HEALTH CARE REFORM: THE 2012 GENERAL ELECTION ©Jack Edward Urquhart Beirne, Maynard & Parsons, L.L.P. The November 6, 2012, national election will define America’s health care reform pathways for the near term. In turn, this pathway will define the likely landscape of litigation associated with America’s healthcare industry. The massive cost of American health care mandates reform. Agreement on this is wide spread, approaching universal. But the specifics of reform are debated bitterly. The pending election will impact health care reform, related health care litigation and all corporate America. The impact will be seismic.1 This paper is written before the election and will be revised when the election results are known. Health care related litigation that Election Day 2012 will affect includes: Reimbursement litigation. Compliance litigation False Claims Act litigation. Anti-trust litigation. Stark Law litigation. Securities litigation. General business and commercial litigation. Malpractice litigation. ERISA litigation. Product liability litigation. Criminal litigation. Constitutional litigation. Reform of America’s healthcare delivery and reimbursement system is inevitable regardless of the 2012 election results. The focus here, and in the post-election update of this paper, is the likely direction of that reform. 1 OBAMACARE: THE LAW2 Political rhetoric claims that the election will decide the fate of Obamacare.3 Obamacare is the status quo. It is law. For this reason, its more significant provisions are discussed as follows: Private health insurance Plans must permit: 1. Plans must permit dependent child coverage to age 26. 2. Plans must provide coverage for preventive care services as of August 1, 2012.4 3. Plans must provide coverage regardless of a person’s medical history.5 4. Administrative Simplification: Effective January 2013, health plans must implement uniform standards and business rules for the electronic exchange of health information in order to reduce paper work and administrative burdens and costs.6 5. Prohibition of lifetime caps for essential benefits. 6. Prohibition of unreasonable annual limits for essential benefits is now in effect for group plans, and extended to all in 2014. “Obamacare” refers to the Patient Protection and Affordable Health Care Act. Pub. L. 111-148 (March 23, 2010) and the Health Care and Education Reconciliation Act. Pub. L. 111-152 (March 30, 2010), together referred to as the Affordable Care Act or Obamacare. Obamacare is used here because 1) both the Republicans and Democrats now seem comfortable with the term and 2) Obamacare is the term used by all but the most scrupulous disciples of political correctness. 3 These claims are bipartisan: Republicans claim that Obamacare will be repealed or dramatically changed and Democrats claim that, indeed, their opponents’ agenda insures that universal insurance coverage efforts are doomed and Medicare and Medicaid are destroyed. 4 Obamacare provides for preventive coverage for women as guided by administrative regulations. [42 U.S.C. §300gg – 13(a)(4).] In 2011, the HHS, the Department of Labor and the Department of Treasury adopted the recommendation of the Institute of Medicine that preventive services include all FDA approved contraceptive methods and sterilization procedures, adding an exemption for religious employees. 77 Fed. Reg. 8725, 8727. A subsequent Safe Harbor guidance document temporarily exempts enforcement of the mandate for many. “Guidance on Temporary Enforcement Safe Harbor for Certain Employers, Group Health Plans and Group Health Insurances Insurers with Respect to the Requirement to Cover Contraceptive Services Without Cost Sharing Under Section 2713 of Public Health Service Act, Section 715(a)(1) of the Employment Retirement Insurance Security Act, and Section 9815(a)(1) of the Internal Revenue Code,” U.S. Dep’t of Health & Human Services, (Feb. 10, 2012), at 3, available at http://cciiocms.gov/resources/files2/02102012/20120210-PreventiveServices-Bulletin.pdf. 5 Plans must cover people regardless of pre-existing conditions like cancer or diabetes. And premiums cannot be based on medical history. Group plans must guarantee availability and renewability of group plans regardless of health history. This is now in effect for all groups and will apply to all individual insureds beginning 2014. Guaranteed issue rights. This is in effect now for small groups, and in 2014 extends to all coverage. 6 The requirements for electronic record keeping are a provision that has drawn a great deal of criticism within the medical community. It also presents some significant – but not insurmountable – technology challenges. Most practicing lawyers – perhaps trial lawyers in particular – have experienced similar challenges as courts increasingly require electronic filing. 2 2|Page 7. Rescission is now limited to fraud and material misrepresentations of fact. 8. Medical loss ratios: 85% of premium must be spent on medical care by large groups, and 80% for small groups and individuals in 2014. 9. Failure to meet the loss ratios requires rebates that began this year. 10. Premium increase review by DHHS and the States beginning 2014. 11. Beginning in 2014, premium variances are permitted for only the following: Age: The range of variance is limited to 3:1. Rating area: Rating areas will be set by states subject to DHHS review. DHHS will set them for non-participating states. Individual vs. family plan. Tobacco usage: Increase is limited to 1.5 times premium of comparable non-smoker. Insurance exchanges: 2014 1. A federal health benefit exchange for individuals will be established by 2014. 2. States are required to set up certified insurance exchanges individually or in “partnership” with the federal government. 3. Federal funding will support creation of the exchanges. 4. Premium and cost-sharing is available for those under 400% of the federal poverty level to purchase through the exchanges. 5. November 16, 2012 was set as the deadline for states to submit exchange implementation plans for HHS certification. 6. January 2013 was set as the deadline for HHS to certify state exchanges and to initiate federal exchanges in the uncertified states. 7. October 13, 2013 was set as the beginning date for the first scheduled open enrollment period. 8. A small business health option program is offered. In 2017, large employers may use this program as well. 9. The exchanges must offer qualified health plans that provide essential benefits unless it is a catastrophic coverage plan. Essential benefits include coverage for these categories: 3|Page Preventive and wellness services, including management of chronic disease. Emergency services. Hospitalization. Maternity and newborn care. Mental health and substance abuse services. Prescription drugs. 10. The exchanges must meet certain cost-sharing standards. 11. The exchanges must provide levels of coverage tied to full actuarial value of the services: 12. Bronze=60% Silver=70% Gold=80% Platinum=90% The federal government will establish these exchanges in the absence of state action. Medicaid Expansion7 1. By 2014 Medicaid will, unless a state opts out,8 expand to provide “minimum essential health benefits” to all under age 65 at or below 133% (138% given the 5% disregard feature of the ACA) of the federal poverty level. 2. The Federal government would fund 100% of this increase until 2016, decreasing from then to an eventual 90%. 3. The individual mandate requires all applicable individuals to maintain “minimum essential health coverage” or pay a tax. Employers are also exposed to mandates. 4. As a result, Obamacare expands Medicaid in two ways. It increases the number of people covered and it increases the benefits received by 7 Medicare and Medicaid have significant differences. Most importantly, Medicare is funded and run almost exclusively by the federal government. Medicaid, on the other hand, is effectively administered by the states and its cost is shared by the states and the federal government. 8 The opt out potential was greatly affected by the United States Supreme Court as will be discussed in Appendix A. 4|Page requiring coverage for essential health benefits. The estimated increase of this expansion is $100 billion a year. This is 40% above current levels. ACA Tax Provisions Tax for failure to comply with mandates.9 Obamacare imposes a tax on the failure to comply with two mandates. First, it taxes those individuals who are eligible to purchase insurance from exchanges, but do not. Second, it taxes employers who are required to provide employees with insurance, but do not.10 Increased payroll tax deductions 1. Effective tax year 2013, the Medicare payroll tax deduction increases 0.9% for individuals with incomes exceeding $200,000 and $250,000 for families. The withholding requirement applies only to the “excess income,” and the wages of a non-employed spouse are not counted. 2. A Medicare tax of 3.8% is levied on unearned income for individuals with incomes exceeding $200,000, and $250,000 for families. Retiree drug subsidy deduction Effective January 2013, plan sponsors that provide prescription drug coverage for retirees will no longer be able to deduct the federal retiree drug subsidies on their corporate tax returns. Decrease in deducting unreimbursed medical expenses The percentage of adjusted gross income that unreimbursed medical costs must reach before they are deductible increases from 7.5% to 10%. As passed, Obamacare did not consider this a tax. The Supreme Court decided differently as discussed below and in Appendix A. 10 A criticism of Obamacare is that the tax on failure to comply with the mandate is not harsh enough. Consequently, individuals will opt to pay the tax until they clearly need care. [See, e.g., Wilensky, N Eng Med 2012; 367: 1479-1481; October 10, 2012] 9 5|Page Limitation on contributions to flex accounts and health savings accounts Effective now, employees cannot contribute more than $2,500 annually to flexible savings accounts. OTC drugs other than insulin not prescribed by a doctor are not reimbursable sundries from flex accounts and health or medical savings accounts. And the penalties for certain non-medical distributions from HSAs and MSAs are increased. Excise tax on the sales of certain medical devices. Annual fee on manufacturers and importers of branded prescription drugs for sale of products to specified government programs. Excise tax on certain health plans. Effective 2018, an excise tax will be levied on certain “Cadillac” employersponsored health insurance plans. An annual fee on certain health insurance providers. Tax credits for some small employers that pay at least one-half of their employees’ premiums. A non-refundable investment tax credit for investments in qualifying therapeutic discovery projects made during tax years beginning 2009 or 2010. The refundable premium assistance credit for lower and middle income individuals to purchase health insurance. The codification of the economic substance requirement and penalties for failure to comply. Obamacare Employer Requirements 1. Employees must receive a Summary of Benefits and Coverage for open enrollments beginning September 23, 2012. 2. Employers have W2 reporting requirements beginning this tax year. 3. March 2013 employers must notify employees of the availability of insurance exchange plans. 4. 2014 employers must certify to HHS that their plans meet “minimum essential coverage.” 5. 2014 increase in potential wellness incentives from 20 to 30%. 6|Page Other Significant Obamacare Provisions 1. Employers of 200+ must provide automatic enrollment in group plans. This effective date is not established. 2. 90 day limit on waiting period. 3. “Donut Hole” is eliminated. 4. Medicare cost reduction: Effective 2014. 5. Payment Centered Outcome Research Institute. 6. The Center for Medicare and Medicaid Innovation. 7. The Independent Payment Advisory Board. 8. Accountable care organizations. ACOs Both major parties seemingly agree on the promise of “health care collaboratives.” But the particular form these should take is very different. What is a health care collaborative and how might it help better care and decrease cost? An accountable care organization or ACO is the form of healthcare collaborative found in Obamacare. In contrast, and by way of example, recent health care reform in Texas features Texas Health Care Collaboratives or Texas Collaboratives. The differences in these forms of health care alliances are far greater than their similarities. Faith in Coordination ACOs and Texas Collaboratives tap into the same strain of faith in the benefits of coordination and consolidation. Collaborating—working together as a team—is a widely shared value. It makes sense. Like all industrial engines the health care train should run more smoothly—be more productive—if its many parts were better coordinated. Indeed, faith in the power of coordination to improve productivity undergirds many health care changes, actual and proposed. The notion of collaboration among service providers fits nicely with the fact that the health care industry has been consolidating for years. Will health care collaboratives—whatever their partisan form—fulfill their essential promise? No one knows. The concept is largely experimental. Health care 7|Page collaboratives may or may not prove a valuable step on the journey to toward better, less expensive health care. But this we know—health care collaboratives pose significant risks for those who join them. Medicare and Medicaid occupy center stage The economic woes engulfing Medicare and Medicaid draw the media spotlight for many reasons. They are huge. They are here to stay. Their economic impact is too great to ignore. While Medicare is planned to provide health insurance for more than 50 million Americans this year, evidence supports the argument that it is marching toward financial ruin. The trustees who oversee the program recently informed Congress that the program will run out of money by 2024.11 The financial problems for health care providers and suppliers and patients are not limited to the featured government programs. A symptom of the stress that pervades the industry is the recent allegation that some hospitals have embedded debt collectors—indistinguishable from hospital employees—who confront patients, demanding payment, as they await care in emergency rooms.12 The Attorney General of Minnesota released documents implicating one of the largest medical debt collectors in the country in this practice.13 Avoiding any discussion of the issues raised by this reported practice, if debt-collectors are truly masquerading as hospital employees while they put the hammer on patients to pay up, the reporter accurately characterized this as “desperate strategies among hospitals to recoup payments as their debts mount.”14 The Times reports that the 5,000 community hospitals in the United States have unpaid patient debt of more than $30 billion.15 Obamacare encourages the creation of ACOs. Potentially, an ACO will be reimbursed for both traditional fees for services and share in the savings achieved by Houston Chronicle, April 24, 2012, A3. Yet this is far more complicated than generally portrayed. For example, Medicare has two sources of funding: The HI Trust Fund that gathers its money from payroll taxes and the Supplemental Medical Insurance trust fund that is paid from general revenue and beneficiary premiums. The HI Trust pays for Medicare Part A—hospitals, home health and skilled nursing services. The SMI Trust funds pays for Medicare Part B—predominantly doctors and outpatient services, and Part D—Prescription drugs. The overseers report about the 2024 shortfall was directed at the HI Trust. And the ‘shortfall” is neither new information nor easily understood. 12 New York Times, April 25, 2012, A1. 13 Id. 14 Id. Lori Swanson, the Minnesota Attorney General, has a pending civil lawsuit against the same collection company, Accretive Health, which alleges the debt collector violated debt collection laws and patient privacy protections by accessing a laptop with patient data. Id. 15 The federal Medical Treatment and Active Labor Act requires hospitals to provide emergency health care regardless of citizenship, legal status or ability to pay. Id. 11 8|Page its formation.16 ACOs that agree to share savings and losses can share in achieved savings up to 60%. And those that agree to share savings only can earn up to 50% of achieved savings. This Shared Savings Program is available to ACO service providers and suppliers reimbursed on a Fee for Services basis under Medicare Parts A and B. The ACO must apply and qualify for the program. An ACO is a voluntary alliance among health care providers or suppliers to stand accountable for improvement in the quality of health care it provides and the reduction in the cost of that care. “Value-based purchasing” is the buzz phrase used to describe this model. Some suggest that ACOs are simply repackaged “managed care,” a charge vigorously denied in the governing regulations. The obligations and potential opportunities afforded ACOs are unquestionably unique. In addition to potentially handsome financial rewards, ACOs benefit from safe harbor provisions that potentially exempt them from antitrust scrutiny. The Centers for Medicare and Medicaid Services administer the ACO program The Centers for Medicare and Medicaid Services or CMS selects the qualified ACOs based on criteria that focus on three goals: The ACO must better care for individuals, better care for populations, and lower growth in Medicare expenditures. ACO qualifications for the Shared Savings Program were published November 2, 2011.17 April 10, 2012, CMS announced its inaugural selection of qualifying ACOs.18 Twenty-seven ACOs located in 18 states qualified for participation in the Medicare Shared Savings Program. Five among this group will participate in the advanced payment model. These ACOs will receive advance money for startup costs to meet special needs; for example, building infrastructure in rural areas. Texas Health Care Collaboratives The 82nd Texas Legislature passed potentially far-reaching changes in the reimbursement system for Medicaid and CHIP. Key provisions include the creation of The Texas Institute of Health Care Quality and Efficiency and encouraging the formation of Health Care Collaboratives. The Affordable Care Act amended the Social Security Act to entitle qualified ACOs to share a percentage of the savings achieved by the Medicare Program. See 42 U.S.C. §1899. 17 Fed. Reg. 76, No. 212, pps 67802-67990. 18 April 19, 2012, CMS.gov. 16 9|Page Texas Health Care Collaboratives can negotiate as a group on reimbursement issues with health insurers The legislation enables physicians to “collaborate” as a group in negotiating reimbursement from insurers. Physician groups may also combine with a hospital and both can negotiate as one with insurers. The legislation also provides that these collaboratives will be exempt from anti-trust law. The Texas Institute of Health Care Quality and Efficiency will administer Health Care Collaboratives The Texas Health Care Collaboratives will be administered by the newly created Texas Institute of Health Care Quality and Efficiency – a state agency. The Members of All Collaboratives Face Common Risks Collaboratives are targets for antitrust enforcement actions Federal and state antitrust enforcers have targeted health care collaborations.19 Southwest Health Alliances is a Texas corporation affiliated with a large group of doctors in the Amarillo area. It recently entered into a consent decree based on Federal Trade Commission allegations of price-fixing. Approximately 900 Amarillo doctors signed on with Southwest authorizing it to negotiate on their behalf with health insurers. The FTC claimed this was an antitrust violation, accusing it of permitting Southwest doctors to gain an unfair competitive advantage over other doctors in the area. For example, Southwest doctors negotiated higher reimbursement rates. The flashpoint for this FTC action was the failure of Southwest doctors to clinically integrate their individual practices in a way that demonstrably produced beneficial efficiencies for their patients. The Antitrust Agencies Guidelines for Accountable Care Organizations provide a specific safe harbor for qualified ACOs. An ACO is presumed sufficiently integrated to avoid price-fixing charges. ACO Guidelines also provide a safe harbor for ACOs that account for 30% or less of any type of service within any members’ primary service area. 19 See, e.g., Southwest Health Alliances, Inc. ,dba BSA Provider Network, FTC No. C-4327, July 8, 2011. 10 | P a g e The Texas Health Care Collaborative legislation nominally provides similar protection from antitrust enforcement. But this harbor seems less safe than those in which a federally qualified ACO is docked. Health Care Collaboratives are targets for Stark Law violations20 The Tuomey Healthcare Systems, Inc., saga is a cautionary tale for those interested in joining a non-ACO health care collaborative.21 The Tuomey hospital in Sumter, South Carolina was concerned that its doctor specialists on staff might move some of their outpatient care in-house or to other facilities. Hoping to reduce this possibility, Tuomey contractually agreed with 19 physician specialists that those doctors would perform all their outpatient procedures at a Tuomey owed hospital, and assign their third party payer income to Tuomey. In return, Tuomey paid the doctors based on the amount of its net collections attributable to each doctor. This has not worked out well. A federal judge ordered Tuomey to disgorge more than $45 million that it received in Medicare payments. The Fourth Circuit reversed, but with an opinion that foretells more stormy seas for the Tuomey collaborative on remand. Tuomey is sued for violations of the Stark Law and the federal False Claims Act. The Stark Law is a Social Security Act provision intended to discourage doctor referrals to health care facilities in which the doctor has a direct or indirect financial interest.22 Tuomey is also sued for violating the False Claims Act. An applicant for Medicare reimbursement must certify that it has complied with the Stark Law.23 The Stark law provides that a doctor has an indirect financial relationship with a hospital if her compensation is based on the volume or value of referrals.24 The doctor does not violate the Stark Law if she actually performs the procedure.25 The 19 Tuomey doctors apparently did perform the procedures on the patients they The Stark law, as will be discussed, comes into play only when a federally funded health care program is involved. While not a topic for this paper, the minefield of regulations that come with Medicare, Medicaid and all other federal programs logically is a partial explanation for the recent rash of physicians who refuse to accept patients whose care would be reimbursed by these programs. As will be seen, this offers physicians only partial cover. They cannot escape the impact of affiliations with hospitals and other facilities that do accept reimbursement from these programs. 21 It is also a cautionary tale for lawyers and others who attempt to set up collaboratives. 22 See 42 U.S.C. §§ 1399nn, et. seq. 23 31 U.S.C. § (a) (1). 24 See 42 C.F.R. §411.354(c) (2). The law and its regulations are intricate. For example, the “financial relationship” may be avoided if the compensation received by the referring physician is “fair market value.” See 42 C.F.R. § 411.357(p). 25 §1877 of the Social Security Act; 42 U.S.C. §1395. 20 11 | P a g e referred to the Tuomey hospital. The doctors’ fees are not under attack as unlawful referrals. But the government wants the facility fees charged by the hospital.26 U.S. ex rel. Drakeford v. Tuomey Healthcare Systems, Inc., No.10-1819 (4th Cir. 2012) began as a qui tam action. Interestingly, the qui tam was filed by a doctor who Tuomey wooed, obviously without success. The Department of Justice intervened. A jury verdict exonerated Tuomey on the False Claims Act claim, but found Tuomey violated the Stark Law. Tuomey fared worse post-verdict. The district court ordered a new trial of the FCA claim, and entered a judgment of over $45 million against Tuomey for violating the Stark Law. The Fourth Circuit reversed on a Seventh Amendment violation. But Tuomey probably held no victory party. The Circuit Court determined that the district court, intentionally or mistakenly, set aside the entire verdict rather than simply the FCA portion of the verdict. Without any verdict, the three Circuit Court judges agreed that the trial court’s Stark Law-based judgment denied Tuomey’s right to a jury trial. A concurring judge strongly opined that this was as far as Circuit Court could go—it should reverse and remand based on the Seventh Amendment violation. The two judge Circuit Court majority disagreed with their colleague, ventured beyond the Seventh Amendment violation, and wrote opinions on the Stark law that Tuomey and others must find deeply troubling. The majority opinion held that the “facility fee” charged by Tuomey was a Stark Law violation even though the physician fee was not. Moreover, the majority rejected Tuomey’s argument that the compensation contracts themselves did not violate the Stark Law. Instead, the majority held that the agreements based the doctors’ compensation on the amount of anticipated referrals and thus violated the Stark Law. Tuomey is more than troubling news for Tuomey Healthcare; the Fourth Circuit sends a threatening message to all those involved in or considering collaborative arrangements. Obamacare anticipated the problem posed by potential Stark Law enforcement issues. By mandate CMS developed and implemented a protocol for providers to voluntarily disclose noncompliance. September 23, 2010, CMS published its protocol.27 As required, the CMS submitted a report to Congress March 2012. The effectiveness of this protocol as a method for resolving Stark Law compliance issues is unknown. The CMS regulation preamble, argues that these facility fees are subject to Stark. 66 Fed. Reg. 941 (Jan.4, 2001); 69 Fed. Reg. 16054, 16063 0r 16067 (March 26, 2004). 27 http://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Self-Referral_Disclosure_Protocol.html. 26 12 | P a g e Obstacles Health Care Collaboratives Must Hurdle to Meet Their Promised Goals Is evaluating the quality of health care possible or practical? Obamacare cut payments to Medicare Advantage, a managed care plan, and offered a bonus to those that provide high quality.28 The Government Accountability Office challenges this program. Medicare, it says, is “wasting more than $8 billion on an experimental program that rewards providers of mediocre health care and is unlikely to produce useful results.”29 The Medicare Advisory Commission “also criticized the project, saying it increases “spending at a time when Medicare already faces serious problems with cost control and long-term financing’.”30 Is the assessment of appropriate costs of health care services possible or practical? A recent California study looked at the cost hospitals charge for an appendectomy.31 Charges for essentially the same procedure varied from $1,500 to $180,000.32 And the researchers found no explanation for about a third of the cost differences.33 Dr. Howard Brody, director of the Institute for Medical Humanities at the University of Texas Medical Branch in Galveston said the study shows that “the laws of supply and demand simply do not work well in health care.”34 Richard S. Foster, the chief Medicare actuary has said that most health care providers cannot increase productivity as much as Congress assumed when Obamacare was passed.35 The savings from health care collaboratives are predicated on anticipated productivity increases. The inability to meet productivity predictions logically dooms the predicted savings. Bonus plans have a checkered history The ACO model relies on bonuses as the primary incentive to improve care and reduce cost. Bonuses programs are not new. For example, doctors who work in New York Times, April 23, 2012, A9. Id. 30 Id. 31 Houston Chronicle, April 24, 2012, A6, reporting on a study published April 23, 2012, in the Journal Archives of Internal Medicine. The study was funded by the Robert Wood Johnson Foundation. 32 Id. 33 Id. 34 Id. 35 New York Times, April 24, 2012, A13. 28 29 13 | P a g e communities that have few health care providers can qualify for a 10% bonus on the Medicare claims they file.36 This program seems rife with problems.37 An acknowledged failure to properly update the list of qualified doctors reportedly has cost Medicare $64 million in over-payments to primary care physicians between in one county alone—in Hidalgo County, Texas.38 OBAMACARE CRITIQUE AND PROPOSED ALTERNATIVES Obamacare is unconstitutional Constitutional challenges to the individual mandate and Medicare expansion were resolved by the United States Supreme Court June 28, 2012. The mandate survived as a tax. Medicare Expansion also survived, but the federal government has no authority to deny all Medicaid funding to states that choose to opt out of the Obamacare Medicaid Expansion. An analysis of the controversial Supreme Court decision written immediately after it was announced is attached as Appendix A. Constitutional issues remain.39 Moreover, Obamacare is challenged as violating religious freedom. Houston Baptist University and East Texas Baptist University filed “Health Professional Shortage Areas.” Houston Chronicle, April 23, 2012, 1A. 38 Id. 39 A commentator suggests these issues remain open: 36 37 The Court’s decision raises three key questions. First, which ACA Medicaid reforms are affected? The ACA makes many changes in the Medicaid program. In particular, the law contains a maintenance-of-effort provision barring states from rolling back Medicaid coverage until their health insurance exchanges are operational. It also requires other changes in coverage and enrollment. The states challenged ACA reforms beyond the expansion of eligibility, including the maintenance-ofeffort requirement. But Robert’s opinion focuses only on the expansion group, never mentioning the other reforms; presumably the Court considered them part of the existing program, subject to the program’s normal enforcement tool for mandatory provisions. A July 10 letter from HHS Secretary Kathleen Sebelius makes clear that where Medicaid is concerned, the Roberts ruling is confined to newly eligible adults. Second, how far does the Court’s new coercion doctrine go? The federal government conditions participation in many cooperative programs on state compliance with federal requirements. These joint efforts include not just health and social welfare programs but education, environmental, civil rights, and transportation programs. Are they all at risk of litigation? Have states now been given a vested right in the status quo? Roberts seemed particularly focused on the notion that the Medicaid expansion changes the program in “kind,” not merely “degree,” and on Medicaid’s size. How big is it? Can a federal program be too big to change? And when does a program change in kind and not degree? It is hard to find limiting principles of the Court’s holding. 14 | P a g e a lawsuit October 9, 2012 challenging what they refer to as the “Contraceptive Mandate” of Obamacare.40 The universities challenge an administrative rule, asserting that it violates the First Amendment (the rights of speech and freedom of religion) and Religious Freedom Rights Act, and the Administrative Procedures Act. This is one of more than thirty similar lawsuits. OBAMACARE: OPPONENTS’ CRITIQUE AND ALTERNATIVES Obamacare will reduce Medicare benefits Obamacare opponents assert that it will reduce benefits to Medicare recipients by $716 billion over ten years. The Act does provide in several ways for reducing Medicare expenditures. As written, the Act ties savings to increased efficiencies, and not reduced benefits. The $716 billion figure is a projection of the amount of efficiency savings. Obamacare has a “death panel” Obamacare creates an Independent Payment Advisory Board to reduce payments to clinicians and institutions until desired spending levels are achieved.41 If the Chief Actuary for the Centers for Medicare and Medicaid Services projects that its targeted per capital growth rate will be exceeded, the Board is required to develop and submit “a proposal containing recommendations to reduce Medicare’s per capita Finally, how will the states respond? Several Republican governors have made a show of their adamant refusal to expand their Medicaid programs. But the Medicaid expansions are accomplished by 100% federal funding for the first 3 years, phasing down to 90% by 2020. The ACA offers no other means for covering adults with incomes below 100% of the poverty level. Resisting states effectively intensify the huge uncompensated care burden faced by their hospitals; deprive other health care industry infusion. Indeed, there is good evidence that overall, the changes in Medicaid will save, rather than cost, money. And residents of states that do not expand will still be paying federal taxes to cover the expansion in states that do expand. Given the clear language of the Court’s decision, the July 10 letter permits states to decide whether to accept funding to support the Medicaid expansion for newly eligible adults as a group or to reject it and with it hundreds of billions of dollars in much-needed federal assistance. But some states may press the administration to interpret the expansion as a simple state option, allowing them to cover some portion of the expansion group – adults without children – exposed to the worst sort of discriminatory exclusion. The administration may be pressured to enter into negotiations with each state, using its waiver authority. The ACA specifically amended the Medicaid waiver process to ensure that it was used for genuine research, not political horse trading. One can only hope that the states will come to their senses and we all will be spared the spectacle of federal and state governments struggling over the lives and health of the poorest among us. Jost and Rosenbauuer, “The Supreme Court and the Future of Medicaid,” N. Eng J Med 2012; 367; 983-985, September 13, 2012. 40 East Texas Baptist University v. Kathleen Sebelius, Civil No. 12-3009 (SDTX). 41 §3403; 42 U.S.C. 1395, et seq. 15 | P a g e growth rate to the extent required to meet [predetermined budget goals.]” This, it is argued by some, is an example that Obamacare is not market-friendly; the notion of a federally centralized reimbursement structure fails to effectively use “market forces.”42 Obamacare will increase the deficit The most intractable challenge in health care reform is the practical difficulty of actually reducing the costs. The Medicare actuary predicts that 25% of institutional providers will lose money on their Medicare business by 2030.43 Reimbursement based on fee-for-service is targeted by many as a principal culprit in cost of medical care. Obamacare is criticized by some for not adequately addressing this method of reimbursement. For example, it is said: Through the Resource-Based Relative Value Scale, physicians are reimbursed on the basis of more than 8000 different service codes, and payment for each physician service it exceeds a specified limit. This system rewards the provision of highly reimbursed services without consideration of whether clinicians are providing low-cost, high value care for patients. Given physicians key role in providing patient care, it’s possible to imagine a reformed delivery system without a more radical way of paying physicians – one that encourages and rewards them for providing clinically appropriate care efficiently.44 Health Care Provider Shortage In the October 4, 2012, presidential debate, Mr. Romney attacked Obamacare with the argument that doctors and hospitals would refuse to accept patients under it. Obamacare reduces reimbursements to health care providers, primarily insurance companies and drug manufacturers. This adds a predicted 8 years to the solvency of Medicare’s trust fund. The insolvency date would be pushed back to 2024 rather than the 2016. It increases prescription drug benefits. It provides for free preventive care. Eliminating the predicted Obamacare Medicare savings would cut benefits and increase patient costs. Restoring increased payments to insurers and other See, e.g., Wilensky fn 10. See, e.g., Wilensky. 44 Wilensky fn 10. 42 43 16 | P a g e companies would increase Medicare premiums because patients share in Medicare’s total cost. Cuts to providers could cause private Medicare plans to raise premiums. This could reduce enrollment. Neither has yet happened. Obamacare is criticized by some because bonus incentives offered by the Act to increase efficiency are too small. Bonuses must be larger to change “institutional behavior”45 The Alternative: A Free-Market Approach “MITT’S PLAN”46 Immediate “Obamacare waivers to all fifty states.”47 Repeal of “the full legislation as quickly as possible.”48 Return “states to their proper place in charge of regulating local insurance markets and caring for the poor, uninsured and chronically ill.”49 1. “Block grant Medicaid and other payments to states.”50 2. “Limit federal standards and requirements on both private insurance and Medicaid coverage.”51 3. “Ensure flexibility to help the uninsured, including public-private partnership exhanges and subsidies.”52 4. Ensure flexibility to help the chronically ill, including high risk pools, reinsurance, and risk adjustment.”53 5. Offer innovative grants to explore non-litigation alternatives to dispute resolution.”54 See, e.g., Wilensky fn 10. The title “Mitt’s Plan” comes from the official Mitt Romney campaign site. 47 Id. 48 Id. 49 Id. 50 Id. 51 Id. 52 Id. 53 Id. 45 46 17 | P a g e “Promote Free Markets and Fair Competition”55 1. “Cap non-economic damages in medical malpractice lawsuits.”56 2. “Empower individuals and small businesses to form purchasing pools.”57 3. “Prevent discrimination against individuals with pre-existing conditions who maintain continuous coverage.”58 4. “Facilitate IT inoperability.”59 “Empower Consumer Choices”60 1. “End tax discrimination against the individual purchase of insurance.”61 2. “Allow consumers to purchase insurance across state lines.”62 3. “Unshackle HSA’s by allowing them funds to be used for insurance premiums.”63 4. “Promote coinsurance products.”64 5. “Promote alternatives to fee for service.”65 6. “Encourage consumer reports type ratings of alternative insurance plans.”66 Obamacare creates an Independent Medicare Advisory Board. Bending the Cost Curve Id. Id. 56 Id. 57 Id. 58 Id. 59 Id. 60 Id. 61 Id. 62 Id. 63 Id. 64 Id. 65 Id. 66 Id. See also What is needed are refocus that create clear financial incentives that promote value over volume, with active engagement by both consumers and the health care sector. Market-friendly reforms require empowering individuals armed with good information and non-distorting salary subsidies, to choose the type of Medicare delivery system they want. Being market friendly means allowing seniors to buy more expensive plans if they wish, be paying the extra cost out-of-pocket, or to buy coverage in health plans with more tightly structural delivery systems at lower prices if that’s what suits them. If market friendly Medicare is your air, a good place to look is the plan proposed by Senator Ron Wyolen (D, OR) and Representative (and vice-presidential candidate) Paul Ryan (R. WI) – not the ACA. 54 55 18 | P a g e The need to reduce the growth rate of health care costs—“bending the cost curve”—is a view shared by most Americans. The office of the actuary of the Department of Health and Human Services reports that federal, state, and local government health spending will be nearly 50% of all health spending in the United States by 2021. It was 46% in 2011. Preliminary Conclusion Obamacare is the law. The Republican vision of health care reform is quite different. Governor Romney promises to repeal it. Congress, of course, will have much to say about the fate of Obamacare and the direction of health care reform. While undoing Obamacare in its entirety presents an enormous practical challenge, dismembering the effort to cover the 30 million uninsured, however, is more easily achieved. Realistically, it seems inevitable that the federal government and federal funds will remain substantially invested in the American health care industry. 19 | P a g e APPENDIX A Jack Edward Urquhart United States Supreme Court Decision on the Affordable Health Care Act67: Next Chapter Jack Edward Urquhart Beirne, Maynard & Parsons, L.L.P. June 28, 2012, the Unites States Supreme Court resolved constitutional challenges to two provisions of the Affordable Health Care Act (ACA).68 The court held that Congress’ power to tax provided authority to enact the “individual mandate,”69 but Congress overstepped its authority in its planned “Medicaid expansion.”70 The individual mandate survived intact. The Medicaid expansion also survived, but Congress may not threaten States that do not accept the expansion with the withdrawal of all Medicaid funds. Chief Justice Roberts wrote the controlling opinion. Justice Kennedy wrote a dissent that would have voided the ACA in its entirety, and was joined by Justices Scalia, Thomas and Alito. Justice Ginsburg, while joining Roberts’ ultimate results, argued that the Chief Justice erred in holding that the Commerce and Necessary and Proper clauses did not authorize Congress to enact the individual mandate. Additionally, Justice Ginsburg asserted that Congress had the authority to deny all Medicaid funds to a State that opted out of the ACA Medicaid expansion. The pre-decision hype was merited, if only by the intriguing opinion authored by the Chief Justice. The ACA was a single vote away from extinction. Roberts literally saved the act. Why he did so is speculative. And the rampant speculation is both interesting and entertaining. But the different question—How Chief Justice Roberts “saved” the ACA?—is more clearly answered and far more important. National Federation of Independent Business v. Sebelius, 567 U.S. ___(2012), 2012 WL 2427810. Affordable Care Act [Pub. L. No. 111-148, 124 Stat. 119 (2010), amended by Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat.1029 (2010))]. 69 The “individual mandate” characterizes a provision of the ACA that requires some individuals to purchase a health insurance policy providing a minimum level of coverage or pay a “penalty” to the IRS. 26 U.S.C. § 5000A. 70 And “the Medicaid expansion” refers to expanding specified health care benefits to all citizens whose income falls below 133% of the federal poverty level. 42 U.S.C. § 1396a(a)(10). 67 68 20 | P a g e Subtle in tone, the Roberts’ opinion formalizes Congress’ shrinking Article I power. While allowing the individual mandate to survive, it drove a stake through the heart of the federal government’s primary argument for congressional authority to enact the ACA. Roberts rejected the notion that the Commerce Clause,71 long the foundation of congressional assertions of authority, permitted Congress to enact the individual mandate. Justice Ginsburg’s strong disagreement reveals an appreciation of how sweepingly Roberts’ assault on the Commerce Clause cuts away congressional authority. She wrote that the Chief Justice’s reading of the Commerce Clause “makes scant sense and is stunningly retrogressive.” She cautioned that it “is a reading that should not have ‘staying power.’” Justice Ginsburg’s passionate clash with the Chief Justice’s view of the Commerce Clause is lengthy, detailed, and powerfully written. But it is a minority view. And Justice Ginsburg’s fervor confirms that the Chief Justice’s opinion signals a potentially radical departure from prevailing notions of the scope of the Commerce Clause. The Supreme Court appears fully prepared to reexamine the view of the Commerce Clause that has governed since the 1930s.72 The Chief Justice also clarifies that central to this reexamination of the Commerce Clause is the Supreme Court’s obligation to maintain the constitutional balance of power between the federal government and the Sovereign States. Chief Justice Roberts’ carefully modulated opinion is among the most effective State’s Rights opinions in recent memory. The logic of his specific rulings and the opinion that supports them are calmly thunderous affirmations that the Constitution does in fact set defined limits on the power of the federal government. The powers not constitutionally assigned to the federal government belong to the States and the People. Chief Justice Roberts views these founding principles as mandates—not mantras, routinely recited and routinely ignored. Art. I, §8, cl.3. The Government relied on findings of cost-shifting that are the inevitable result of the uninsured as a group. The findings, which were not disputed, estimated that annually $43 billion is shifted from Americans without health insurance to insured Americans and healthcare providers. Notably, the Government’s argument emphasizes the care received by the uninsured. This does not clearly conflict with the more frequent focus on the uninsured’s lack of access to care, but does raise interesting questions. 72 The 11th Circuit noted that in 75 years the Supreme Court only twice held congressional acts exceeded Article I commerce powers—United States v. Morrison, 529 U.S. 598, 120 S.Ct. 1740 (2000) and U.S. v. Lopez, 514 U.S. 549, 115 S.Ct. 1624 (1995). 71 21 | P a g e In summary, this is “how”—and probably “why”—Chief Justice Roberts reached his decision as supported by the text of his opinion: The role of the Supreme Court in this case was limited to determining whether Congress had the power to enact the individual mandate and the Medicaid expansion. Specifically, the Court could not consider the “wisdom” of the challenged provisions.73 And it certainly could not judge the wisdom of the ACA as a whole. The merit of the ACA is the responsibility of Congress and the Executive. And, ultimately, is the responsibility of the People who can “throw out” elected officials. The Chief Justice, consistent with this view, spent little time discussing details of the ACA. This is in noted contrast to the other Justices and lower court judges who wrote opinions on the challenged provisions. The Court, however, will not abdicate its responsibility to make certain that the federal government does not exceed its constitutionally limited power. While acknowledging the very broad readings the Court has given the Commerce Clause and the appropriate deference the Court owes the Congress and the Executive, the Chief Justice’s vision of the Court’s role dictated that the Court scrutinize the question of whether the individual mandate was truly justified by the Commerce Clause.74 It was not. Congress exceeded its Commerce Clause power. Moving to a secondary argument made by the federal government, Roberts considered congressional authority to tax and spend.75 Congress did have authority to enact the individual mandate as part of its constitutionally enumerated power to tax and spend. Carefully, the Chief Justice cordoned off notions of an unlimited taxing power. The Medicaid expansion fared even less well. Maintaining the steady-understated tone of his opinion, Roberts elegantly skewered the Federal Government’s attempted use of the threat of withholding all Medicaid funds from non-compliant states. Bluntly, he found it unconstitutionally coercive and over-reaching, in violation of the 10th Amendment. Only Justices Ginsburg and Sotomayor disagreed. The “It is not our job to protect the people from the consequences of their political choices.” Noting the “dramatic” expansion of the Federal Government, he wrote the government still must prove that its actions are based on a constitutional grant of power. 75 U.S. Const., Art I, § 8, cl. 1. In 2014, individuals who do not comply with the individual mandate must make a “shared responsibility payment” to the Federal Government. 26 U.S.C. § 5000A(b)(1). 73 74 22 | P a g e Medicaid expansion is constitutional, but only if a State can opt out without the “gun to its head” of losing all Medicaid funding.76 What is the next chapter? The next chapter is squarely in the hands of the federal and State governments and the People and imagination is the only limit to available policy issues and options. The following seem significant areas of focus: An effort to understand the ACA in its fullness. Questioning whether the ACA as a whole, or in part, will produce sustainable improvement to the access of quality medical care. Evidenced-based answers to the questions. Creative alternatives to massive federal regulation of healthcare that will produce sustainable improvement to the access of quality medical care. Understanding the ACA Is the ACA a worthy voyage of discovery in the grand American tradition or is it a fool’s errand? Is it similar to the mission of landing on the moon—challenging but achievable? Or is it a snipe hunt—and the only issue is who will be left holding the bag? This much is clear. The ACA is aspirational. It is experimental. It is a workin-progress. This does not doom the Act. It just defines it. A full understanding of the ACA is impossible. Although it can be read, it is an outline, rather than a complete narrative. It requires, among other things, regulations—many that remain unwritten even as proposals.i The ACA is a massive federal regulatory program.ii It aspires to comprehensively regulate the health care insurance and health care services markets. As initially printed, the ACA is almost 1,000 pages in length, encompasses 9 Titles and hundreds of laws. It is an excruciatingly tedious read. It changes hundreds of laws, ranging from the Social Security Act to the Tax Code. It will significantly change the practices of the health insurance industry and the healthcare industry. The Court resolved other issues as well, e.g., the applicability of the Anti-Injunction Act. 26 U.S.C.§ 7421(a). The two issues identified above are the most significant. 76 23 | P a g e Most Americans will feel its impact, and some already have. For example, billions of dollars have been appropriated to allocate money for creating insurance plans for people with pre-existing conditions, off-setting employers’ costs for early retirement health plans, increasing pay for some primary care doctors, and health initiatives like funds for state vaccination programs. Some healthcare providers have received millions in grants for facility expansion, technology upgrades and a variety of other capital projects to better serve their patients. At least $13.7 billion has already been spent under the ACA. The largest portion of this has gone to employers, public retirement plans, unions, and others that provide insurance coverage for workers who retire before they are eligible for Medicare. Beneficiaries include the likes of General Electric and the United Automobile Workers. G.E. alone received $39 million. The following endeavors to describe some of the most significant provisions of the ACA by category: ACA Tax Provisions Tax for failure to comply with mandates. Increased Medicare payroll tax deductions and taxation of unearned income, starting in 2013. Retiree Drug Subsidy Deduction: Starting in 2013, plan sponsors that provide prescription drug coverage for retirees will no longer be able to deduct the federal retiree drug subsidies on their corporate tax returns. Decrease in deducting unreimbursed medical expenses. The percentage of adjusted gross income that unreimbursed medical costs must reach before they are deductible increases from 7.5% of adjusted gross income to 10%. Limitation on flex accounts and health savings accounts: Limitations on annual savings of $2,500; ban on reimbursement of OTC drugs other than insulin not prescribed by a doctor from a health reimbursement program; flex accounts and health or medical savings accounts; and increased penalties for certain non-medical distributions from HSAs and MSAs. Excise tax on the sale of certain medical devices. Annual fee on manufacturers and importers of branded prescription drugs sold to specified government programs. 24 | P a g e Excise tax on certain health plans: Effective 2018 an excise tax on certain “Cadillac” employer-sponsored health insurance plans. The annual fee on certain health insurance providers. Tax credits for some small employers that pay at least one-half of their employees’ premiums. The non-refundable investment tax credit for investments in qualifying therapeutic discovery projects made during tax years beginning 2009 or 2010. The refundable premium assistance credit for lower and middle income individuals to purchase health insurance. The codification of the economic substance requirement and penalties for failure to comply. ACA Medicaid Expansion The ACA expands Medicaid in two ways. It increases the number of people covered and it increases the benefits received. Medicaid will be expanded to provide “the essential health benefits package” to all individuals at or below 133% of the federal poverty level. The federal government will initially fund 100% of the increased cost. The federal funding will then be reduced to 90%. ACA Health Plans and Insurance Exchanges Health plans Continue dependent child coverage to age 26. Preventive Care Coverage for additional preventive care services beginning August 1, 2012. Continue to prohibit rescissions and coverage based on medical history. Administrative Simplification: Effective January 2013, health plans must implement uniform standards and business rules for the electronic exchange of health information in order to reduce paperwork and administrative burdens and costs. 25 | P a g e Insurance exchanges American health benefit exchange for individuals. Small business health option program. In 2017, large employers may use this program. The exchanges must offer qualified health plans that provide “essential benefits” unless it is a catastrophic coverage plan. An essential benefit package must offer coverage for specific benefit categories: Preventive and wellness services, including management of chronic disease. Emergency services. Hospitalization. Maternity and newborn care. Mental health and substance-use services. Prescription drugs. The exchanges must meet certain cost-sharing standards. Provide levels of coverage tied to full actuarial value of the services: Bronze=60%. Silver=70%. Gold=80%. Platinum=90%. The federal government will establish these exchanges in the absence of State action. ACA Employers and Employees Summary of Benefits and Coverage: Effective for open enrollments periods beginning September 23, 2012, employers must supply employees with SBCs. Notice of State exchanges: Effective no later than March 1, 2013, employers must provide written notice to current employees and new hires of State Insurance Exchanges. The notice must inform the employees that, if the employer’s share of the total allowed costs of benefits provided under its plan is less than 60%, the employee may be eligible for a premium credit. Regulatory guidance is not yet available on the content of the notice. Compliance with new W2 reporting requirements for tax year 2012. Compliance with Medicare withholding changes. Quality of Care Reporting: This applies to non-grandfathered group health plans and insurer. HHS regulations required March 23, 2012 have not issued. 26 | P a g e Do these provisions as a whole, or in part, produce sustainable improvement to the access of quality medical care? Candidly, evidence-based analysis is difficult, if not impossible, to apply. This opinion was tipped-off when the ACA was described as experimental. The strongest theoretical support for the ACA addresses “access” to thirdparty payment for medical services. Logically, the ACA will decrease the number of individuals now classified as uninsured. This assumes Medicaid expansion, affordable insurance programs, including employer-based health insurance plans and insurance exchanges, and consumer choices to purchase a health insurance product. Accepting a decrease in the number of persons classified as uninsured, the support for sustainability and improvement in the quality of medical care appears simply speculative. Without downplaying the need for reform, reform seems impractical without a sound plan that 1) recognizes that quality of healthcare really depends on the intensely personal relationship between doctor and patient, and 2) both sustainability and access require a significant reduction in the increasing cost of medical care. Some “wisdom” resides in the premise that state and local governments are in the best position to initiate true health care reform. They are at least closer to the key players in quality healthcare—the patients and the doctors. And they are far more sensitive to issues of cost. They have to be. Against this are two very persuasive arguments. First, the healthcare crisis may in fact be too great, requiring massive federal intervention. Second, states and local governments have not been prevented from initiating effective health care reform. If they have not met that challenge in the past, why should we look to them for a solution now? Practically, the “next chapter” should resoundingly recognize that health care reform is needed. Similarly, it should recognize that the ACA includes measures that hold much promise. At the same time, the next chapter must accept that the ACA is an experiment of unprecedented scale. It is not merely poorly understood. It is not understandable. We cannot be sure it is a fool’s errand. We can be sure it lacks the foundation that supported our collective decision to land on the moon. This all leads in a single direction. The ACA has answers, but is not the answer. The time calls for assertive and, preferably, concerted state and local intervention and initiative. Needless to say, more than resistance and reaction is 27 | P a g e required. While efforts to resist massive, and questionable, federal regulation are understandable, the time also demands concrete proposals to provide sustainable improvement to the access of quality medical care. This is not an indictment of any person or group. Little more could be expected given the realities of its scope and the overall environment in which it was created and survives. ii The sheer size of the program was used by Congress and its courtroom advocates as a reason the Commerce Clause should have authorized Congress to enact the ACA. Justice Ginsburg wrote: “Congress comprehensively reformed the national market for health-care products and services. By any measure, that market is immense. Collectively, Americans spent $2.5 trillion on health care in 2009. Accounting for 17.6% of our Nation’s economy.” i 1627682v.1 IMANAGE 28 | P a g e