FDA Regulation of mHealth Updates

At the Food Drug and Law Institute’s annual conference on April 21, 2015, Bakul Patel, Associate Director for Digital Health, Office of Center Director, Center for Devices and Radiological Health (CDRH), held a discussion of “FDA Regulation of Mobile Health/Medical Applications.” There have already been several important developments in FDA regulation of mHealth products this year. Patel stated that FDA recognizes the importance of digital health, and its potential to drive be

ARTICLE BY

Cassie Scherer

Covington & Burling LLP

Covington E-Health

tter health outcomes and promote patient engagement. Patel discussed two recently released draft guidances that impact FDA regulation of mHealth, the draft General Wellness Guidance and the draft Accessories Guidance, and highlighted that FDA continues to work promote innovation while at the same time protecting patient safety. The public comment period for these guidances ended on April 20th, and Patel noted that CDRH did not receive many comments. Finally, Patel emphasized that industry can continue to reach out to FDA with questions about mobile health at mobilemedicalapps@fda.hhs.gov or digital health at digitalhealth@fda.hhs.gov.

The discussion draft of the 21st Century Cures Act includes sections that would exclude “health software” from regulation as a medical device, and would require FDA to promulgate regulations to establish standards and procedures for regulating “medical software.” New 21st Century Cures language may be released by the end of this month. We will be watching closely to see if there are any changes to the software language.

Pay for Delay – Big Pharma’s Dirty Secret

For most Americans, generic drugs are a godsend. Prescription drug prices have become so high that many folks simply can’t afford to purchase needed medications. It’s not uncommon for some cancer and hepatitis medications to cost $1000 or more per dose. Generics, however, can cut prescription bills by 90% or more.

As much as consumers love generic drugs, big pharma hates them. Once a branded drug goes “off patent,” sales usually plummet. Most health plans, insurance companies and Medicare require physicians to dispense less costly generics.

The loss of profits can be so great when a drug goes generic that many pharmaceutical companies are now engaging in “pay for delay” tactics.

What is “pay for delay”? It is the payment by a pharmaceutical company to would be competitors to not copy a certain medication. The results are more profits for big pharma and therefore an extension of their monopoly on pricing. The Federal Trade Commission says pay for delay costs taxpayers, insurance companies and consumers almost $4 billion per year.

Is this legal? Probably not.

Congress wanted to encourage generic manufacturers to quickly enter the marketplace and lower drug costs. In 1984, Congress passed the Hatch Waxman Act. That law encourages generic manufacturers to challenge pharmaceutical companies. The first company that seeks to make a generic of a branded drug is given an expedited review by the FDA.

Unfortunately, what started out as a law with good intentions soon turned horribly bad. Big pharma began suing the generic manufacturers for patent infringement. The pharmaceutical companies would then settle the suits and pay the generic company not to compete for a period of time, often 5 years.

A few court victories later, the pay for delay industry was in full swing.

Thankfully the Federal Trade Commission has stepped in and appears to be gaining traction. The government says that many of these pay for delay schemes violate federal anti-trust laws. In 2013, the United States Supreme Court ruled that pay for delay does automatically violate antitrust laws but still must be carefully scrutinized. (FTC v. Actavis). Georgetown University Professor Lawrence Gostin, writing for the Journal of the American Medical Association, hailed the decision and says it will save consumers and taxpayers billions of dollars.

Some may be wondering why the generic manufacturers go along with these payments. Obviously big pharma likes these settlements because they can extend their monopolies for years. Generic manufacturers find these settlements economically worthwhile too. Because the profits made on branded drugs are so large, big pharma can pay millions to the generic manufacturers and still make a profit. The smaller generic companies make just as much profit from the settlements and don’t have to produce a single pill.

The Motley Fool investigated one branded drug, Provigil, manufactured by Cephalon. The drug was due to come off patent in 2005 but Cephalon paid four generic companies $200 million to delay manufacturer of generic equivalents until 2012. The cost of a three-month supply of Provigil? $3600. The cost after generics were finally introduced? About $5 per month according to fool.com.

With the courts and regulators finally looking hard at these arrangements, we hope more whistleblowers come forward. Under the federal False Claims Act, whistleblowers with inside information about fraud involving a government program can receive up to 30% of whatever is recovered from drug companies. To qualify for an award, whistleblowers need inside, “original source” information about the fraud.

The FTC’s Bureau of Competition concluded that of the 145 final patent dispute settlements in 2013, 29 represent potential pay for delay schemes. Recently the agency launched a hotline to help people report illegal pay for delay schemes.

Whistleblowers using the hotline should know, however, that calling the hotline does not make them eligible for a whistleblower award. To claim an award, one must first file a lawsuit in federal court.

As a law firm that has helped clients receive over $100,000,000.00 in whistleblower award payments, we want to see whistleblowers properly awarded for coming forward and reporting illegal behavior.

ARTICLE BY

Brian Mahany

Mahany Law

Moving to the Cloud: Some Key Considerations for Healthcare Entities

Healthcare providers, health plans, and other entities are increasingly utilizing cloud services to collect, aggregate, store and process data. A recent report by IDC Health Insights suggests that 80 percent of healthcare data is expected to pass through the cloud by 2020. As a substantial amount of healthcare data comprises “personal information” or “protected health information” (PHI), federal and state privacy and security laws, including the Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act, raise significant questions for healthcare providers and health plans utilizing the cloud in connection with such data. Such questions include whether HIPAA requirements extend to cloud providers, how and if entities storing health data on the cloud will be notified in case of a breach, and whether storage of data overseas by cloud providers triggers any additional obligations or concerns.

Given the complex legal issues at play, any contract between a healthcare provider or health plan and a cloud service provider that involves using the cloud in connection with PHI should therefore address the regulatory restrictions and requirements applicable to PHI. By way of example, recent guidance from the HHS Office for Civil Rights suggests that health care providers must likely have a business associate agreement in place with their cloud service provider. Moreover, although cloud providers might not regularly access the data they store and may never “use” or “disclose” that data as those terms are defined under HIPAA, cloud providers probably need to adhere to HIPAA breach notification requirements. There have also been indications of late that HHS may consider it advisable, if not required, that entities subject to the HIPAA Security Rule encrypt PHI data even when that data is at rest and not being transmitted electronically. The recent data breaches involving health plans Anthem and Premera highlight the vulnerability of health care data and may lead to additional pressure for providers to implement additional encryption measures.

Even if HIPAA rules do not apply to cloud service provider contracts, healthcare providers and health plans storing data on the cloud should be aware that many states now have privacy and breach notification laws which could come into play.

Finally, in addition to addressing the regulatory requirements and data privacy and security, a healthcare provider or health plan should negotiate appropriate service level terms with the cloud provider that address such issues as the performance requirements for the cloud network and the process and procedures for addressing problems with the cloud network. The healthcare provider or health plan should also include appropriate back-up and disaster recovery provisions in the contract with the cloud provider, as well as appropriate remedies in the event it suffers losses as a result of the contract.

ARTICLE BY

Covington & Burling LLP

Covington E-Health

Important Recommendations from the MedPAC March Report to Congress, Part Two

Earlier we have discussed the recommendations of the Medicare Payment Advisory Commission (“MedPAC” or the “Commission”) with regard to fee-for-service (“FFS”) payment systems. Today’s post will discuss the Commission’s recommendations with regard to making FFS payments site-neutral, as well as its status reports on Medicare Advantage (“MA”) and the Medicare prescription drug program (“Part D”).

Similar Services in Different Settings

Inpatient and outpatient hospital rates for 2016 would receive an update of 3.25% per the Commission, provided that changes would be made to equalize payments for similar services provided in different care settings, making them site-neutral. Certain conditions treated both in skilled nursing facilities and in inpatient rehabilitation facilities would receive site-neutral payments, for example. Payments under the long-term care hospital payment system would also be reduced for patients who are not characterized as chronically critically ill, so that the payment rate would then be similar to what acute care hospitals receive.

Medicare Advantage

The Commission made some of the same recommendations in 2015 about MA as it did in March 2014, namely that hospice care should be integrated into the MA benefit package and bidding rules should be improved. According to MedPAC, Hospice inclusion in MA would increase coordination of care as well as innovation in end-of-life care, in addition to promoting accountability. The Commission also believes that employer group MA plans should be more consistent with comparable nonemployer plans in terms of payment, and the application of the national average bid-to-benchmark ratio for nonemployer plans to employer plans could achieve this goal. The Commission also recommended a decrease in benchmarks to equalize the payment system between MA and the FFS program enough to where neither is favored.

As for access to MA, MedPAC found that 99 percent of all Medicare beneficiaries have access to an MA plan. The report also found that data from a quality bonus program shows that plans are responding favorably to the measure by paying closer attention to quality measures that form the basis of these payments.

Medicare Part D

MedPAC made no recommendations as to Part D. It found high participation in the plan, with premiums remaining stable over the past year. The Commission did note an increase in spending between 2007 and 2013, which it attributed to two trends: (1) an overall shift towards the use of generic drugs, which affects the benefit spending that plan sponsors base premiums on, and (2) reinsurance payments have grown every year at an average rate of 16 percent.

ARTICLE BY

Christopher J. Shaughnessy

McBrayer, McGinnis, Leslie and Kirkland, PLLC

French Supreme Court Specifies Requirements for Health Care Companies Under the Sunshine Act

Law no. 2011-2012 of 29 December 2011, also known as the French Sunshine Act, introduced into French law disclosure obligations imposed on health care companies (HCC). The French Medical Board and a nonprofit organisation challenged the law’s implementing decree of 21 May 2013 and its explanatory circular of 29 May 2013. On 24 February 2015, the Conseil d’Etat annulled some of the challenged provisions of the aforementioned decree and circular, and provided useful clarifications on the scope of the disclosure obligations.

Pursuant to the decree of 21 May 2013 and the explanatory circular of 29 May 2013, there were three exceptions to the obligation to disclose (i) benefits in kind or cash exceeding EUR10 and (ii) written agreements:

Payments made as reasonable compensation for services rendered and for salaries did not have to be disclosed.
Companies that manufacture or commercialise cosmetic and tattoo products did not have to disclose agreements other than those relating to the conduct of health and safety work assessments and biomedical or observation research on these products.
Companies that manufacture or commercialise health products did not have to disclose commercial sales agreements of goods and services.

Under the Conseil d’Etat decision of 24 February 2015, the two first exceptions no longer apply, and the scope of the third exception has been specified. The three main changes entailed by this decision are described herein.

All payments made from 1 January 2012 by HCCs to HCPs that do not constitute salaries must be disclosed.

The Conseil d’Etat specified the limits of the concept of “benefit in cash or in kind” that must be disclosed. The 2013 explanatory circular had given a narrow definition of this concept, stating that it excluded payment made as reasonable compensation for services rendered and for salaries.

According to the Conseil d’Etat, however, the provisions of Law no 2011-2012 exclude only salaries received by health care professionals (HCPs) working exclusively as employees of HCCs. According to the words of the General Advocate (Rapporteur Public) before the Conseil d’Etat, the exclusion relates to an “HCP who works exclusively as an employee in a HCC.”

Consequently, the Conseil d’Etat annulled the provisions of the explanatory circular which disregarded both Law no. 2011-2012 and the decree of 21 May 2013 by excluding from the scope of the disclosure obligations payment made as reasonable compensation for services rendered.

Companies manufacturing or distributing non-corrective contact lenses, cosmetic or tattoo products must disclose all agreements concluded with French HCPs, regardless of the object of the agreement.

With regard to companies manufacturing or distributing non-corrective contact lenses, cosmetic or tattoo products, the decree limited the scope of the disclosure obligations to agreements concluded with HCPs relating to the conduct of health and safety work assessments and biomedical or observation research on the products.

The Conseil d’Etat stated that by limiting the scope of the disclosure obligations, the decree disregarded the provisions of Law no. 2011-2012, and therefore annulled the regulatory provisions at stake.

The only commercial sales agreements of goods and services that are excluded from the disclosure obligations are those in which the HCP is the buyer.

The Conseil d’Etat clarified the content of Article R. 1453-2 of the French Code of Public Health, which excluded from the disclosure obligations commercial sales agreements of goods and services. Even though this article was explained in the circular, it remained unclear which agreements it really targeted.

According to the judges, this exemption concerns solely commercial sales agreements of goods and services in which the HCP is the buyer. Furthermore, despite the rather unclear wording of Conseil’s decision, it must be noted that, in light of the words of the General Advocate, the decision clarified that this exemption does not apply to purchase of advertising space by HCCs in medical journals.

Conclusions

Since the Conseil d’Etat did not time-differentiate the effects of its decision, its 24 February 2015 interpretation of the Sunshine Act is deemed to apply to all conventions concluded and benefits paid from 1 January 2012. Therefore, HCCs should now disclose the following:

All payments made from 1 January 2012 by HCCs to HCPs for services rendered that do not constitute salaries
All agreements concluded from 1 January 2012 between companies manufacturing or distributing non-corrective contact lenses, cosmetic or tattoo products and French HCPs
Commercial sales agreements of goods and services in which the HCP is not the buyer

In accordance with the principle of legal certainty, HCCs should be given reasonable and sufficient time to adapt to the regulation as interpreted by the Conseil d’Etat, during which period of time they should not be sanctioned.

ARTICLE BY

Charlotte Michellet

Sabine Naugès

McDermott Will & Emery

The Unhappy Intersection of Hospital Mergers and Antitrust Laws

The rapidly-evolving field of health care has been moving lately towards a single-minded goal – coordination of patient care in the name of efficiency and efficacy. Hospital systems are more and more often merging with other medical practices to better achieve the standards and goals of the Patient Protection and Affordable Care Act (“ACA”). TheNinth Circuit Court of Appeals, however, recently provided a stark reminder that the ACA isn’t the only law hospitals need to consider compliance with in these mergers.

Saltzer Medical Group in Nampa, Idaho, had been seeking to make a change from fee-for-service to risk-based reimbursement and approached St. Luke’s Health System in Boise in 2012about a formal partnership. They entered into a five-year professional service agreement that contained language about wanting to move away from fee-for-service reimbursement but without any clear language on making that change. Saltzer received a $9 million payment on the deal. Other hospital systems in the area, the FTC, and the Idaho Attorney General all filed suit to enjoin the merger.

The Ninth Circuit affirmed the district court’s holding that St. Luke’s violated state and federal antitrust laws when acquiring Saltzer. St. Luke’s argued that acquisition of the other provider would improve patient outcomes and care in the community of Nampa, Idaho, where Saltzer operates, but both courts agreed that the anticompetitive concerns surrounding the merger outweighed the benefits to quality care.

This case and other similar cases brought by the FTC provide a bleak outlook for health care providers looking to merge with other entities to provide care and efficiency under the aims of the ACA. While the court ultimately found that St. Luke’s aims were beneficial and not anticompetitive in and of themselves, antitrust laws only truly take the effect on competition into account, and courts are not ready to place quality of care under the ACA on equal footing.

ARTICLE BY

Molly Nicol Lewis

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Nation’s Highest Court Schedules Oral Arguments in King v. Burwell re: Affordable Care Act

A Supreme Court of the United States (SCOTUS) spokesperson announced on December 22, 2014, that the Court will hear oral arguments in King v. Burwell on March 4, 2015. This means that not only could the highest court soon resolve the circuit split on the case’s key issue, but that the future course of the landmark Affordable Care Act (ACA) could be decided as soon as June 2015.

At issue in King is whether a May 2012 IRS rule should be upheld or stricken.^[1] The rule provides that health insurance premium tax credits are available to all U.S. taxpayers, irrespective of whether they obtain coverage through a state or federal exchange. Challengers to the IRS rule contend that the plain language of the ACA restricts the availability of the tax credits to health insurance policies purchased through state exchanges and not through the federal exchange. Reading the ACA statutory language strictly, challengers note that there is no alternative interpretation to the words noting that premium tax credits are available for plans obtained “through an Exchange established by the State under section 1311” of the Act.^[2] (italics added).

The government has countered that other provisions of the ACA support the legislative intent of Congress—that the premium tax credits are meant to be made available for all taxpayers nationwide, including those who purchase plans on the federal exchange. It has noted that the IRS rule should not be invalidated because of a simple drafting error.

Earlier this year in July, the U.S. Court of Appeals for the Fourth Circuit had unanimously concluded in King that the ACA was ambiguous on the question of whether the tax credits applied to plans purchased through the federal exchange. Because of this, it allowed for the government to have a “reasonable interpretation” of the ACA via the IRS rule.^[3]This decision directly conflicted with the July 2014 U.S. Court of Appeals (District of Columbia) decision in Halbig v. Burwellon the same issue.

The D.C. Court sided with the plain language interpretation and restricted the tax credits to plans purchased through the state exchanges. The Court subsequently vacated the decision and is not expected to render its opinion until Spring 2015.

If SCOTUS resolves the circuit split in favor of the challengers, there are several potential implications that could leave millions of Americans without health insurance:

Coverage would be less affordable for those on the federal exchange;
Without the tax credit, individuals would be exempt from the individual mandate;^[4] and
The ACA employer “pay-or-play” provision would not apply to as many employers.

The latter implication is likely due to the fact that pay-or-play penalties are triggered only if a covered employer fails to offer health insurance coverage and an employee takes advantage of a tax subsidy by purchasing an exchange plan. Without premium tax credits or subsidies available through the federal exchange, fewer employers would be penalized for failure to provide coverage in the first place.

The Supreme Court’s decision in the summer of 2015 may set the tone for the longevity of the ACA in light of the most recent mid-term elections.

ARTICLE BY

Florence T. Wang

OF
Sheppard, Mullin, Richter & Hampton LLP

^[1]_{See 26 C.F.R. § 1.36B–1(k); Health Insurance Premium Tax 7 Credit, 77 Fed.Reg. 30,377, 30,378 (May 23, 2012) (collectively the “IRS Rule”).}

^[2]_{See ACA § 1401(a), codified at 26 U.S.C. § 26B(c)(2)(A)(i).}

^[3]_{The Fourth Circuit U.S. Court of Appeals opinion can be found here.}

^[4]_{As a matter of law, health insurance would be “unaffordable” and the individual mandate would be waived. See 26 U.S.C. § 5000A.}

Tag: healthcare