On June 28, 2012—the last day of the 2011 term—the U.S. Supreme Court ruled in a 5-4 decision, with Chief Justice Roberts writing for the majority, that the individual mandate provision of the Patient Protection and Affordable Care Act (the “Act”) is constitutional based on Congress’s taxing power. A key passage read from the bench by Chief Justice Roberts is as follows:

“Put simply, Congress may tax and spend. This grant gives the Federal Government considerable influence even in areas where it cannot directly regulate. . . . The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control.”

For the most part, the Court declared the Act constitutional, except for the Medicaid expansion provisions.

Medicaid: Expansion Struck Down in Part

The Court found that the mandated expansion of the Medicaid program was not a valid exercise of the federal power because any state that failed to comply with the expanded program could lose all of its federal funding for its Medicaid program. The Court proposed a simple correction to this constitutional violation by invalidating the Secretary of the Treasury’s authority to withdraw existing Medicaid funding from a state that chose not to participate. This finding raises some complex issues for hospitals and physicians providing care to those patients in states that chose not to expand their Medicaid programs. Those states that objected to the cost of the expanded coverage and those states that cannot afford the Medicaid expansion now may opt out of the program without suffering any financial repercussions.

Under the Medicaid expansion, states are required to provide coverage by 2014 for adults with incomes of up to 133 percent of the poverty level. Many states cover only adults with children. Childless adults in many states are not covered. If this group of people are not covered by Medicaid, they fall into the individual mandate “ trap.” Under the individual mandate, every citizen must have “qualifying health coverage.” If these newly uninsured, low-income adults cannot obtain health insurance coverage, they will have to apply for a financial hardship exception or pay the appropriate penalty. In either event, these people will not obtain health insurance coverage.

What Does This Mean for Hospitals and Physicians?

Even though the costs of the Medicaid expansion are fully paid by the federal government for the first three years, it is unlikely that many of the 26 states that opposed the expansion would participate. Hospitals should consider that there might be another “donut hole” of uninsured consumers who do not qualify for Medicaid, who do not have replacement health insurance coverage and do not qualify for the insurance subsidy because they are below the poverty level.  The law assumed that the Medicaid expansion would cover these people. Therefore, the goal of universal healthcare still eludes the policy makers, and hospitals and physicians will once again have to bear the financial consequences of this part of the Court’s decision.

This Alert is one in a series of Alerts Duane Morris lawyers are writing on the Act. For more information on how the Supreme Court decision impacts employment, see our Alert titled "What Are the Implications for Employers of the Supreme Court Decision Upholding the Patient Protection and Affordable Care Act?" For more information on how this decision impacts health insurance issuers, see our Alert titled "U.S. Supreme Court Decision on Patient Protection and Affordable Care Act: Implications for Health Insurance Issuers."

On June 28, 2012, the United States Supreme Court upheld the Affordable Care Act’s (“ACA”) individual mandate in a long-anticipated decision on the constitutionality of the ACA.  The Court upheld the ACA’s individual mandate under Congress’ taxing power, and also held that the lawsuits challenging the ACA were not barred by the anti-injunction act.  The Court, however, found the ACA’s Medicaid expansion unconstitutional because it “threaten[ed] States with the loss of their existing Medicaid funding if they decline to comply with the expansion.”

The full slip opinion may be accessed here. 

On May 3, 2012, the Centers for Medicare and Medicaid Services (CMS) officially announced that it will delay data-collection and reporting requirements under the Patient Protection and Affordable Care Act’s (ACA) Physician Payments Sunshine Act (the “Sunshine Act”), due in part to the large number of comments received in response to CMS’s December 19, 2011, proposed rules. Data collection by CMS will not start until at least January 1, 2013. 

The Sunshine Act imposes two reporting requirements:
(1) Covered manufacturers must annually report payments or gifts to physicians or teaching hospitals; and
(2) Covered manufacturers and group purchasing organizations must annually report physician ownership and investment interests.

Although the Sunshine Act does not require report submissions until March 31, 2013, the first reporting period will cover payments made during fiscal year 2012. Thus, even though CMS will not promulgate final rules until later this year, covered manufacturers and group may want to create internal procedures to collect the necessary data as soon as possible. 

On April 12, 2012, the Centers for Medicare & Medicaid Services (“CMS”) released a final rule with comment period (“Final Rules”) implementing changes to the Medicare Advantage program and Medicare’s prescription drug benefit program, referred to as Medicare Parts C and D, respectively. Part C and D plan sponsors and other participants should carefully review the changes, particularly those related to increased transparency and exclusion from Parts C and D. The Final Rules are the latest effort by CMS to improve accountability, transparency, and effectiveness of the Medicare program. 

Included among these regulations are changes to the law under the Affordable Care Act (“ACA”). The Final Rules codify Medicare’s Coverage Gap Discount program, a program enacted in January 2011 through the ACA to eliminate the prescription drug coverage “donut hole.” They also implement section 6005 of the ACA, which requires Medicare Part D sponsors and other entities with pharmacy benefit managers to report certain information and also provides that such reports will remain confidential. Penalties will be imposed for failure to comply with the reporting requirements.

The Final Rules make several additional changes to Medicare Parts C and D including:

1. CMS’ adoption of the authority to exclude any plan sponsors who fail to achieve at least a 3-star rating for three consecutive years on CMS’ performance quality rating; 
2. Changing the Part D appeals process to allow prescribers to request a reconsideration on an enrollee’s behalf without first obtaining an appointed representative form;
3. Allowing dual eligible special needs plans that meet integration and performance standards to expand their supplemental benefit offerings to include benefits such as nonskilled nursing services, personal care services, or other long term care services where CMS finds that the benefit will improve integration of care for the dual eligible population;
4. Permitting Medicare Advantage plans to limit durable medical equipment to ‘‘preferred’’ brands and manufacturers so long as beneficiary access protections are in place including access to all preferred brands, a transition period during plan changes that allow enrollees to retain durable medical equipment, providing medical necessity exceptions to plan limitations and appeal rights for brand or manufacturer based denials, and full disclosure of plan limitations on durable medical equipment;
5. Application of a lower, pro-rated cost sharing when prescriptions are dispensed with less than a month’s supply where appropriate; and,
6. Requiring Part D sponsors to include an active and valid prescriber National Provider Identifier on prescription drug event records submitted to CMS.

Read CMS’ announcement on the changes here. 

On February 9, 2012, the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury jointly issued final regulations pursuant to the Affordable Care Act regarding plain-language health insurance plan descriptions. Health insurers will soon be required to present health plan benefits and coverage information in a clear, consistent and comparable manner.                

Starting on September 23, 2012, health insurers and group health plans will be required to provide two significant tools to help consumers navigate the health insurance market.  First, a Summary of Benefits Coverage (“SBC”) will outline key features of a plan, such as the covered benefits, cost-sharing provisions, and coverage limitations and exceptions.  The SBC will also include a standardized plan comparison chart, showing common procedures and the corresponding plan coverage.  The second tool, a Uniform Glossary, will explain terms commonly used in health insurance coverage, such as “deductible” and “co-payment”. Insurers must provide the SBC and Uniform Glossary at certain times during the enrollment process, such as when consumers are shopping for coverage, when coverage is renewed, when certain changes occur and upon request.  The Uniform Glossary will also be publicly accessible on government websites, granting consumers easier access to insurance information.   

To view the final rule, visit: http://ofr.gov/OFRUpload/OFRData/2012-03228_PI.pdf.

On December 20, 2011 the Supreme Court of the United States set the date to hear challenges to the health care reform law.  On March 26 – 28 the Court will hear five-and-a-half hours of oral argument on the several challenges to the Affordable Care Act that are currently pending before the Court.  The first day is reserved for oral argument on the federal anti-injunction act’s effect on commerce clause challenges to the Affordable Care Act, and on the second day the Court will hear the long-anticipated argument on the constitutionality of the Affordable Care Act’s individual mandate.  The final day is reserved for argument on the severability of the individual mandate and the constitutionality of the Medicaid expansion created through the Affordable Care Act.

The Centers for Medicare & Medicaid Services (CMS) issued its final rule today establishing the Affordable Care Act’s (ACA’s) Consumer Operated and Oriented Plan (CO-OP) program.  The CO-OP program was established to provide financial support, in the form of loans, for the creation of non-profit, private, consumer-governed health insurance companies that will be qualified to offer insurance plans through the ACA’s health insurance exchange markets.  As CMS described in the final rule, the goal of the CO-OP plans is to increase the number of plans that are focused on integrated care and plan accountability, as well as to increase competition and promote efficiencies, premium reductions, and improve enrollee services and benefits.  This final rule establishes a two-year time frame for CO-OP plans to transition to member-elected boards, clarifies that certain existing insurers are ineligible for funding, and sets forth the instances in which CO-OP plans may receive state or local government funding.  The final rule likewise describes the CO-OP’s obligation to remain compliant with state and federal standards for insurers.

Read the full text of the rule here. 

The Department of Health and Human Services (HHS) recently cited as “excessive” a 12% insurance rate increase proposed by Everest Insurance under a Pennsylvania insurance plan.   HHS’ finding that the rate increase was excessive was the first such move under the Affordable Care Act, which gives HHS the authority to review insurance rate increases over 10% and cite them as excessive.  Although the Affordable Care Act does not give HHS the authority to sanction insurers attempting to push through excessive rate increases, the hope is that publicizing the excessive rate increases will increase transparency and accountability.   

Read HHS’ full news release here. 

Recently the Centers for Medicare and Medicaid Services (“CMS”) announced new coverage under the Medicare program for preventive services for the reduction of cardiovascular disease.  CMS’ decision details that Medicare will now cover one-to-one cardiovascular disease risk reduction visits that may include three components: (1) encouraging aspirin use; (2) high blood pressure screening for adults 18 years or older, and (3) intensive behavioral counseling to encourage healthy diets. 

The new coverage is part of a joint initiative between CMS and the Centers for Disease Control, the Million Hearts Initiative.  Read more about the initiative here, and access CMS’ entire coverage decision here. 

In a highly anticipated decision, on November 14, 2011 the United States Supreme Court granted certiorari in three cases on the constitutionality of the Affordable Care Act (“ACA”): National Federation of Independent Business v. Kathleen Sebelius, Secretary of HHS, et al.; Florida, et al. v. Department of Health and Human Services; and Department of Health & Human Services et al. v. Florida, et al.  The Court’s review will address four fundamental questions: (1) whether the ACA’s individual mandate is constitutional, (2) whether the individual mandate may be severed from the ACA if it is unconstitutional, (3) whether the claim brought by the opponents to the mandate is barred by another federal statute, and (4) whether the ACA’s expansion to Medicaid coverage was valid.  The Court has granted a total of four and a half hours of oral argument for the three issues, which is highly unusual.  This decision will be monumental for the future of the ACA, and will be closely followed by Duane Morris attorneys. 

View the United States Supreme Court’s order here. 

On November 8, 2011, in the latest scrimmage regarding the Affordable Care Act’s (ACA’s) individual mandate, the D.C. Circuit Court of Appeals upheld the mandate’s constitutionality.  The Court found that Congress could create “national solutions to national problems, no matter how local–or seemingly passive–their individual origins,” and that the individual mandate was therefore constitutional because it was within Congress’ authority. 

On November 10, 2011, the United States Supreme Court will hold a private conference to decide whether to hear the challenges to the ACA.     

Read the entire decision here. 

On November 1, 2011, the Centers for Medicare and Medicaid Services (“CMS”) released the 2012 Physician Fee Schedule Final Rule with comment period (“Final Rule”).  Effective January 1, 2012, the Final Rule addresses several key components of physician reimbursement through Medicare including, to name a few, the new practice expense relative value units, changes to the adjustment of geographic practice cost indices, updates to the electronic health records incentive program, expanding the list of eligible services for telehealth services coverage, and reducing physician payments at physician wholly owned or hospital operated practices for hospital admissions occurring within 3 days of a physician service.

Importantly, the Final Rule also indicates that CMS anticipates a 27.4% cut in physician reimbursement payment rates for 2012, though in the past the CMS anticipated reductions have been ameliorated through legislation. 

Read the entire final rule here.  

On November 1, 2011, the Centers for Medicare and Medicaid Services (“CMS”) released the 2012 Hospital Outpatient Prospective Payment System Final Rule with comment period (“Final Rule”).  The Final Rule, effective January 1, 2012, addresses the 2012 hospital outpatient prospective payment system including payment policies, the process for physician-owned hospitals seeking an exemption on the prohibition on expansion, and changes to patient notification requirements. 

The Final Rule establishes two new processes.  First, the Final Rules establishes an independent technical review process for assignment of supervision levels to hospital outpatient therapeutic services.  The independent technical review process will be spearheaded by the existing ambulatory payment classification groups (APC Panel), which has been expanded to include critical access and small rural hospitals.  It will be designed to assign supervision levels other than direct supervision to hospital outpatient therapeutic services.   Second, the Final Rule establishes the process for physician owned hospitals seeking an exemption to the prohibition on expansion, which was created through the Affordable Care Act.  The final exemption process establishes that eligibility for an exemption will be based on the most recent year of data available, as well as the applicant’s satisfaction of additional requirements including, for example inpatient admissions and bed capacity.

Finally, the Final Rule modifies the notification requirements that are currently required if a doctor of medicine or osteopathy is not on site 24 hours a day/7 days a week, by reducing the categories of outpatients who must receive this notification to outpatients receiving observation services, surgery, or services involving anesthesia.  Likewise, hospitals must conspicuously post the patient notice if they have dedicated emergency departments at which a doctor of medicine or osteopathy is not present 24 hours a day/7 days a week.

Read the entire final rule here. 

Yesterday afternoon the Centers for Medicare & Medicaid Services (CMS) released the long anticipated final Accountable Care Organization (ACO) regulations, after considering the nearly 1200 comments submitted in response to the earlier proposed regulations.  ACOs, created under the Affordable Care Act, are a model of health care that focuses on collaboration between providers across a continuum of care including different health care settings.  The new regulations set forth the specifics for the program including payment mechanisms through which providers will be compensated for care provided through the integrated ACO model, as well as performance requirements for participating providers.  The first ACOs will start operating in 2012.  

Over the next few weeks, Duane Morris attorneys will be reviewing the final regulations and providing additional guidance to providers about the effect of the regulations. 

Read the full set of regulations here.