Adventures in Health Care Cost Cutting

Expect to keep hearing more talk about health care cost cutting, despite charts like this. It’s an idee fixe of the Wall Street/Washington corridor, and will only be implemented more vigorously over time.  So perhaps we should take stock of a few cost cutting initiatives. Medicare Part D, it seems, is coming way under its projected budget.  But maybe that’s because of ”a sharp fall in the number of breakthrough drugs,” a sign that innovation in pharma is stalling.  Cost cutting triumph, or logical outgrowth of a system that fails to reward actual contributions to health?

There’s also been a lot of pressure on skilled nursing facilities to hold the line on costs.  What are we getting in return? Here’s a summary from OIG:

Skilled nursing facilities (SNF) are required to develop a care plan for each beneficiary and provide services in accordance with the care plan, as well as to plan for each beneficiary’s discharge. . . For 37 percent of stays, SNFs did not develop care plans that met requirements or did not provide services in accordance with care plans. For 31 percent of stays, SNFs did not meet discharge planning requirements. . . . [R]eviewers found examples of poor quality care related to wound care, medication management, and therapy. These findings raise concerns about what Medicare is paying for. They also demonstrate that SNF oversight needs to be strengthened to ensure that SNFs perform appropriate care planning and discharge planning.

I’m sure the health care cost cutters will use this evidence to demand the SNFs be paid even less–rather than, say, investing real funding in proper training and pay in this vital service sector.  At some point, though, costs get cut so much that Medicaid will become little more than a meaningless plastic card, and “SNF” will stand for “Scarce Nursing Forever.”

This post first appeared on HealthLawProf Blog.

Tara Ragone in Modern Healthcare on potential impact of U.S. Supreme Court hospital antitrust decision

Research Fellow & Lecturer in Law Tara Ragone appeared in Modern Healthcare on the potential impact of a recent U.S. Supreme Court decision which found a hospital not exempt from antitrust scrutiny, despite its claim to be protected from such through “state action immunity doctrine,” which, according to Modern Healthcare, “gives states wide latitude to regulate competition.”

The Court’s decision was unanimous, citing the fact that although the hospital system in question, Phoebe Putney Health System, “operates public hospitals under a $1-a-year lease from the Albany-Dougherty Hospital Authority,” it did not dispute that its latest hospital acquisition would give it “control of 86% of  a six county market after the sale.” The Court, according to Modern Healthcare, ruled that Phoebe Putney’s financial relationship with the state was not sufficient to render its state action immunity defense tenable, and that “states must expressly grant antitrust immunity to local entities.”

The Modern Healthcare article notes, however, that the decision may also have impact on Medicaid ACOs under the ACA.

Modern Healthcare writes:

And it also could affect Medicaid ACOs. “The state action doctrine has been expanded, expanded, expanded to essentially immunize them,” [Matthew] Cantor said. “The Supreme Court is going to look a bit wary about stark anti-competitive behavior.”

But Tara Adams Ragone, a research fellow and lecturer at Seton Hall University School of Law who has written about how to structure Medicaid ACOs to avoid antitrust scrutiny, noted that the laws in New Jersey, New York, Oregon and Washington do state that they intend to authorize anti-competitive behavior.

“It doesn’t change things from my analysis,” she said about the Phoebe Putney decision. Yet she added that states may have to review statutes that don’t contain that explicit language.

The Phoebe Putney decision also doesn’t address the second prong of the state action doctrine, which requires states to actively oversee the anti-competitive behavior. “That’s where there’s a lot of work to be done,” she said.

Ragone and Cantor pointed out that it’s still unclear whether the FTC and U.S. Justice Department even intend to challenge ACOs as anti-competitive. A classic antitrust case involves entities colluding to fix prices—but the whole goal of an ACO is to reduce costs.

Read the full Modern Healthcare article, “Phoebe Putney dealt legal blow by Supreme Court.”

Professor John Jacobi in The Record on ‘How Medicaid expansion will help New Jerseyans’

Professor John Jacobi published a feature Op-ed in The Record, New Jersey’s most awarded newspaper, on the impact Governor Chris Christie’s decision to expand Medicaid under the ACA will have.

Professor Jacobi writes:

GOVERNOR CHRISTIE’S decision to expand Medicaid coverage to more residents will improve the health of many low-income New Jerseyans, and save the lives of some. In addition, the expansion dovetails with other reform efforts in the state, furthering implementation of innovative programs for the poor and vulnerable.

The governor’s announcement is great news for low-income individuals. The Rutgers Center for State Health Policy estimates that the expansion will lead to an enrollment increase of about 234,000 in NJ FamilyCare, which combines New Jersey’s Medicaid and Children’s Health Insurance Program.

The expansion addresses gaps in the current Medicaid system, under which many poor people were ineligible even if they had absolutely no income or assets.

The expansion will plug those gaps, allowing people to enroll so long as they are lawful residents with an income of no more than about $15,414 per year, which is about the gross income of a full-time minimum wage worker.

Health insurance coverage is important to personal health, and it is simply not true that all Americans have meaningful access to health care. As the Institute of Medicine of the National Academy of Sciences has found, people who have health insurance — including Medicaid — have better access to a regular source of health care. Those with no coverage, in contrast, are more likely to do without medically necessary care, particularly for chronic conditions, and to not fill prescriptions due to cost.

As a consequence, the uninsured are more likely to be in “fair” or “poor” health — and to die before their time. Medicaid expansion will keep people healthy and even save lives.

 

Read the full feature, “How Medicaid expansion will help New Jerseyans”

 

Mental Health Update: Expanding Services, But Limiting Access

As I mentioned here last month, government leaders are turning their attention to mental health issues — focusing on diagnosis and access to treatment, in particular — in the wake of the horrific shootings at Sandy Hook Elementary School in Newtown, Connecticut in December.  Even though it remains unclear whether or not the shooter suffered from any form of mental disorder, many leaders have argued that expanding treatment access for those suffering from mental disorders will prevent future tragedies.

As President Obama pledges to define the new mental health essential benefits under the Affordable Care Act (“ACA”), state leadership is also beginning to react.  Perhaps somewhat surprisingly, South Carolina Governor Nikki Haley (R) — the leader of the state that had cut mental health funding by nearly 40 percent from 2009 to 2012 (mentioned here) — is now leading the call to increase funding and services for those diagnosed with mental illness.

In addition to her proposal to increase funding for mental health services by $16 million in the summer of 2012, Haley has now called for an additional $11.3 million in funding for the South Carolina Department of Mental Health (“SCDMH”); in fact, her total proposed budget for the SCDMH in the 2013 budget is $17 million.  Haley has been particularly outspoken on the issue, noting that “[t]here is nothing wrong with someone who has a mental health issue….  There is something very wrong when that person doesn’t get treatment….  These are good productive citizens that deserve to live good, healthy life [sic].  And if given treatment they can be incredibly successful.  If not given treatment, we as a state have failed.”

She has argued that increasing funding for mental health treatment can prevent another tragedy like the one seen at Newtown.  Treating an increase in mental health funding as an alternative to implementing additional gun control or gun safety measures, Haley mentioned that “[n]o amount of gun control can stop someone from getting a gun when they want to get it.  What we can do is control mental health in a way that we treat people.”

Undoubtedly, the increase in funding is an abrupt policy change from South Carolina’s recent history.  From 2008 to 2012, the state was cutting funding to the South Carolina Department of Mental Health by an average of $70 million per year.

Ironically, however, Governor Haley is speaking during the exact same time that all states are deciding whether or not to expand their Medicaid programs under the ACA — which would affect many individuals’ access to mental health services.  Just earlier this week, Ohio Governor John Kasich (R) agreed to expand his state’s Medicaid program, while Pennsylvania Governor Tom Corbett (R) has decided to opt-out of the expansion.  Corbett’s refusal made Pennsylvania the eleventh state to decline to expand its Medicaid program.  And who else is staunchly opposed to expanding her state’s Medicaid program?

South Carolina Governor Nikki Haley.

This past summer, Governor Haley announced “via Facebook that South Carolina ‘will NOT expand Medicaid, or participate in any health exchanges’” (emphasis in original).  According to the Health Affairs Blog, South Carolina’s refusal to expand its Medicaid program would prevent more than 500,000 South Carolinians from being granted healthcare coverage.  In other words, if Haley had decided to expand her state’s Medicaid enrollment pursuant to the ACA, South Carolina’s Medicaid enrollment would increase from about 951,000 currently (which is nearly one in every five South Carolinians) to nearly 1.5 million in FY 2014.

Governor Haley’s recent positions create a situation in which the state is increasing funding for mental health service offerings in the state, but is refusing to expand coverage (paid for in whole by the federal government for three years) to many individuals who currently lack access to the services. Needless to say, positions taken on health policy issues cannot be examined in isolation.

Indeed, according to the Congressional Budget Office, if all states agreed to opt-in to the Medicaid expansion under the ACA, 13 million more Americans would have their mental health treatments covered by Medicaid.  However, given the policy positions like those of Governor Haley, this — unfortunately — remains highly unlikely.   Treatment offerings can increase, but if individuals do not have insurance coverage to pay for those services, access and receipt of those services is likely to remain largely elusive.

Recommended Reading: Recent Legal Scholarship on the Affordable Care Act’s Medicaid Expansion

As Frank Pasquale noted recently at the Health Law Prof Blog and here at HRW, law review scholarship is starting to emerge on the Supreme Court’s holding in National Federation of Independent Business v. Sebelius that the Patient Protection and Affordable Care Act’s expansion of the Medicaid program was an unconstitutionally coercive exercise of Congress’ Spending Clause authority.  Professor Pasquale recommends Plunging into Endless Difficulties: Medicaid and Coercion in the Healthcare Cases, an article co-authored by Nicole Huberfeld, Elizabeth Weeks Leonard & Kevin Outterson, writing that it is “sure to make an impact.”

Also well worth reading is Samuel R. Bagenstos’ article, The Anti-Leveraging Principle and the Spending Clause after NFIB, which is forthcoming in the Georgetown Law Journal.  Professor Bagenstos contends that Chief Justice Roberts’ opinion in NFIB is best read narrowly as setting forth a three-part test–which Professor Bagenstos terms the “anti-leveraging principle”–for determining whether a condition Congress places on participation in a joint federal-state program unconstitutionally coerces the states to participate.  To apply the anti-leveraging principle, one must first ask whether a condition on federal spending “change[s] the terms of participation in [an] entrenched cooperative program[.]”  The second question is whether the condition leaves a state without a real choice to decline the funds at issue because, for example, there is a “very large amount of money at stake[,]” as there was with the Medicaid expansion.  The third and final question is whether “Congress was using a state’s desire to continue to participate in a lucrative program as leverage to force the states also to participate in a separate and independent program.”  Only if the answer to all three questions is yes, Professor Bagenstos contends, should a court find that a spending condition is unconstitutionally coercive.

The final section of Professor Bagenstos’ article, in which he applies the anti-leveraging principle, is particularly interesting.  Professor Bagenstos analyzes, among other things, the Affordable Care Act’s Medicaid maintenance-of-effort requirement, which Maine Governor Paul LePage has challenged, the Clean Air Act, the No Child Left Behind Act, Mitt Romney’s education reform proposal, and Section 504 of the Rehabilitation Act, and concludes that the Clean Air Act, which requires states to comply with certain provisions on pain of losing federal highway funding, is particularly vulnerable post-NFIB.

Stepping away from the constitutional questions addressed by the Supreme Court in NFIB, Jessica L. Roberts’ article Health Law as Disability Rights Law, which is forthcoming in the Minnesota Law Review, views the Medicaid expansion and other changes the ACA makes through the lens of “the historical division between the health and civil rights paradigms within disability law.”  As Professor Roberts explains, in the 1970s and beyond, disability rights activists actively rejected the health paradigm as grounded in an outdated, medical model of disability that failed to recognize that the barriers to access that people with disabilities faced had a strong social component.  The civil rights paradigm has its limits, though.  Courts have been reluctant to apply civil rights legislation such as the Rehabilitation Act and the Americans with Disabilities Act to Medicaid and other public programs “in a manner that ensures health-care services for people with disabilities.”  In the landmark Supreme Court case Alexander v. Choate, for example, the Court found that a state Medicaid program’s fourteen-day limit on in-patient hospital care did not discriminate against people with disabilities.  In so doing, the Court “construed the benefit at stake as a ‘package of health care services,’ not adequate, equitable, or accessible health care.”  Professor Roberts argues that “the ACA’s changes to public health insurance hold the promise to eliminate those barriers previously experienced by people with disabilities and, consequently, to reduce existing health disparities.”  Thus, while the Medicaid expansion and certain of the Act’s other changes “fall under the health law umbrella substantively, insofar as they promote access and equality for people with disabilities, they make a civil rights law impact.”  Professor Roberts’ article is thoroughgoing and thoughtful; I highly recommend it.

Post-Federalism Medicaid?

Legal blogs have covered the Medicaid expansion in great detail. Now the law review scholarship is starting to emerge. Here’s one piece sure to make an impact: Nicole Huberfeld, Elizabeth Weeks Leonard, and Kevin Outterson on “Medicaid and Coercion in the Healthcare Cases.” From the abstract:

For the first time in its history, the Court held federal legislation based upon the spending power to be unconstitutionally coercive. Chief Justice Roberts’ plurality (joined for future voting purposes by the joint dissent) decided that the Medicaid expansion created by the ACA was a “new” program to which Congress could not attach the penalty of losing all Medicaid funding for refusing to participate. NFIB signals the Roberts Court’s interest in continuing the Federalism Revolution.

The Court relied on, seemingly modified, and strengthened at least two existing elements of the test for conditional spending articulated in South Dakota v. Dole. Clear notice and germaneness now appear to be folded into the newly fashioned yet undefined coercion doctrine, which relied on quantitative as well as qualitative analysis to determine that the Medicaid expansion was unconstitutionally coercive. The Court is now actively enforcing the Tenth Amendment to protect states from federal spending legislation. NFIB raises many questions regarding implementation of the Medicaid expansion as well as the ACA. The dockets will experience the reverberations of these open questions, as well as the Court’s invitation to explore the coercion doctrine.

For the near future, at least, the authors believe we are “plunged into Justice Cardozo’s ‘endless difficulties.’” For the long term, policymakers may want to take the advice of political science professor Andrea Louise Campbell:

[States are] ill suited to redistributive policy because they [have] an incentive to provide the lowest possible means-tested benefits in order to repel poor people and retain affluent taxpayers. The Great Recession also laid bare the devastating costs of the inability of nearly all states to run budget deficits and to engage in countercyclical spending during economic downturns. For many years, governors have urged the federal government to take on the portion of Medicaid that pays for nursing home stays for the disabled elderly.

Maybe now the time has come to federalize Medicaid altogether. Doing so would remove an enormous burden from state budgets and put an end to variations in state policy toward the poor that can have near-barbaric results. For example, in Texas, one of the states whose government plans to opt out, the working parents of Medicaid-eligible children can only get coverage for themselves if their income is below 26 percent of the federal poverty level. For a family of three, that’s $4,900 in annual income. Constitutionality is no barrier to federalization of Medicaid. The only question is whether it is politically feasible.

Huberfeld comes to a similar conclusion in another paper, arguing that “medicine generally and Medicaid specifically are already on the path to nationalization” and “Medicaid should be nationalized because federalism ideals are generally not served by the current structure.”

Medicaid Expansion: Winners and Losers

Governors and legislatures are keeping their options open as they mull over whether or not to expand their Medicaid programs.  Medicaid expansion was slated to be responsible for half of the realization of the Affordable Care Act’s promise to enroll 32 million currently uninsured people.  After NFIB v. Sebelius, that’s a harder lift, as the expansion can be regarded by the states as optional.  Some governors have promised to reject Medicaid expansion on federalism grounds, sometimes expressing themselves somewhat intemperately.  Others have raised pragmatic concerns, including the need to carefully assess the long-term budgetary effects, and questions about the value of Medicaid coverage.  Two recent publications add to the discussion.

The Congressional Budget Office on Tuesday issued estimates of the federal cost of the ACA in light of states’ possible refusal of Medicaid expansion.  The short takeaway is that the CBO projects that NFIB v. Sebelius will save the federal budget about $84 billion.  Why?  Because the CBO now projects that only one-third of the people newly eligible for Medicaid will reside in states that will fully accept the expansion, while one-half will live in states that strike a deal with the Secretary to only partially adopt the expansion (although the Secretary has not to this point indicated a path to that result), and one-sixth will live in states that reject the expansion in toto.  As the CBO points out, the federal budget savings are large because most of those denied Medicaid coverage in refusing states will not be eligible for federal subsidies in the exchanges — a point I’ve make several times on this site (see here, here,  and here).

In his excellent post on these issue on Balkinization,  Joey Fishkin points out that the real story isn’t the effect of state refusal on the federal budget, but on state and local budgets.  Fishkin argues that:

[T]there is a flip side to those federal savings.  In states that don’t expand Medicaid, there will be more uncompensated care.  Someone will have to pay for that: specifically, some combination of the state government, localities, and everyone in the state who pays insurance premiums.  The new CBO estimate thus underscores the fact that choosing to opt out of the Medicaid expansion entirely is, in fiscal terms, an extremely bad move for states and their people.

What about the value of Medicaid the poor people who get coverage?  Part of the push-back to Medicaid expansion has been the suggestion that the Medicaid system is dysfunctional and its extension is therefore unwarranted.  A group of researchers at the Harvard School of Public Health published a timely analysis in the New England Journal of Medicine on Wednesday providing some evidence that Medicaid coverage is, in fact, valuable to recipients.  The study examined the outcomes of Medicaid expansion to previously uncovered adult populations in three states, compared with the outcomes for similar populations in nearby states that did not expand Medicaid coverage.  The authors concluded,

Our study documents that large expansions of Medicaid eligibility in three states were associated with a significant decrease in mortality during a 5-year follow-up period, as compared with neighboring states without Medicaid expansions.  Mortality reductions were greatest among adults between the ages of 35 and 64 years, minorities, and residents of poor counties.

Correlation is not causation.  But this study provides some information suggesting that, when it comes to expanding Medicaid, the game is worth the candle.

Decisions regarding programs as large as Medicaid are properly reached after careful consideration.  Now, as governors and legislatures think through their Medicaid options, they have a bit more data to consider.  Refusing Medicaid expansion presents financial strains for state and local governments’ uncompensated care and safety-net financing, and may increase private insurance rates due to cost-shifting.  The decisions made by states and local governments under those circumstances may well cause dislocations for the safety net providers themselves, as they scramble for funds to make up for those they anticipated coming from increased Medicaid receipts.  And, as the Harvard study suggests, refusing states’ poor populations may face increased mortality, rendering a difficult financial decision one that is truly life and death.

Exiling the Poor from the Insurance Market

John Roberts’ jurisprudential wizardry in NFIB has been compared with the artistic genius of pro wrestlers and rappers. Poor Americans in states newly empowered to resist the ACA’s Medicaid expansion may need even more ingenuity to get themselves insured. Both Kevin Outterson and my colleague John Jacobi have observed the perplexing predicament imposed on the poor in states that keep Medicaid 1.0, and resist Medicaid 2.0. From Jacobi’s post:

The reform provides insurance subsidies through tax credits. The credits are calculated on a sliding scale, according to household level, for people with income up to 400% of FPL [the federal poverty line] — subsidizing more generously someone earning 200% of FPL, for example, than someone earning 350% of FPL. But, under 26 USC 36B(c)(1), credits will not be distributed to those with incomes below 100% of the FPL. Why? Because Congress assumed states would take up the Medicaid expansion, obviating the need for exchange-based subsidies for the very poor. . . .Bottom line: states rejecting Medicaid 2.0 will not only forego about 93% federal funding for the program between 2014 and 2022, but they could also be depriving the poorest of the uninsured from any shot at coverage — potentially affecting millions nation-wide.

Georgia hospitals are already worried about the “unexpected prospect of lower reimbursements without the expanded pool of patients” to be covered by the Medicaid expansion:

Last year, Georgia hospitals lost an estimated $1.5 billion caring for people without insurance. The promise of fewer uninsured is what led the national hospital industry to agree to the health law’s $155 billion in Medicare and Medicaid cuts over a 10 year period. The Medicaid curveball comes at a time when Georgia hospitals are already in the throes of a massive industry transformation to improve quality and efficiency driven by market forces as well as the new law. Hospitals face lower payments from insurers and pressures to consolidate. One in three Georgia hospitals lose money. All are busy preparing for new standards under the law that, if not met, could mean millions of dollars in penalties.

It’s hard to imagine how hospitals like Grady can continue to act as a safety net in that environment. The article notes that “Georgians already pay for the cost of care provided to people without insurance through higher hospital bills and inflated insurance premiums.” If that trend continues, all the states refusing Medicaid 2.0 may end up doing is shifting the cost of the Medicaid expansion population from national taxpayers to Georgians with insurance. The superwealthy Americans of Marin County and Manhattan ought to send Georgia Governor Nathan Deal a thank you note for keeping Georgians’ problems for Georgians themselves to solve.

Medicaid Donut Hole – Update #2: Professor Tyler Cowen gets it wrong in NYT

I didn’t think I’d be blogging on this again.  I’ve posted twice, here and here, on the trap the Supreme Court’s Medicaid decision created for the poor.  Briefly, NFIB v. Sebelius makes the ACA’s Medicaid expansion (“Medicaid 2.0″) optional with the states, allowing them to choose or reject the federal support for Medicaid expansion without facing any reduction in federal funding for original Medicaid.  The trap is the following: while it might seem that the poor single adults who were the beneficiaries of this expansion would, in states rejecting Medicaid 2.0, at least be eligible for the subsidies the ACA makes available for low-income purchasers of insurance through the Exchanges.  But no.  Under  26 USC 36B(c)(1), only persons at or above the federal poverty level qualify for the subsidies (because Congress assumed that the states would adopt Medicaid 2.0, and subsidies for the very poor were unnecessary in private markets).

Professor Tyler Cowen, writing in the Sunday New York Times business section, gets this point exactly wrong.  In a piece discussing the “tug of war” between the federal and state government, Cowen argues that states may have an incentive to turn down Medicaid 2.0 in order to shift the insurance costs for the poor to the feds.  After all, even with the very high level of federal funding for Medicaid 2.0, states will have some financial exposure.  Cowen says:

State officials know that limiting Medicaid will place more individuals in the new, subsidized health care exchanges, and that those bills will be paid by the federal government. The basic dynamic is that state and federal governments have opposite incentives as to how many people should be kept in Medicaid.

Wrong.  The fact is that all residents below the poverty level who are frozen out of Medicaid coverage in states that refuse Medicaid 2.0 are also ineligible for Exchange subsidies.  This mistake is significant; Cowen, suggests that states may be convinced to refuse Medicaid 2.0 (or perhaps not feels so bad about doing so) because they see an alternative source of coverage.  That error, if picked up by the many governors and legislatures now weighing  their options under the ACA, could lead to disastrous results.

The ACA raises charged issues between the Obama administration and the states.  It would be a shame if misinformation about the effects of a state refusal of federal funding for Medicaid 2.0 were to influence state decisions on Medicaid.

New Medicaid Donut Hole: Update

I recently wrote about the plight of poor adults in states that reject “Medicaid 2.0″ — that is, the expansions of Medicaid contained in the ACA.  Just to recap, the Supreme Court upheld the constitutionality of the expansions, but held that Medicaid’s historical power to enforce state uniformity — sanctioning states up to and including the withdrawal of some or all of their federal funding — could not be used to require states to adopt the ACA expansions.  Thus, Medicaid was conceptually split between Medicaid 1.0 (existing Medicaid) and Medicaid 2.0 (ACA expansion Medicaid), and a state could not lose Medicaid 1.0 funding if it declined to participate in Medicaid 2.0 funding.   Several governors have expressed the intent to refuse to participate in Medicaid 2.0.

My previous post highlighted Kevin Outterson’s observation of an under-appreciated effect of a state’s refusal to participate in Medicaid 2.0.  Of course, people living below the poverty level who were ineligible for Medicaid 1.0 will be shut out of Medicaid in refusing states.  But they’re also ineligible for any subsidies to purchase coverage under the exchanges.  Why?  Because Congress assumed that states would participate in Medicaid 2.0, and didn’t provide seemingly redundant subsidies.  These poor residents of refusing states will fall into a Medicaid donut hole — ineligible for Medicaid, but shut out of exchange-based subsidies.

Secretary Sebelius, in a letter dated July 10, implicitly acknowledged this problem.  After reiterating previous offers to work with states flexibly in health reform matters, and expressing hope that states would take up the federal funds available for Medicaid expansion, she addressed a donut hole question: would poor residents in refusing states be subject to a triple whammy of (1) no access to Medicaid; (2) no access to subsidies for coverage through the exchanges; and (3) penalties for not having qualifying coverage?  Sebelius couldn’t offer much on the first two — refusing states won’t offer Medicaid coverage to many of their poor residents who would be eligible for Medicaid 2.0, and subsidies are simply not available (for reasons I explained in my previous post) for persons living below poverty.  But on the third, she promised that the very poor uninsured would at least escape sanction for noncompliance with the ACA’s individual responsibility provision: Sebelius assured the governors that she would use her authority to provide a “hardship exemption” from penalties for these uninsured folks where needed.   That may be snow in January for these disenfranchised folks, but those seem to be the tools left to Sebelius.

The New Medicaid Donut Hole: Turning Down Medicaid 2.0

Now that Medicaid 2.0 is optional, what are the effects of a state’s accepting or rejecting the Affordable Care Act’s Medicaid expansion?  Much of the commentary, naturally, has discussed how many potential new Medicaid enrollees a state could add — or not — depending on whether it accepted “Medicaid 2.0,”  and how much it would cost a state to embrace the full expansion.   But states opting out of Medicaid expansion may be buying into a problem they haven’t considered: the Medicaid donut hole.  That new donut hole, created by the Court’s approval of private health insurance reform but mixed review of Medicaid expansion, could leave millions of single, very low income people out in the cold.

Many states are suggesting that they may turn down Medicaid 2.0 for budgetary reasons, even though the ACA places the lion’s share of the cost on the feds through 2022.  Surely, some states are making a calculation that they’d rather turn down the feds’ offer to pick up about 93% of the expansion’s cost through 2022,   because the remaining state costs in this economy are significant, and there remains uncertainty in the out years.

But wait — the Supreme Court upheld Title I of the ACA (the private insurance reforms); aren’t the folks excluded from Medicaid at least eligible for subsidies (made up of federal funds) through the exchanges?  Put another way, could a Medicaid-expansion-refusing state off-load to the feds the subsidy costs of their poorest single adults?   No.  That’s where the Medicaid donut hole comes in.

As Kevin Outterson has observed at The Incidental Economist, a state refusing Medicaid 2.0 could be creating a group of very poor residents unexpectedly excluded from any access to health insurance.  How is that possible?  Don’t the subsidies available through exchanges support private market insurance for low-income people?  Not if they’re very poor.  The simple fact is that people not covered by Medicaid 1.0 with income below 100% of the FPL are out of luck in states that reject Medicaid 2.0.

The reform provides insurance subsidies through tax credits.  The credits are calculated on a sliding scale, according to household level, for people with income up to 400% of FPL — subsidizing more generously someone earning 200% of FPL, for example, than someone earning 350% of FPL.  But, under 26 USC 36B(c)(1), credits will not be distributed to those with incomes below 100% of the FPL.  Why?  Because Congress assumed states would take up the Medicaid expansion, obviating the need for exchange-based subsidies for the very poor.

Bottom line:  states rejecting Medicaid 2.0 will not only forego about 93% federal funding for the program between 2014 and 2022, but they could also be depriving the poorest of the uninsured from any shot at coverage — potentially affecting millions nation-wide.  And with DSH funding decreasing, hospitals may have concerns if states voluntarily opt out of coverage for those likely to impose uncompensated care costs.  States, then, won’t be pushing costs to the feds– they’ll be denying available coverage to their own residents and making life difficult for their hospitals.

The Umpire Throws a Curveball

During his Senate confirmation hearings, John Roberts famously said that he would “call balls and strikes,” and not “pitch or bat.” It was a memorable promise of judicial modesty, but one that sometimes rang hollow after decisions like Citizens United. On Thursday, in a remarkable opinion that surprised almost everyone, Chief Justice Roberts joined the four liberal justices to uphold the individual mandate as a constitutional tax. Was this the modest umpire he promised us? Did he break ranks to preserve the Court’s reputation? (Note, Justices Breyer and Kagan also broke ranks on the Medicaid expansion question.) Was this Marburian or Machiavellian?

Either way, the Court’s opinions are full of curveballs. So I’d like to add to the chorus (cacophony?) of law professor post-game analysis and try to make sense of some of the fault lines and themes.

Death and taxes: The mandate as a tax snuck up on most of us. My favorite internet meme from yesterday was Admiral Ackbar’s warning: “It’s a tax!” Judge Posner on Slate.com astutely observed that legislators rarely call revenue provisions or anything else “taxes” anymore, because it has become a dirty word. President Obama still refused to say “tax” when addressing the Court’s decision. (Admiral Ackbar is not a cabinet member.) The Roberts majority held that the mandate was not a tax under the Anti-Injunction Act, but was a tax for constitutional purposes. The label Congress gave to the mandate (calling it a “penalty” rather than a “tax” in the Affordable Care Act) was helpful to the former but not the latter. Tax scholars, good luck with this one.

Inactivity: As many of us predicted, the Commerce Clause argument would rise or fall based on whether Kennedy Roberts bought into the action/inaction distinction, something that well-respected conservative jurists like Judge Silberman and Judge Sutton didn’t. In fact, Roberts bought the Congress-is-creating-not-regulating-commerce argument whole cloth (pp. 18-23). He and the conservative justices wrote about the uninsured like they exist in some sort of Precambrian pre-commerce period where they face zero risk of getting sick or injured and don’t free ride on the rest of us.

Justice Ginsburg’s opinion could not have been better on this point–her opinion is a realist tour de force on how health insurance really works. In the real world. She doesn’t bother with silly analogies. She even identifies some limiting principles: the free rider problem is significantly worse in health insurance than in other markets; the free rider problem is directly related to interstate commerce, and is not at all attenuated; there’s no problem with proximity. She obliterates the broccoli analogy (pp. 28-29 of her dissent). So much so that she even quotes Robert Bork (“Judges and lawyers live on the slippery slope of analogies; they are not supposed to ski to the bottom.”). It would take a remarkable (and probably imaginary) string of events and causal links for Congress to ever justify a vegetable mandate (luckily, my wife and I are not constrained by the Commerce Clause at home with our children).

What disappoints me about the joint dissent (by Alito, Kennedy, Scalia, and Thomas) is that it doesn’t seem to appreciate why health insurance is a unique problem of unique scale that requires unique solutions like mandates. How do you pretend that the uninsured are pre-commerce? How do you pretend a $2.5 trillion industry doesn’t exist? (Roberts at pp. 18-19). Is health care like Kaiser Soze? The uninsured cost each insured family about $1,000 per year in additional premiums. The uninsured consume $100 billion in health care each year. Over 60% of the uninsured visit a doctor or the ER every year. If this is what Precambrian pre-commerce looks like, it would be like single-celled creatures riding motorcycles and talking on cell phones. Luckily for the humans impacted by the Affordable Care Act, inaction shields us only from the Commerce Clause, not the Tax Clause. (Roberts, at p. 41).

Congress can create choices, but not coerce: It struck me that both the mandate and Medicaid expansion essentially boiled down to whether Congress is forcing individuals and states to do something or merely giving them choices. First, the mandate survived as a tax rather than a penalty because Roberts found that the amounts charged in section 5000A for going uninsured (the “shared responsibility payment”) were proportionate and weren’t coercive. On page 35 of his opinion, he notes that “for most Americans the amount due will be far less than the price of insurance, and by statute, it can never be more.” In footnote 8, he then notes that someone making $35,000 a year in 2016 would owe the IRS only $60 per month for going uninsured, which is less than the $400 a month it would cost to buy insurance. That’s a real choice and it’s not coercive. That little passage may have saved the entire Affordable Care Act, characterizing the mandate as a tax and not a penalty.

Likewise, Medicaid expansion boils down to the same issue– Is Congress coercing states and thus abusing its spending power, or do states have a real choice? The threat to withhold all Medicaid funding if states don’t expand along with the Affordable Care Act is coercive; but withholding new funds and preserving existing federal Medicaid funding isn’t– it’s “a genuine choice.” (Roberts, at p. 58). In the coming weeks, I look forward to discussing with colleagues what this means for all the joint federal-state programs we have. Does it mean Congress can giveth but not taketh away? Will this decision open the floodgates to litigation challenging federal spending conditions? Will Congress, as Justice Ginsburg argues, avoid amending these sprawling statutes and instead decide to repeal and reenact huge programs like Medicaid to avoid this issue? (Ginsburg, at p. 38) For my money, the conditional spending decision will affect many more ongoing and future laws than the Commerce Clause holding.

Weak dissent: Finally, Judge Posner also remarked on the surprisingly weak joint dissent by the conservative justices, which also struck me when I read it. We didn’t get Scalia’s customary fire-breathing screed. Indeed, Justice Ginsburg’s opinion reads like a genuine dissent, which might be a sign that Roberts changed his vote, as many are speculating.

In any case, the 193-page document will give law nerds like me a lot to chew on in the coming weeks, months, and years. The umpire certainly threw us a few curveballs.

Silver Linings for the Losers in the PPACA Rulings

There are many excellent commentaries on the Supreme Court’s rulings today. Pam Karlan offers a great summary of the opinions:
There were two issues– two big issues and then two minor issues– before the court . . . . The two big issues were: was the individual mandate constitutional, and was the expansion of Medicaid to cover a great deal many more people who are near the poverty line constitutional?

The two minor issues were: could the court hear the case at all at this point, and if there was any provision of the act that was unconstitutional, what happened to the rest of the act?

The bottom line was that the individual mandate is constitutional and the expansion of Medicaid to cover more people is constitutional, but–and this is an important but–states cannot have their existing Medicaid funds cut off if they decline to participate in the expansion of Medicaid to millions of additional people.

Here are some counterintuitive perspectives on those results, focusing on the “silver linings” for today’s losers:

1) Silver Linings for Mandate Opponents

Reviewing Roberts’ ruling, Gerard Magliocca has said, “The Chief Justice gave a pretty speech about federalism, but ultimately he did nothing about it.” Other commentators worry that the long term implications are more menacing for federal initiatives. Ezra Klein calls Roberts a “political genius:”

[T]he legal reasoning in his decision went far beyond the role of umpire. He made it a point to affirm the once-radical arguments that animated the conservative challenge to the legislation. But then he upheld it on a technicality. It’s as if an umpire tweaked the rules to favor his team in the future, but obscured the changes by calling a particular contest for the other side. “John Roberts is playing at a different game than the rest of us,” wrote Red State’s Erick Erickson. “We’re on poker. He’s on chess.”

On the other hand, games of chess may not come up very often in the future. Is a Democratic syzygy like that of 2008 likely to happen again in the next decade or so? If not, we’re unlikely to see another piece of social legislation with the scope and ambition of the ACA. As I mentioned to my health care finance class back in 2009-2010, legislative environments like that one were only around in the mid-1930s and mid-1960s (and perhaps evident in Nixon-era environmental lawmaking). Post-Citizens United, we may never see one again (barring constitution-level upheaval). But prediction need not be that portentous. As Tim Jost states:

Chief Justice Roberts’ ruling on the Commerce Clause argument is clear and decisive and entirely adopts the argument of the states and of legal scholars who have opposed the ACA. It lays down a principle that Congress cannot compel Americans to engage in commerce against their will. Millions of Americans will go to bed tonight safe in the knowledge that Congress will never make them eat broccoli. But it is hard to think of any other examples where Congress would ever assert its Commerce clause authority to require the purchase of a private product. This is really a unique situation.

So the mandate’s opponents have achieved a new “gestalt,” but it’s unclear where the energy generated by such a shift will be directed.

2) Silver Linings for Medicaid Expanders

Andrew Koppelman is worried that red states will effectively cut off their nose to spite their face by turning down Medicaid expansion money:

From 2014 to 2016, the federal government will pay 100 percent of the costs. Then its share decreases, to 90 percent after 2020. Because the ACA also gives states assistance with their new administrative costs, overall state spending will actually be lowered. In the litigation, however, 26 states claimed — and Roberts agreed — that this conditional spending unconstitutionally coerced them. But let’s be clear: This is not about the states wanting to conserve their own money. It is about the states refusing to spend federal money, to help people that they do not want to help. (Paul Clement, the attorney for the challenging states, declared in oral argument that his position would not change if the federal government permanently paid 100 percent of the costs.)

It is likely that many of these 26 states . . . will now accept Roberts’ invitation to refuse the additional Medicaid funds. The people in those states who do all the menial jobs on which everyone else depends won’t get the medical care they need after all, because the temptation to trash Obamacare will be irresistible.

I’ve had a few reporters ask me about that possibility today, and the complementary worry that only insurance purchases at state exchanges (which are unlikely to be set up by red states) can be supported by premium tax credits. It’s possible that double-whammy will leave many of the uninsured just as badly off as they were before the ACA. But other commentators disagree about how red states will respond when the rubber hits the road. One of the leading national experts on health care federalism, Nicole Huberfeld, has said that she “would be surprised if many, if any, states opt out.” Tim Greaney offers these insights:

Should those states calling most loudly for repeal/overrule of the ACA now be true to their convictions and walk away from Medicaid expansion? To do so would be a remarkable triumph of ideology over their constituents’ public interest and economic interest. They would be abandoning a large segment of their most needy citizens AND leaving a lot of money on the table . . . All in all its a nice way of putting the ball in the court of the critics and framing the issue pretty starkly: do you want to participate in the shared national responsibility to take care of the less fortunate or is your State willing to leave a sizable segment of its citizens exposed to the dire consequences of being uninsured?

Astonishingly enough, it appears that four justices are committed to exactly that cruel course. But for today at least, the “rhetoric of reaction” did not carry the day.

originally posted on Concurring Opinions; photo credit, Kjetil Ree.

The ACA, Medicaid, Politics and a Tone of Civility from the Court?

Two things strike me at the outset:

First, the Medicaid “coercion” decision should initiate an interesting political debate.  Should those states calling most loudly for repeal/overrule of  the ACA now be true to their convictions and walk away from Medicaid expansion?  To do so would be a remarkable triumph of ideology over their constituents’ public interest and economic interest. They would be abandoning a large segment of their most needy citizens AND leaving a lot of money on the table (the Federal government will pick up 90% of the cost of the newly enrolled and give other benefits to the states).

The States standing to benefit the most from Medicaid expansion  are by and large red states, so the political dynamic will be interesting. As an aside, I’d note the willingness of the Congressional representatives from many of the poorest states to ignore a generous federal subsidy for their indigent citizens by voting against the ACA is a tribute to the gerrymandering that distorts congressional districts and to the influence of our distorted campaign financing laws. Federal subsidies aside, there may be considerable savings to State employee insurance and  private insurance as the cost shifting from care to the poor is reduced. (Zeke Emanuel says that California is expected to save $2 billion as a result of Medicaid expansion).  All in all its a nice way of putting the ball in the court of the critics and framing the issue pretty starkly:  do you want to participate in the shared national responsibility to take care of the less fortunate or is your State willing to leave a sizable segment of its citizens exposed to the dire consequences of being uninsured?

Second, the tone of the opinions was surprisingly moderate.  One wonders whether the remarkably vituperative talk about the ACA in the Presidential primaries and on the Hill caused the dissenters to temper the language of their opinions.  Perhaps the biggest surprise to me over the last two years has been the ability of opponents to generate enormous anger over the ACA.  Removing the “rights” element from the debate might at least calm the waters a bit.

Rigid, Severe Penalties of FCAs On Full Display

News of the $1.2 billion verdict against Johnson & Johnson and its subsidiary Janssen Pharmaceuticals Inc. for their roles in marketing Risperdal during the middle of last decade sent reverberations through the industry earlier this week.  The award resolved Arkansas’ claims that the companies fraudulently marketed the “second generation” antipsychotic, misleading doctors and deceiving the state’s Medicaid program into paying for 239,000 prescriptions of the drug.  Specifically, the state claimed the companies minimized Risperdal’s dangerous side effects by not disclosing the risks on its label, marketed the drug for unapproved uses, and characterized it as more effective than competitors’ drugs.

After the jury found that the companies had misled doctors about the risks associated with Risperdal, Judge Tim Fox awarded $11 million for the violation of the state deceptive trade practices act. Further, Judge Fox turned to the Arkansas’ False Claims Act (FCA) – which carries a minimum $5,000 civil penalty for each violation of the Act (the federal FCA requires a minimum civil penalty of $5,500) – and applied Arkansas’ statutory penalty to the 239,000 prescriptions of Risperdal paid for by Arkansas Medicaid between 2002 and 2006, totaling $1.195 billion in damages.  According to Janssen, the state paid only $8.1 million for Risperdal during the 3½ year time period, which amounts to less than 1% of the damages amount.  The companies plan to appeal.

Arkansas adds itself to a growing list of states taking legal action relating to Risperdal’s marketing – trials in Louisiana and South Carolina have already resulted in damage awards of $258 million and $327 million, respectively.  Earlier this year, the state of Texas settled its allegations for $158 million.  And the federal government is also pursuing the companies, reportedly seeking between $1.3 and $1.8 billion to resolve its claims.

The Arkansas award provides an opportunity to engage in serious “Monday morning quarterbacking” as to why the companies did not settle the case, with a settlement estimate perhaps as low as $30 million.  In addition to providing an opportunity to second-guess the trial strategy, the court’s award also places the mandatory and stark penalties of state and the federal FCAs – blunt, severe governmental tools – into public discussion.  Due to the statutes’ structures, the damages amounts often far exceed the amounts of monetary damages the government initially suffers.  Further, as in federal fraud recoveries, the award amount does not go to those who may have been personally harmed by the Risperdal marketing tactics (notably, however, at trial, the state failed to show any patient harm, according to Janssen).  Instead, the recovery goes into the Arkansas Medicaid program (which, as pointed out by the Associated Press, is facing a $400 million shortfall for 2013).

The huge damage amount required by the federal FCA prompted one court in a widely publicized non-health-related fraud case in February to refuse rewarding any damages after finding FCA liability.  See U.S. ex rel. Bunk v. Birkart Globistics GMBH & Co., 2012 WL 488256 (E.D. Va. Feb. 14, 2012).  In Bunk, qui tam relators had brought a lawsuit (in which the government eventually partially intervened) alleging that bidders to a contract with the U.S. military had engaged in price collusion.  After the bidder had certified to the government they had independently arrived at their prices and denied collusion, the parties entered into a contract relating to transporting goods belonging to U.S. military members and their families.  Once relators found that the bidders had in fact colluded in setting the price, they brought suit.  The court found the defendants liable under the federal FCA, and proceeded to determine damages.

The defendants had filed 9,136 invoices under the contract, mandating damages under the FCA of at least $50 million (at least $5,500 per violation).  However, the court concluded that the prices under the contract – even if not independently reached – were fair and reasonable.  Further, the court found that the government was not financially harmed, and as such, the statutory penalty constituted an excessive penalty under the Eighth Amendment.  After finding that it lacked discretion to reduce the statutory penalty, the court refused to award any damages to the relators.

Both cases demonstrate the seriousness and rigidity mandated by both the federal and Arkansas FCAs.  Where the Risperdal settlement is staggering in its amount, the Bunk court’s failure to impose any damages is equally stunning.  As the government continues to rely on big FCA penalties to combat and deter healthcare fraud, defendants are incentivized to settle before trial, and more courts may be forced into a Bunk-like analysis.

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