Today, morning oral arguments in the Supreme Court focused on the issue of “severability,” that is, if the Court decides that the individual mandate (the subject of Day Two oral arguments) is unconstitutional, can the rest of the Patient Protection and Affordable Care Act (ACA) survive?  Paul D. Clement, arguing on behalf of twenty-six states challenging the law, began by stating that if the individual mandate is unconstitutional, then none of the other provisions in the ACA should stand because the law would just be a “hollow shell.”  Citing congressional findings, he characterized the individual mandate, in combination with the community rating and guaranteed issue provisions, as the very heart of the law and argued that the better course would be for Congress to start over to craft an entirely new law rather than for the Court to give it the task of fixing the law without these provisions.

The Court then weighed in with a series of questions on whether their duty was to examine congressional intent or the actual text of the ACA to determine whether other parts of the law could still function if the individual mandate was found unconstitutional.  Mr. Clement argued that the objective test for the Court was, without the individual mandate, whether the law could operate in the manner that Congress intended, but Justice Sotomayor asked why shouldn’t the Court presume that Congress would want to sever these provisions and let the rest of the ACA stand.

Justices Ginsburg and Breyer pointed to other sections of the law, like the Indian Healthcare Improvement Act, or provisions for doctors and nurses to work in underserved areas, or health care for victims of Black Lung disease and asked why they should also be affected if the Court determined that the individual mandate was unconstitutional?  Chief Justice Roberts noted that many of these provisions were put in the bill because its backers needed votes for the overall legislation. 

Justice Kagan stated that although she could understand how the individual mandate, community rating, and guaranteed issue were all related, there was a dividing line between those provisions and other provisions in the law.  Mr. Clement argued, however, that other provisions in the law, including the operation of health insurance exchanges, hinged on the individual mandate. 

Justice Scalia asked more generally whether if any provision in a law, even some of the more obscure provisions, was found to be unconstitutional, would that always mean that an entire statute would fall?  He noted “[t]hat can’t be right.”  When Justice Alito asked what Mr. Clement’s fallback position would be if the Court declared the individual mandate unconstitutional, he replied that the Court could leave the hollowed-out shell of the law standing but that, at a certain point, the better course would be to give Congress a clean slate to begin again to address health reform.  

Edwin Kneedler, Deputy Solicitor General, argued for the government that there should be no need for the Court to even consider the issue of severability because the individual mandate is constitutional, but that if the Court were to conclude otherwise, it should keep other provisions in the law.  Justice Scalia appeared to agree that the other provisions had been legitimately enacted and should be allowed to stand.  However, when Justice Ginsburg asked Deputy General Kneedler whether the Court should “wreck” the whole law if the individual mandate was found to be unconstitutional or leave it to Congress to debate new legislation on that issue, Justice Scalia asked why it wouldn’t be better to have Congress reconsider the whole law.  He drew laughter when he asked whether the government expected the Court to go through the entire 2700 pages of the ACA item by item and decide which parts should stay and which should go.  Deputy General Kneedler responded that Justice Kagan’s point that the ACA creates a sharp dividing line between the individual mandate-related provisions and the rest of the law made sense.  Justice Scalia asked had the Court ever struck down the main purpose of a law and allowed the remainder to stay in effect and commented that this was really a case of first impression because he did not know of another case where the Court was confronted with a decision like this.

At the Court’s request, H. Bartow Farr, III argued that the individual mandate was severable from the rest of the law and that all other provisions, including community rating and guaranteed issue should survive if the individual mandate was struck down.   In that case, he stated that the ACA would not operate precisely as Congress intended but still would serve the central goals of the law. 

He called the individual mandate a “tool” to make community rating and guaranteed issue work, and said that there could be other incentives that could draw healthy young adults into the insurance market.  He argued that Congress would want other, unrelated provisions in ACA to stand.  In rebuttal, Mr. Clement stated that if the individual mandate is found unconstitutional, the rest of the ACA should fail.

Afternoon oral arguments centered on whether the ACA’s Medicaid expansion provisions (to cover adults with incomes up to 133 percent of the Federal Poverty Level) violated principles of federalism by coercing the states to participate.  Paul D. Clement, again arguing for the states that have challenged the law, argued that the Medicaid expansion provision was coercive, but Justice Kagan inquired how he could claim the provision was coercive when the federal government was picking up 90 to 100 percent of the cost of the expansion.  She asked “why is a big gift from the government a matter of coercion?”  Mr. Clement claimed that states would be coerced because if they did not accept federal funds to expand Medicaid, they risked losing federal funding for their entire Medicaid program, funding that they had been dependent on for over 45 years.  He also argued that the federal dollars to fund this provision came from federal tax dollars that then limited the states’ ability to increase taxes.

Justice Breyer focused on the statutory provision, in existence since 1965, that the states claim would allow the Secretary of the Department of Health and Human Services to deny Medicaid funds to states that did not expand their Medicaid population to this new group.  He pointed out that the Secretary, in fact, had the discretion to deny funds but that states certainly could bring an administrative law action against the Secretary should she deny Medicaid funds unreasonably because agencies are prohibited from acting in an arbitrary or capricious manner and cannot abuse their discretion in interpreting a statute.  Justice Scalia, however, stated that the provision itself is unreasonable.

Justice Ginsburg noted that while there are twenty-six states that believe this provision is coercive, the remainder of the states like the Medicaid expansion and are happy to have the federal funds.  Justice Scalia again drew laughter when he asked whether “there is any chance at all that twenty-six states opposing it have Republican governors and all of the other states supporting it have Democratic governors,” to which Mr. Clement responded, “[t]here’s a correlation, Justice Scalia.” Justice Ginsburg then stated that in the history of the Court, they had never had a federal program struck down because it was so good that it becomes coercive to be in it.

Chief Justice Ginsburg noted it is not surprising that the federal government would attach strings to funds it provides to the states.  Mr. Clement insisted, however, that it was purely coercive to condition the money.  Justice Kagan stated that the type of cooperative federalism that has characterized the relationship between the federal government and state Medicaid programs does not mean that there are no federal mandates or no federal restrictions, but rather that the federal government could have certain rules about how it spends its money.

Solicitor General Donald B. Verrilli, Jr. argued for the government that the Medicaid expansion is an exercise of Congress’ power under the Spending Clause and that the states were asking the Court to do something unprecedented, that is, to declare the Medicaid expansion provision as impermissibly coercive.  When pressed by Chief Justice Roberts though, he was not willing to say that the Secretary would never chose to exercise her discretion to withhold federal funds for a state’s Medicaid program if the state refused to comply with the expansion of Medicaid coverage to this newly eligible adult population.  Chief Justice Roberts then noted that as long as the federal government has the power to cut off funding, that is a significant intrusion on the sovereign interests of the state.  In rebuttal, Mr. Clement stated that the only way to cure this defect in ACA would be to allow the states to expand their Medicaid programs on a voluntary basis.

Today’s Supreme Court oral arguments centered on the Patient Protection and Affordable Care Act’s (ACA) “individual mandate” (also known as the “minimal coverage provision”), the requirement, beginning in 2014, for all Americans to either obtain health insurance or pay a penalty.  The question is whether Congress can use its authority under the Commerce Clause of the Constitution to regulate interstate commerce in order to enact such a requirement.

Solicitor General Donald B. Verrilli began by describing a U.S. health care system in which 40 million people are uninsured and the costs of their uncompensated care drive up health insurance costs for those who are insured.  He explained that Congress used its authority under the Commerce Clause to enact two key reforms to the insurance market, “guaranteed issue” and “community rating” (a position that none of the parties disputes), but that these reforms could not exist without Congress also creating a minimal coverage provision, thereby assuring that individuals would have insurance in advance of any actual need for health care services.  He argued that there is no temporal limit to the Commerce Clause, that everyone subject to the regulation is or will eventually be in the health care market and they are just being regulated in advance. 

Chief Justice Roberts and Justices Scalia and Breyer at once began to question whether Congress could create commerce where previously none existed in order to regulate it. General Verrilli responded that, rather than creating commerce, Congress actually was regulating existing economic activity – people’s participation in the health care market, where health insurance is a means of paying for health care. Justice Scalia insisted that the provision regulates health insurance, not health care.  Chief Justice Roberts expressed his concerns that if the Court accepted the principle that everyone was in the insurance market, he didn’t see why Congress’ power would be limited to only the method of payment

Justice Kennedy stated that this issue goes beyond what the Court’s cases have allowed and, because of that, the government has a heavy burden to show that the individual mandate is authorized under the Constitution.  He posed the question whether Congress could have chosen alternative means, for example, using its taxing authority to create a national health service. General Verrilli responded that Congress had chosen a tool that was reasonably adapted to the problem it confronted.  Justice Scalia and General Verrilli then engaged in a lengthy exchange in which Justice Scalia noted that while the provision might have been reasonable, it was not proper because the federal government’s powers are not unlimited.

While Justices Kagan, Ginsburg and Sotomayor repeatedly noted that requiring individuals to purchase insurance made sense because it diversifies the risk and eventually everyone will need health care, Justice Alito pointed out that healthy young adults would be forced to purchase health insurance that would result in them subsidizing services that would be received by everyone else. Justice Scalia said that young adults would purchase health insurance when they think they have a risk of incurring high medical costs, just as others do. Chief Justice Roberts noted that the minimum coverage provisions would require people to purchase insurance for services that they might never need, like pediatric or maternity services.

General Verrilli was asked to explain how the penalty for failure to obtain insurance was a “tax” and stated that because it is to be administered by the Internal Revenue Service, it is characterized as a tax.  When Justice Ginsburg pointed out that the previous day General Verrilli had argued that the penalty was not a tax, he replied that Congress clearly used its taxing authority to create the penalty provision. Justice Ginsburg held firm to her previously stated position that because the penalty would not generate revenue, but rather was designed to affect the purchase of health insurance, it is not a tax.

Paul D. Clement, the appellate attorney arguing for the respondents, stated that while the Commerce Clause gives Congress the power to regulate commerce, it does not give Congress the greater power to compel people to enter into commerce, to actually create commerce.  He explained that it is consistent with 220 years of the Court’s jurisprudence that regulating the point of sale (the purchase of health care services) is regulating commerce, but that Congress cannot force individuals to enter into commerce in the first place by requiring them to purchase health insurance.  He noted that Congress could have chosen an alternative mechanism, for example, tax credits for those who purchased insurance.  He also argued that the penalty is not a tax because it was neither labeled a tax in the ACA nor was it structured as a tax.

Michael A. Carvin, the appellate attorney arguing on behalf of an additional set of respondents, stated that Congress does not have the authority to promote commerce, only to regulate it once it exists.  In response to Justice Ginsburg’s comment that the only  way to assure that people could afford health care once they became sick was to have health insurance prior to the onset of an illness, he noted that the Commerce Clause does not give Congress the power “to regulate things that are statistically connected to things that negatively affect commerce.”  He also commented that Congress not only had compelled people to enter the insurance market, it also had prohibited anyone over age thirty from purchasing only catastrophic health insurance because the “subsidies” they provided were needed by others in the insurance pool.

The U.S. Supreme Court today heard the first of four sets of oral arguments challenging key provisions of the Patient Protection and Affordable Care Act (ACA) (Department of Health and Human Services, et al. v. Florida, et al.).  Today’s argument focused on an issue not challenged by either the government or the respondents.  At the Court’s request, appellate attorney Robert A. Long argued as an amicus that the federal Anti-Injunction Act (AIA), which dates from 1867, applies to ACA and, therefore, the Court is prevented from hearing a tax issue prior to the enforcement of the tax. The Act reads, in part, “…no suit for the purpose of restraining the assessment or collection of any tax may be maintained in any court by any person.”  Because ACA provides that these penalties will be collected “in the same manner as taxes,” Long argued that the penalties constitute a tax.  Lively questioning by eight of the nine Justices centered around two sets of issues:  (1) the jurisdictional issue of the power of the Court to hear the issue; and (2) whether the penalty starting with tax year 2014 for failure to become insured (the “individual mandate”) constitutes a “tax.”  

Justice Sotomayor commented on cases in which the Court either accepted waivers from the Solicitor General to reach a tax issue or where the Court read an exception to the AIA into a statute.  She stated, given that history, Congress has accepted “in the extraordinary case” that the Court would hear the case.  Justice Ginsburg noted that the AIA is suitor-directed not court-directed.

The Court then turned to whether the penalty constituted a tax for purposes of the AIA, with Justice Breyer noting that nowhere in the ACA did Congress use the word “tax” to refer to the penalty and that the penalty was attached to a health insurance requirement.  He further noted that just because a penalty would be collected in the same manner as a tax did not automatically make it a tax.  Justice Ginsburg stated that the penalty is not a revenue raising measure but rather is designed to induce compliance with the law.  Justice Kagan noted that Congress clearly specified sections of the law in which the AIA applied but did not do so with the penalty provisions.  

Respondents were represented by appellate attorney Gregory G. Katsas, who argued that the AIA did not apply because the purpose of the lawsuit was to challenge a legal requirement to buy health insurance and that requirement is not a tax. He noted that Congress had separated out mandate provisions from penalty provisions. Solicitor General Donald Verrilli, Jr. argued the government’s position that the AIA did not apply because the penalty is not a tax, to which Justice Alito commented “today you are arguing that the penalty is not a tax.  Tomorrow [when oral arguments will be heard on the constitutionality of the individual mandate] you are going to be back and you will be arguing that the penalty is a tax.”

Today, Politico published an article by Jonathan Allen that sets out exactly how the cuts will impact nondefense and defense spending. 

The Office of Management and Budget (OMB) will write a sequestration order that details the exact amount of the cuts to federal programs.  The report is expected in January.

Rep. Allyson Schwartz (D-PA) has proposed to repeal the SGR and freeze the current Medicare physician payment rates through 2012. She proposes to provide primary care physicians with a 2.5 percent annual rate increase and specialists with a 0.5 percent increase from 2013-2016. Her proposal calls on CMS to test and evaluate physician payment models and identify at least four models from which physicians could select to be paid beginning in 2016. If physicians elected to remain in the fee-for-service system, reimbursement rates would decrease annually to encourage providers to move away from the FFS system.

Later today, the President is expected to nominate Marilyn Tavenner to succeed CMS Administrator Donald Berwick when his recess appointment expires on December 31, 2011. Marilyn Tavenner currently serves as the Principal Deputy Administrator and Chief Operating Officer of CMS. She will serve as Acting Administrator of CMS during her confirmation process.

Marilyn Tavenner was Secretary of the Virginia Health and Human Resources Department during Governor Tim Kaine’s (D) administration from 2006-2010. Previously, she was a nurse and an executive at the Hospital Corporation of America. She was Chairwoman of the Virginia Hospital Association and a trustee at the American Hospital Association.

As Congress returned from the August recess, lawmakers and stakeholders geared up for the first public meeting of the Budget Control Act’s Super Committee meeting on September 8.  In preparation for the Committee’s work, the House Ways and Means Committee Democrats released a list of potential health care specific cuts that the Super Committee could consider.  The compiled list was an accumulation of pay-fors that have been offered in various deficit reduction plans.  The list totals more than $500 billion over 10 years and staff confirmed the offsets have not been officially endorsed by Members.  The list included mostly Medicare focused cuts, such as accelerated home health rebasing ($3 billion) and a new home health copay ($40 billion), post acute provider market basket freeze ($14-28 billion), increased SNF cost-sharing ($21.3 billion), elimination of the rural health hospital add-on payment ($62 billion), GME cuts ($15 billion), new cost-sharing for clinical lab services ($24 billion), new Part D rebate for dual eligible and LIS beneficiaries ($120 billion), increased cost-sharing on beneficiaries with Medigap coverage ($12-53 billion), raise Medicare eligibility age to 67 ($124 billion), freeze income thresholds for high income beneficiaries and raise premiums ($13 billion) and chained CPI ($7 billion).   In a jobs-focused speech to a Joint Session of Congress, President Obama called on the Super Committee to come up with additional cuts to pay for his newly proposed American Jobs Act, such as through “modest adjustments” to Medicare and Medicaid. 

As for committee action this past week, the Senate Appropriations Committee approved the Agriculture-FDA spending measure on Wednesday (HR 2112) and the Senate Health, Education, Labor and Pensions Committee advanced two health bills in a markup on Wednesday – reauthorization measures for graduate medical education at children’s hospitals (S 958) and autism research (S 1094).  Next week the Senate Committee on Health, Education, Labor and Pensions will hold a hearing on Wednesday, September 14 “Securing the Pharmaceutical Supply Chain” and the House Energy and Commerce Subcommittee on Health has scheduled a hearing on Thursday, September 15 titled, “Cutting the Red Tape: Saving Jobs from PPACA’s Harmful Regulations.”

The Obama Administration welcomed good news last week when a Virginia-based U.S. District Court of Appeals threw out two challenges to the health care reform law, the Affordable Care Act.  In a high profile case filed by the Commonwealth of Virginia by Attorney General Ken Cuccinelli, the court said that Virginia lacked standing to bring suit against the law.   The Attorney General filed the suit the day the Affordable Care Act was signed into law.  In the second case, filed by Liberty University of Lynchburg, Va., the appeals judges set aside a district court decision that the law is constitutional and ordered that the lawsuit be dismissed because the district court does not have jurisdiction to hear the challenge.  The Supreme Court is still likely to consider the constitutionality of the Affordable Care Act in the near future.

The Republican Governors Public Policy Committee issued a report in response to a request from House Energy and Commerce Committee Chairman Fred Upton that includes the following policy options for Medicaid reform:

• Repeal the Affordable Care Act and replace it with market-based reforms;
• Allow states to define an outcome-based program operating agreement with CMS (program would include a limited number of measures and eliminate federal review process for Medicaid programs);
• Enable states to measure accountability through measures of quality, cost, access and customer satisfaction;
• Repeal maintenance of effort requirements; Entrust the state with responsibility for program integrity;
• Require the federal government to assume the cost of uncompensated care for illegal aliens;
• Allow states to pilot programs to reduce the occurrence of cost-shifting between the state and federal programs;
• Permit a state (if it can demonstrate budget neutrality) to use state or local funds to pay for Medicaid services of system improvements that are not currently “matchable;”
• Encourage states to develop innovative programs to reduce chronic illnesses, emergency room visits, and hospitalizations;
• Provide states with the ability to implement bundling projects;
• Allow states to use only one managed care organization (rather than at least two as currently required by CMS);
• Amend ACA’s eligibility definition to reverse the use of MAGI;
• Allow states to contract with private firms to streamline eligibility determination;
• Provide states with flexibility to design benefit structures;
• Eliminate benefit mandates that exceed private insurance market benchmark or benchmark equivalent;
• Permit states to divide Medicaid into different parts; and
• Engage in shared savings arrangements for dual eligible beneficiaries.

The report will serve as the basis for the Committee’s Health Care Summit in Washington in October.

On August 12, the U.S. Court of Appeals for the 11^th Circuit Court ruled the individual mandate included in the Affordable Care Act unconstitutional.  In the decision, the judges explained that “the individual mandate contained in the act exceeds Congress’s enumerated commerce power.” 

The federal appellate court, however, overturned several key rulings made by Judge Roger Vinson in the Northern District of Florida in the case brought by 26 States, the National Federation of Independent Business, and two individuals.  Specifically, the 11^th Circuit Court judges found that the health care reform law could stand on its own without the individual mandate.  In addition, the court found that the Medicaid expansion is not unconstitutional.

The case heard before the 11^th Circuit Court is the first to be decided in appellate court and found unconstitutional.  Earlier this summer, an appellate court in Cincinnati found the law to be constitutional.  Challenges brought separately by the State of Virginia and Liberty University are still pending in appellate court.  The Supreme Court is expected to consider a challenge to the Affordable Care Act, but we do not expect the Court to issue a ruling prior to the 2012 election.   

In March, the Government Accountability Office (GAO) released a report examining alternatives to the individual mandate.  GAO found that mechanisms employed in Medicare Part B or Part D could be alternatives.  In Medicare Part B, the longer a senior waits to enroll, the higher the beneficiary’s monthly premium.  The report indicated that Congress could amend ACA so that uninsured individuals would pay a higher premium if they delayed purchasing insurance coverage.  GAO also noted that the government could limit the open enrollment period in the health insurance Exchanges to once every few years and require individuals who do not enroll in plans offered by the Exchanges to pay higher co-payments or deductibles. 

Sen. Ben Nelson (D-NE) and Sen. Claire McCaskill (D-MO) are considering introducing legislation that would provide an alternative to the individual mandate.  Rep. Peter DeFazio (D-OR) introduced the “Personal Responsibility in Health Care Insurance Act” (H.R. 767), which would require individuals who do not want to purchase health insurance to sign an “affidavit of personal responsibility” and would prohibit them from using the bankruptcy court to reduce their health-related debt.

Earlier this year, President Obama issued an Executive Order directing Department and Agency heads to submit a plan for retrospective review of regulations that may be obsolete or burdensome to businesses. Federal Departments submitted preliminary plans in the spring and just this week issued their final plans.

HHS’s plan notes that the goal of the retrospective review of the regulations is to improve patient care and outcomes and reduce system costs by removing obsolete or burdensome requirements.  The Centers for Medicare and Medicaid Services will publish a rule in September related to this regulatory review and estimates that the changes outlined in the plan will result in savings of $600 million annually and $3 billion over five years. 

HHS plans to revisit regulations a number of issues including the following:

• Use of telemedicine to increase access to improve the ability of rural and critical access hospitals to provide care more broadly and reduce provider burden by removing credentialing requirements;
• Increase use of electronic reports and submissions at the FDA and the Administration for Children and Families;
• Align reporting for electronic prescribing requirements and the EHR incentive program in Medicare;
• Improve pre-market review for medical devices;
• Reduce certain burdens imposed by the FDA’s medical device regulations;
• Continue to review the FDA’s Good Manufacturing Practices regulations for foods and drugs and establish preventive controls for food facilities, as well as accommodate advances in technology relating to pharmaceuticals;
• Revise and update labeling regulations for food and drugs at the FDA;
• Develop a CMS work plan to better align Medicare and Medicaid; and
• Review quality reporting requirements.