Halbig and the ACA’s Peculiar Legislative History

By Jeremy Kreisberg

Professors Nicholas Bagley and Jonathan Adler had a very interesting discussion on Halbig v. Sebelius — the case challenging the legality of offering premium tax credits through federally facilitated exchanges (about which I have written previously here and here) — in a recent Federalist Society Podcast.  One particularly intriguing question that emerged concerned the peculiar legislative history of the ACA, and what role that should play in how courts read the text of the law.

As Professor Abbe Gluck has summarized well, the text of the ACA features some sloppy drafting errors, largely due to the manner in which the bill became law:

[T]he ACA is a very badly drafted statute.  And it’s badly drafted for a simple reason that turns out to be important to understanding how the pending litigation should be resolved:  Because Senator Ted Kennedy died in the middle of the legislative process and was replaced by Republican Scott Brown, the statute never went through the usual legislative process, including the usual legislative clean-up process. Instead, because the Democrats lost their 60th filibuster-preventing vote, the version that had passed the Senate before Brown took office, which everyone initially had thought would be a mere first salvo, had to effectively serve as the final version, unchangeable by the House, because nothing else could get through the Senate.  In the end, the statute was synthesized across both chambers by an alternative process, called “reconciliation,” which allows for only limited changes but avoids a filibuster under Congress’s rules.

I think it’s fairly clear that the D.C. Circuit in Halbig (and the 4th Circuit in King) are encountering one such sloppy drafting error.  Without any meaningful legislative history suggesting that tax credits would be denied to citizens in states with a federally facilitated exchange, the ACA authorizes tax credits for individuals purchasing insurance on an “Exchange established by the State.”  While the provision of the law instructing HHS to create federally facilitated changes requires the Secretary to “establish and operate such Exchange within the State” (i.e., the state exchange), the challengers argue that the words “established by the State” in the tax-credit provision preclude an interpretation of the law that allows for tax credits to flow through federal exchanges as well.

The reason I call this “sloppy drafting” rather than a purposeful command is that, aside from the striking lack of historical support for an interpretation denying tax credits on federally facilitated exchanges, this interpretation would be nonsensical when read into the law as a whole.  To take only one of many examples, section 1312 of the ACA defines qualified individuals (i.e. those people who can purchase health insurance through an exchange) as individuals “who . . . resides in the State that established the Exchange.”  If “established” holds the exclusive meaning that the challengers in Halbig say it does, there could never be a qualified individual in the states with federally facilitated exchanges because the State didn’t “establish the Exchange” in the State in which these individuals reside.  In other words, nobody could purchase insurance through a federally facilitated exchange because nobody would be qualified.  This would leave the federally facilitated exchanges with no purpose.  As Judge Friedman found in federal district court, conventional canons of statutory interpretation should preclude such an absurd reading of the law.

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NEJM Features Discussion of ACA Delays

By Jeremy Kreisberg

The New England Journal of Medicine features two excellent articles discussing the legality of the Obama administration’s various delays of provisions of the ACA.  Unlike a great deal of the debate over this issue, these articles are nuanced and measured, and I highly recommend them.

Nicholas Bagley, a Professor at the University of Michigan Law School (and the author of a terrific new article in the Harvard Law Review), contends that the delays “appear to exceed the traditional scope of the President’s enforcement discretion.”  He distinguishes the ACA delays from traditional enforcement discretion, such as the discretion to allocate resources in a sensible manner, in part because the ACA delays were made public and therefore served the purpose of encouraging regulated parties to violate statutory requirements.  While Bagley admits that the administration has some support for its delay of the employer mandate in the IRS’s longstanding practice of affording “transition relief” to taxpayers from newly imposed taxes, he notes that transition relief has typically been brief and covered taxes of “marginal importance.”  Finally, Bagley argues that the Obama administration’s ACA delays set a “troubling precedent” for future administrations that may be hostile to the law and desire to use similar levels of “enforcement discretion” to decline to enforce portions of the ACA that are “essential to the proper functioning of the law.”

Timothy Jost, a Professor at Washington and Lee University School of Law, and Simon Lazarus, Senior Counsel at the Constitutional Accountability Center, argue that the ACA delays are not refusals to enforce the law, but rather are unexceptional timing adjustments that Democratic and Republican administrations have historically used when implementing new, complex regulatory schemes.  For recent precedent from the Republican Party, Jost and Lazarus point to the George W. Bush administration’s decisions to delay or limit enforcement of various provisions of the 2003 Medicare Modernization Act.  And while they find no legal issues with the ACA delays as a matter of administrative law under Heckler v. Chaney or constitutional law under the Take Care Clause, they are careful to distinguish the plans of 2012 Republican candidate Mitt Romney to suspend enforcement of (at least certain parts of) the ACA.  Those plans, they write, “would have been the kind of diktat that King George III had imposed on the pre-Revolution colonies and that the framers of the Constitution were intent on denying to the new American presidency.”

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Pivotal Politics and the Extension of Canceled Insurance Policies

By Jeremy Kreisberg

I think it is fair to say that the conventional wisdom surrounding the administration’s decision to temporarily allow insurance companies to continue selling plans that do not meet the minimum standards established by the ACA to its existing beneficiaries (a.k.a., the “like it / keep it” fix) is that this decision was primarily motivated by political pressures.

Perhaps the conventional wisdom here is at least partially right.  But I want to develop an additional explanation that has lurked within the news coverage — one that sounds in policy and legislative strategy (and happens to be related to a paper I’m currently writing).  In short, I think it’s feasible to explain the administration’s fix as a policy that was designed to forestall an unpalatable legislative proposal that, in the president’s eyes, would have had adverse consequences for the ACA.  As one might imagine, this basic strategy of using administrative leeway to preempt undesirable legislation is not novel.  In fact, after the jump, I’ll recount how it was used by President Reagan to the same effect.  But the larger point I want to make here is that, while some policy analysts have criticized the administrative fix due to the complications it creates for the law, when viewed in light of the alternative legislation it may have replaced, the administrative fix might be viewed as a sounder policy than we would otherwise think.

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Ryan White, Third-Party Payments, and Discrimination

By Jeremy Kreisberg

In November of 2013, CMS became concerned that hospitals and other providers might help their patients purchase insurance by contributing to their premium payments or cost-sharing obligations.  The motivation for providers was clear: if the amount they could expect to receive from an uninsured patient (likely very little, if anything) was less than the difference between the reimbursements from an insurer and the contribution the provider made to the patient’s insurance payments, it would be profitable for providers to contribute.  CMS’s concern was also clear: if hospitals began paying for their patients’ insurance, they would likely be cherry-picking the sickest patients with the highest expected reimbursements, which would skew the risk pool for all consumers.  So CMS issued a guidance discouraging insurers from accepting those third-party payments from providers.

What CMS did not say was that insurers should stop accepting all third-party payments.  This was a point that CMS has had to clarify in light of the decision by several insurers in Louisiana–including BlueCross BlueShield of Louisiana (BCBS-LA), the largest insurer in the state–to refuse third-party payments from anyone (aside from immediate family members/blood relatives or legal guardians).  Importantly, this includes the government, which provides grants through the Ryan White Program to low-income citizens with HIV/AIDS.  The motivation for insurers is clear: they don’t want to have to continue paying for expensive medical care required by people with HIV/AIDS.  But this desire runs directly contrary to the government’s intention to help provide insurance coverage through Ryan White grants to people with HIV/AIDS who could not otherwise afford it.

After the jump, I’ll discuss the Louisiana insurers’ response to CMS’s clarification:

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Halbig and the Stability of the ACA

By Jeremy Kreisberg

I have previously blogged about an important case — Halbig v. Sebelius — before the U.S. District Court for the District of Columbia (DDC).  The case concerned whether the Affordable Care Act permits the IRS to issue tax credits to individuals purchasing insurance through federally facilitated exchanges.  In short, the challengers argued that because section 1401 of the ACA calculates tax credits only for individuals purchasing insurance through “an Exchange established by the State,” individuals purchasing insurance through an exchange established by the federal government cannot receive such tax credits.

Yesterday, DDC sharply rejected this argument, finding that the ACA — read as a coherent whole — requires the IRS to issue tax credits to individuals purchasing insurance through either a state or a federal exchange.  Needless to say, this case represents a triumph for the government.  For now (cases on the same issue are still pending in other districts, and this opinion will almost certainly be appealed to the D.C. Circuit), the government has dodged today’s biggest threat to the vitality of the ACA.

The substance of the case was summarized well by Professor Bagley over at the Incidental Economist.  So rather than dwell on the (very persuasive) reasoning of the court, I want to focus on one important doctrinal move in the case (after the jump):

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Recommended Reading: “A First Amendment Approach to Generic Drug Manufacturer Tort Liability”

By Jeremy Kreisberg

The November 2013 issue of the Yale Law Journal features a very interesting comment on an important issue at the intersection of health law and policy.  A First Amendment Approach to Generic Drug Manufacturing, by Connor Sullivan, argues that the First Amendment principles underlying the Supreme Court’s opinion in Sorrell v. IMS Health Inc. provide a viable legal avenue for challenging the FDA regulations that prevent generic drug manufacturers from sending letters warning physicians of the risks of their drugs.

These FDA regulations became a source of legal controversy when the Supreme Court heard PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011), a case concerning whether the FDA’s requirement that generic drug manufacturers use the same labels as brand name manufacturers preempts state tort laws that allow injured parties to challenge the sufficiency of a generic manufacturer’s warnings.  The Court held that the FDA requirements did pre-empt state tort law on the theory that a generic drug manufacturer could not comply with both the FDA labeling requirements and state tort law at the same time because state tort law might require different, greater warnings than the brand name manufacturer of that same drug used.  The Court noted the unfortunate inconsistency that had befallen the plaintiffs in the case; had they taken the brand name drug, they could challenge the labeling requirements of the brand name manufacturer, which has the flexibility under federal law to change their labeling scheme.  But because the plaintiffs took the generic version of the same drug, their suit was foreclosed.

We might intuitively assume that these plaintiffs could simply sue the brand name manufacturer; after all, it is their poor labeling scheme that the plaintiffs were challenging by noting the deficiencies in the generic manufacturer’s similar label.  But the law is not so wise.  After many attempts and subsequent failures to convince a court of such an argument, the law has virtually foreclosed any mechanism for an injured party to recover from a brand name manufacturer for the labeling deficiencies that are passed onto a generic manufacturer.  Indeed, Sullivan cites to Gardley-Starks v. Pfizer, Inc., 917 F. Supp. 2d 597, 604 n.4 (N.D. Miss. 2013), which noted that “sixty-six decisions applying the law of twenty-three different jurisdictions [have held] that brand name manufacturers of a drug may not be held liable under any theory for injuries caused by the use of a generic manufacturer’s product.”

In sum, the combination of FDA rules and a Supreme Court pre-emption decision has created a real inconsistency in how people experience the tort laws as applied to their drug manufacturers.  After the jump, I’ll explain Sullivan’s idea for solving this problem.

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UPDATED: Applying NFIB v. Sebelius in the Federal Circuits: Analysis of the Case Law

By Jeremy Kreisberg

More than one year has passed since the Supreme Court decided NFIB v. Sebelius, the major case concerning the constitutionality of the individual mandate and Medicaid expansion.  As you might remember, the Supreme Court upheld the individual mandate as a valid exercise of Congress’s taxing power, but Chief Justice Roberts and the four Justices in the joint dissent wrote that Congress did not have the power under the Commerce Clause to compel individuals to enter the health insurance market. Importantly, the Court drew a distinction between activity and inactivity, finding that Congress could not regulate the latter.  Some argued that this decision may have wide implications for other regulatory efforts by Congress.

Unsurprisingly, it did not take long for litigants to begin using the Court’s Commerce Clause analysis in an attempt to invalidate other federal statutes.  I undertook a review of federal circuit cases that have applied (not merely cited) NFIB‘s Commerce Clause analysis to determine how these litigants have fared.  After the jump, I have categorized the cases I found into those discussing the validity of criminal statutes and those discussing the validity of federal regulations on states (please let me know in the comments section if I missed some).  The main takeaway from my review is that, as of today, no circuit court has used NFIB as its justification for striking down a statute under the Commerce Clause.

But before I get there, I should note from the outset that it is not clear whether the Court’s “decision” on the Commerce Clause is binding on future courts.  David Post at the Volokh Conspiracy has a rather compelling take on why the Court did not need to reach the Commerce Clause issue, and thus that portion of the decision should be viewed as mere dicta.  Of course, Chief Justice Roberts insisted that the Commerce Clause portion of his opinion was necessary because that the most natural read of the statute did not lend itself to review under the Taxing Power, and only after deciding the Commerce Clause issue was he willing to construe the statute otherwise.  Post responds to that argument here.  On my review of the federal circuit cases, no circuit has actually reached the merits of this issue (although at least a couple of these courts have mentioned the issue without deciding it, and one court — the Ninth Circuit in United States v. Henry — even cited to David Post’s second article cited above).  I intend to take a broader look at the district court cases to determine whether a federal court has addressed this issue; I’ll have that post for you all in the near future.

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A Case to Watch: Heimeshoff v. Hartford Life & Accident Ins. Co.

By Jeremy Kreisberg

A little over two weeks ago, the Supreme Court heard oral argument in a rather obscure ERISA case—Heimsehoff v. Hartford Life & Accident Ins. Co.  The case asks a rather basic question without a readily apparent answer: when a beneficiary of an ERISA-regulated insurance plan seeks to claim benefits, may the statute of limitations period for judicial review of the benefit decision begin before the completion of the plan’s mandatory internal resolution process?  In other words, can a statute of limitations for judicial review begin to run before a beneficiary is permitted to file suit?

The problem this lawsuit seeks to address can be clarified through a hypothetical: Imagine beneficiary B has an ERISA-regulated disability insurance plan with (i.e. provided by her employer but issued and administered by) insurer I.  B’s contract with I states that a three-year statute of limitations for judicial review of benefit decisions begins running at the date that B sends I proof of loss.  Then the following takes place:

  • B sends I her proof of loss on January 1, 2010.
  • I’s internal resolution process is completed on January 2, 2013, and B is denied her claim.
  • B believes the decision was erroneous and seeks to challenge it in court.
  • The court informs B that she has no claim because the statute of limitations—three years from January 1, 2010, the date that B sent I her proof of loss—has run.

B’s case certainly seems rather compelling.  After all, I has functionally denied B any opportunity to receive independent review of I’s benefit decision.  But at oral argument, the Justices raised several interesting arguments that make the outcome of this case far from clear.

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What’s in a Name?

By Jeremy Kreisberg

My quarrel today is not with news outlets’ use of the term “Obamacare” as a replacement for the “Affordable Care Act” (or the still wordier “Patient Protection and Affordable Care Act”).  Granted, “Obamacare” is often used as a pejorative term by the bill’s opponents.  But if it’s easier for people to understand that news outlets are referencing the President’s health care law when they write or say “Obamacare” rather than “ACA,” then so be it.  After all, even President Obama embraced the term during the 2012 campaign.

My quarrel today is instead with news outlets’ use of the term “Obamacare” as an overbroad and misleading description of more specific aspects of health care reform.  I’ve seen this frequently over the last couple of months in the context of two major topics of news coverage: the Vitter Amendment and the rollout of the exchange websites.

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The Spillover Effect of Medicare FFS on MA Negotiations

By Jeremy Kreisberg

The Congressional Budget Office (CBO) recently released an assessment of two illustrative versions of premium support for Medicare.  The report is interesting for many reasons, but I want to focus on one issue that Austin Frakt at The Incidental Economist raised.

Among the assumptions in the report, CBO “estimate[d] that in most counties the percentage of beneficiaries enrolled in the [Medicare Fee-For-Service (FFS)] program would decline once either premium support option took effect. . . . [T]he reduced market share of the FFS program would tend to boost the rates that private insurers paid to health care providers and thereby lead them to raise their bids” (pg. 39).

In a very thoughtful post, Professor Frakt questioned this assumption:

I read the details in the report that follow, but they didn’t help me with my fundamental objection. There’s a lot of verbiage about the (non-Medicare Advantage (MA)) commercial market paying higher prices than MA or FFS. The idea seems to be that Medicare private plans would tend to resemble the commercial market, if not for FFS. Hence, prices would go up if FFS became less of a threat, as it would under premium support.

This may be true, but not enough was said about why. The commercial market and the Medicare one serve different consumers, are challenged by different competitors, and are constrained by different regulations. They are different markets. Why should prices in one have any relation to those in the other?

I agree with Professor Frakt that there is no easy answer here, but I’m a bit more confident that CBO has a sound theoretical justification for its assumption.  After the jump, I’ll explain what I perceive as CBO’s theoretical justification, and I’ll note one interesting application of CBO’s reasoning to another controversial policy proposal.

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City of Arlington v. FCC and Subsidies in Federally Facilitated Exchanges

By Jeremy Kreisberg

Plaintiffs in a pair of cases — Oklahoma v. Sebelius and Halbig v. Sebelius — are challenging the authority of the IRS to issue tax credits to individuals purchasing insurance through federally facilitated exchanges under the ACA.  While these cases are still pending at the district court level, the Supreme Court may have already signaled that its framework for deciding these cases will be friendly to the government.

Section 1311 of the ACA provides that each State “shall, not later than January 1, 2014, establish an American Health Benefit Exchange.”  Section 1321 is a fallback provision that allows for the creation of federally facilitated exchanges by requiring the Secretary of HHS to “establish and operate such Exchange within” any State that does not establish its own exchange.  Section 1401 of the ACA provides a calculation for tax credits provided to individuals purchasing insurance through “an Exchange established by the State under [section] 1311.”  Proponents of the aforementioned challenges argue that the ACA does not contain a calculation of tax credits for individuals purchasing insurance on a federally facilitated exchange, and therefore the IRS may not issue tax credits to those individuals.  Professor Timothy Jost has countered that “such Exchange” in section 1321 refers to those exchanges established by a state under section 1311.  Therefore, when other sections of the ACA (including section 1401) refer to an “Exchange established by the State under section 1311,” all of those references apply equally to federally facilitated exchanges.  In light of this apparent statutory ambiguity, the IRS has promulgated a rule clarifying that tax credits will be available through both state exchanges and federally facilitated exchanges.

Under the Chevron doctrine of judicial deference, courts generally defer to agency interpretations of ambiguous statutes.  However, a line of Supreme Court cases has previously suggested a “major questions exception” to Chevron whereby courts would hesitate before deferring to agency interpretations on questions of economic and political significance.  The Court explained the logic of the exception in FDA v. Brown & Williamson: while Chevron deference is “premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency,” the major questions exception reflects a belief that, “[i]n extraordinary cases, . . . there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.”  Last year, I noted some possible ambiguity over whether a court could invoke the “major questions exception” in a case concerning the IRS’s authority to issue tax credits through federally facilitated exchanges.  But as David Baake correctly concluded, the Supreme Court’s recent decision in City of Arlington v. FCC should put an end to any notion that the “major questions exception” has continuing vitality in the Chevron doctrine.

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EMTALA and Patient Hoarding

By Jeremy Kreisberg

It is clear that EMTALA aims to prevent hospitals from dumping patients that require emergency care until these patients are stabilized.  But whether EMTALA also prevents hospitals from hoarding emergency patients to their detriment is far less clear.  Recently, the Tenth Circuit confronted this question in Genova v. Banner Health, a case concerning a physician who claims that he was fired for complaining about overcrowding at his emergency room.  The physician sought protection under EMTALA’s whistleblower provisions, which prevent hospitals from taking an “adverse action” against an employee simply because that employee “report[ed] a violation of a requirement of [EMTALA].”  Thus, the question for the Tenth Circuit was whether a hospital violates EMTALA if it has an overcrowded emergency room and refuses to offer a transfer to its waiting patients.  Writing for a unanimous panel, Judge Gorsuch held that there was no such violation.

As a matter of statutory purpose, the Tenth Circuit had a persuasive case.  After all, EMTALA is clearly intended to prevent hospitals from dumping its emergency patients onto other hospitals to avoid the costs of providing uncompensated care.  So when Dr. Genova complained about “patient hoarding” rather than “patient dumping,” the court cleverly stated that “[h]is complaint wasn’t about an EMTALA violation but more nearly its inverse.”  Indeed, there are serious potential issues with finding that EMTALA requires any overcrowded hospital to transfer its patients.  Such a rule might allow hospitals, which are often overcrowded, to use resource constraints as an excuse for transferring patients that require expensive care.

But the Tenth Circuit rested much of its case on the statutory text.  And as a matter of statutory interpretation, this issue is far from clear.  EMTALA states that a hospital which receives a patient “must provide for an appropriate medical screening examination within the capability of the hospital’s emergency department.”  If a patient has an “emergency medical condition,” the hospital must provide either (A) “within the staff and facilities available at the hospital, for such further medical examination and such treatment as may be required to stabilize the medical condition,” or (B) “for transfer of the individual to another medical facility in accordance with subsection (c) of [EMTALA].”

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Introducing the 2013-2014 Petrie-Flom Student Fellows

The Petrie-Flom Center is pleased to welcome our 2013-2014 Student Fellows. During the coming year, each of the fellows will pursue independent research under the supervision of Center faculty and fellows. They will also be regular contributors at the Bill of Health on issues relating to their research.

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