Washington Watch

Authors: Amita Sanghvi, Caitlyn Yana, and Sara Imhoff

Supreme Court Upholds ACA Subsidies

On June 25, 2015, the Supreme Court of the United States announced its decision to the latest challenge to the Patient Protection and Affordable Care Act (PPACA), King v. Burwell. The Court upheld the availability of tax credits to individuals purchasing insurance through federal exchanges thereby averting the potential loss of insurance to roughly 6.4 million citizens who may not otherwise have the appropriate financial resources necessary to maintain coverage.

Background

Under the PPACA, individuals who obtain insurance through an exchange may receive a tax credit to decrease the cost of insurance. Presently, thirteen states and the District of Columbia operate their own exchanges with three additional states recently gaining federal approval. The remaining 34 states are, by default, covered by a federal exchange. King v Burwell asked the Court to examine whether individuals who enroll in insurance plans through federal exchanges are eligible for tax credits.

Plaintiffs argued that tax credits provided to enrollees in the thirty-four states with federally-facilitated exchanges were invalid, citing Section 36B of the Internal Revenue Code, which provides for credits for individuals who enroll in “an Exchange established by the State.” They asserted that this language specifically limited the availability of tax credits to individuals enrolled in state-based exchanges therefore precluding such credits for those enrolled in federal exchanges. The Government disagreed, arguing that holistic interpretation of the PPACA indicates that Congress intended the tax credits to be available to all financially eligible individuals who enroll through an exchange, regardless of whether it is established by the state or the federal government.

Majority Opinion

In a 6-3 decision, the Supreme Court sided with the administration and held that the PPACA and corresponding regulations authorize tax credits for all financially eligible individuals who enroll in insurance plans through exchanges, regardless of whether those exchanges are established and operated by states or the federal government. Chief Justice John Roberts wrote the majority opinion, with Justices Kennedy, Ginsburg, Breyer, Sotomayer, and Kagan concurring.

The majority opinion consists of three major parts. The first part describes the PPACA as a function of three intertwined reforms: guaranteed issue and community rating requirements, the individual mandate to have health insurance (or pay a tax penalty), and tax credits for financially eligible individuals.

The second part of the majority opinion focuses on the key language in the case: the meaning of “an Exchange established by the State.” The opinion recognizes that the plain language appears to indicate that tax credits are only available for enrollees of state-exchanges. However, the opinion concludes that the plain language interpretation conflicts with other provisions in the statue, making the key language ambiguous. Noting that the meaning of certain phrases only becomes evident when placed in context, the opinion reviews the structure and congressional intent of the PPACA.

In the final part of the majority opinion, the Court reasons that the context and structure of the PPACA compels the conclusion that tax credits must be available for insurance purchased through any exchange and that a decision to the contrary would undermine the insurance market in states with federally-facilitated exchanges by disrupting the delicate balance of reforms established by PPACA.  Specifically, a decision to take away tax credit in states with federal exchanges would likely result in the collapse of the individual mandate, leaving older, sicker individuals in the exchanges, which would in turn have seriously impeded insurers ability to meet the guaranteed issue and community rating requirements of the law. Ultimately, the majority rejected the notion that Congress intended a result that would so seriously disrupt the insurance markets the PPACA sought to stabilize.

The Dissent

Justice Scalia dissented from the majority opinion, with Justices Thomas and Alito joining. The dissent forcefully disagrees with the majority’s interpretation of the statute. The dissent asserts that a plain language reading of the key language leads to the conclusion that tax credits should only be available in states that establish and operate exchanges.

Implications

The Court’s decision avoided serious consequences for the PPACA and the insurance market. A ruling for the Plaintiffs would have most likely resulted in the elimination of tax credits in the thirty-four states with federally-facilitated exchanges. The Kaiser Family Foundation estimates that without tax credits, 6.4 million people in those states would have lost coverage and premiums would have increased by an average 287 percent.

Enrollees in state-exchanges and others who obtained insurance outside the marketplace would not have been directly impacted by the invalidation of tax credits. However, many commentators believed that invalidation of tax credits would have disrupted the entire insurance market. The majority opinion refers to these consequences as an insurance market “death spiral” that could have vast financial and health consequences.

While this decision is significant, its scope is limited to the issue of tax credit availability. The PPACA has been controversial since its inception, and litigation over its various aspects will likely continue, including efforts to repeal the PPACA entirely.

CMS Releases New Medicare Physician Reimbursement Data

On June 1, 2015, the Centers for Medicare & Medicaid Services (CMS) released Medicare Part B fee-for-service payment data for individual physicians for 2013. This is the second annual release of physician fee-for-service payment data, which covers over 950,000 providers who collectively received over $90 billion in payments.  The released data includes physician names, the types and number of services performed, the average Medicare payment, the average Medicare-allowed amount, and the standard deviation for each payment metric. Responding to physician complaints after the release of 2012 data last year, CMS separated payments for medical services from payments for Part B administered drugs. For example, while hematologists and oncologists have some of the highest Medicare Part B payments, when physician-administered drugs are taken out of the calculation, these providers have some of the lowest payments among physician groups. Physician organizations have criticized the data because it does not provide the public with any information on quality of care and can be misinterpreted.

OIG Issues New Fraud Alert on Physician Compensation Arrangements

The U.S. Department of Health and Human Services Office of Inspector General (OIG) issued a fraud alert in early June warning that there is risk under both the anti-kickback law and the civil monetary penalty law to physicians who enter into compensation arrangements with hospitals that do not comply with federal fraud and abuse laws. The OIG recently reached settlements with twelve individual physicians who had entered into medical directorship agreements which potentially involved improper remuneration under the federal anti-kickback statute. The OIG challenged the agreements because they involved payments that took into account the physicians’ volume or value of referrals, did not reflect fair market value for the services performed, and the physicians did not actually provide the services called for under the agreements. Some of the physicians had also entered into office staff arrangements where an affiliated health care entity paid the salaries of the physicians’ front office staff. These arrangements relieved the physicians of a financial burden they otherwise would have incurred and thus constituted improper remuneration to the physicians. The OIG determined that the physicians were closely involved in the schemes and subject to liability under the Civil Monetary Penalties Law.