Health policy, 2020 elections could be affected by recent and future ACA rulings

Health Care Current | January 29, 2019

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies, and provides updates and insights on policy, regulatory, and legislative changes.

My Take

The ACA court battle: Top 10 questions and answers

By Anne Phelps, principal, US Health Care Regulatory leader, Deloitte & Touche LLP

As the latest legal case against the Affordable Care Act (ACA) winds through the federal courts, the law could make its third appearance at the Supreme Court. Once again, there is uncertainty surrounding the fate of the law, which could affect Congressional health policy priorities this year—and be a factor in the 2020 elections.

It has been nearly two months since US District Court Judge Reed O’Connor ruled that Congress’ 2017 nullification of the individual-mandate penalty essentially repeals the penalty and renders the provision unconstitutional. O’Connor further concluded that because the individual mandate is essential to and inseverable from the law, the ACA in its entirety must also be found unconstitutional.

The court’s decision goes back to December 2017 when Congress nullified the tax penalty associated with the ACA’s individual mandate provision, which requires people to pay a penalty if they do not have health coverage and do not qualify for an exemption. Two months after the nullification, 20 states1 filed a federal civil action seeking judgment to find the individual mandate unconstitutional. They argued that by zeroing out the penalty, Congress effectively repealed the individual mandate—making the entire ACA unconstitutional because the provision is inseverable from the law.

Attorneys general from several Democratic-led states have appealed the US District Court’s decision to the Fifth Circuit Court of Appeals. While there is uncertainty around the future of the ACA, O’Connor did issue a stay, which allows the law to remain in effect during the appeals process. Regardless of how the Fifth Circuit rules, it is likely the case will rise to the Supreme Court. In the meantime, I think this ruling could have some significant implications for health care policy and the 2020 elections.

Here are 10 key questions (and answers) that I have been thinking about:

1. How is the individual mandate tied to the rest of the ACA? The ACA was enacted in 2010 with the goal of increasing the number of Americans who have health insurance and reducing the cost of health coverage in general. The individual mandate is widely seen as being essential to achieving both of those goals. That provision requires most Americans to maintain “minimum essential” health coverage2. People who opt not to enroll in insurance, and are not exempt from the rule, must pay a tax penalty.

2. How did the Supreme Court previously rule on the individual mandate, and why was Medicaid considered separately? The ACA made its first appearance at the Supreme Court in 2012 after 26 Republican-led states, several individuals, and the National Federation of Independent Business challenged the constitutionality of the individual mandate and the Medicaid-expansion provision. While the court determined that the individual mandate does not fall within Congress’ constitutional authority to regulate commerce, it did find the individual mandate to be constitutional under Congress’ taxing authority. The court declined to address the question of whether the individual mandate could be separated from other ACA provisions. However, the court did determine that the Medicaid-expansion provision is severable from the rest of the ACA. While there are nuanced differences among the issues in this case (and the current case), the high court has shown a desire in the past to find Congressional intent in favor of supporting the concept of severability within the context of the ACA.

3. How was the individual-mandate penalty eliminated? In 2017, Congressional Republicans led a campaign to repeal the ACA. While this effort fell short of its ultimate goal, Republicans were successful in securing enough votes to zero-out the individual mandate penalty. As of January 1, 2019, the penalty is $0. However, the mandate is technically still on the books because only the penalty was modified. That means Congress could pass legislation to set the penalty to a number higher than zero without having to pass legislation to reinstate the individual mandate.

4. What is behind the latest lawsuit? When the 2017 Tax Cuts and Jobs Act zeroed out the individual mandate penalty, it created a new opening for challenging the ACA. The most recent court case seeks to prevent the US Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS) from enforcing any part of the ACA. The plaintiffs argue that without a tax penalty, there is no way for Congress to constitutionally enforce the individual mandate. Moreover, the plaintiffs contend that because there is no severability clause within the ACA—and because the individual mandate is a vital provision—the entire law must be unconstitutional.

5. How might other provisions of the ACA be affected? O’Connor agreed that without a penalty, the individual mandate is unconstitutional, which means the entire ACA is unconstitutional. As consequence of the ruling, other key ACA provisions would be deemed unconstitutional. Some of these provisions include:

  • Medicaid expansion 
  • Accountable Care Organizations (ACOs)
  • Medicare payment provisions
  • All revenue provisions including industry fees and taxes
  • The Center for Medicare and Medicaid Innovation (CMMI)
  • The Physician Payment Sunshine Act (which requires medical product manufacturers to inform CMS about any payments or other transfers of value made to physicians or teaching hospitals)
  • The Prevention and Public Health Fund (a mandatory funding stream dedicated to improving the nation’s public health system)
  • The regulatory pathway for the development and approval of biosimilars 

6. What is the near-term future of the ACA? While O’Connor’s ruling appears to place the ACA on unstable footing, he did not grant the plaintiff’s relief for injunction. That means the law remains in effect. On December 30, 2018—roughly two weeks after his initial ruling—O’Connor issued a stay and final partial judgment in the case confirming that the law can stand while his judgement is under appeal. For the very near-term, the ACA is unchanged and the individual mandate penalty remains at $0 for 2019—and future years.

7. How are other provisions of the ACA affected? As of now, all provisions of the ACA and subsequent regulations remain in place. However, depending on how the Fifth Circuit Court of Appeals rules, and how the Supreme Court rules (should it decide to hear the case), it is possible that the overall law and subsequent regulations will be affected. The issue of severability on appeal will be key to the survival of the ACA. If the Fifth Circuit upholds the District Court’s ruling, the ACA could be immediately impacted. However, I expect we would see a continued stay, which would allow the law to stand through its appeal to the Supreme Court.

8. What are the next steps? Eighteen state attorneys general have already filed an immediate appeal to the Fifth Circuit Court of Appeals in New Orleans. The appeals process at the circuit level, especially in cases that have the potential to impact many Americans, can be a lengthy. Once the appeals process at the Fifth Circuit has been exhausted, it is likely we will see an appeal to the Supreme Court. If the high court decides to hear the case, it probably wouldn’t happen until sometime in 2020…at the earliest.

9. If the case goes to the Supreme Court how might it rule? The ruling at the Fifth Circuit will impact the specific issues that the Supreme Court will be asked to review. While it is difficult to assess exactly what the Supreme Court will rule on, there are some possible scenarios to consider. Assuming O’Connor’s ruling is at the heart of the matter, the Supreme Court could fully uphold his decision, or fully strike it down—meaning the court would find the individual mandate to be constitutional. As a result, regardless of whether it is severable, the ACA would be constitutional. However, it is more likely that we will see some sort of partial upholding and/or partial striking down. For example, the Supreme Court could find in favor of O’Connor’s ruling that the individual mandate is unconstitutional. However, the court might also disagree with the lower-court ruling and find that the individual mandate is severable and therefore the rest of the ACA can stand.

10. What impact might this have on other priorities next year (e.g., Medicare for All)? What impact might this have on the 2020 elections? This case could have an enormous, far-reaching impact on the American health care system. There is some reason to believe that it could alter Congressional health care priorities in 2019 and 2020 as the case makes its way through the appeals process. The fact that the ACA is in precarious standing could foster a sense of urgency among Congressional Democrats to proceed with “Medicare for All” or similar initiatives that could set up a new system to help increase/maintain the number of Americans who are insured. However, the administration and Congressional Republicans have expressed opposition to these types of initiatives. Additionally, there could be shifts in priorities should the individual mandate and the ACA be upheld as unconstitutional. Many provisions of the ACA that have become well entrenched within the health care system (e.g., ACOs, Medicaid expansion in some states, non-discrimination of pre-existing conditions) would no longer be federally mandated or authorized if the ACA is upheld as unconstitutional. In response, Congress might shift its priorities to developing bipartisan policies to protect and maintain these vulnerable provisions to minimize any potential disruption to the current health care system the court rulings could create. Alternatively, states could enact similar provisions through state legislation, as some have already done.

Health care, and in particular the preservation of pre-existing conditions protections within the ACA, was a major campaign issue for both Democrats and Republicans during last year’s mid-term elections. With the appeals process likely to stretch into 2020, I expect the individual mandate and pre-existing conditions—and the ACA in general—will return to the forefront of issues for the 2020 elections.

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1 Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Maine (Governor Paul LePage), Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakotas, Tennessee, Texas, Utah, West Virginia, and Wisconsin
2 Affordable Care Act, 26 U.S.C. §5000A


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In the News

New CMS models aim to lower drug prices in Medicare Advantage, Part D plans

On January 18, the US Centers for Medicare and Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (CMMI) announced new payment models for Medicare Advantage (MA) and Medicare Part D plans.

Medicare Advantage

The new MA model, which updates the 2017 Value-Based Insurance Design (VBID) model, will become effective in 2020. It will include the following provisions:

  • Allow MA plans to reduce beneficiary cost-sharing and provide targeted benefits, such as customized services based on chronic condition or socioeconomic status. Benefits can include services such as transportation.
  • Increase the reward and incentive programs that plans can offer to beneficiaries to encourage healthier living and wellness practices.
  • Allow telehealth services to satisfy a wider range of network requirements.

MA plans in all 50 states and territories, including all Special Needs Plans and Regional PPOs, are eligible to participate in the VBID model for 2020. Beginning in 2021, CMMI will also test allowing MA plans to offer Medicare’s hospice benefit as part of the model.

Medicare Part D

The new Part D model is called the Part D Payment Modernization Model. It seeks to encourage physicians, beneficiaries, and plans to choose less expensive drugs. When a beneficiary’s prescription-drug spending reaches the final, or “catastrophic,” phase of the plan, Medicare pays 80 percent of the patient’s drug costs. From 2008 to 2017, total federal spending in the catastrophic phase increased 17 percent per year—from $9.4 billion to $37.4 billion. In 2016, 3.2 million Part D enrollees reached this phase, and those who did not qualify for the low-income subsidy (which pays the beneficiary’s share) faced average annual out-of-pocket drug costs of more than $3,000.

Under the new model, which is voluntary, participating plans will take on greater risk for spending in the catastrophic phase. Participating Part D plans will take two-sided risk for CMS’s federal reinsurance subsidy (80 percent of catastrophic phase liability). If spending is lower than the target, plans will share in savings, and if it is higher, they will pay more. The model will take effect in 2020.

(Source: CMS, CMS Announces New Model to Lower Drug Prices in Medicare Part D and Transformative Updates to Existing Model for Medicare Advantage, January 18, 2019)

MedPAC approves Hospital Value Incentive Program revamp

The Medicare Payment Advisory Commission (MedPAC) recently approved recommendations for Congress and CMS to consolidate three hospital-quality programs. If the recommendations were implemented, hospitals could see Medicare payments increase by 3.3 percent, MedPAC said in a prepared statement on January 17.

The recommendations call for the Hospital Readmissions Reduction Program (HRRP), the Hospital Value-Based Purchasing Program (HVP), and the Hospital-Acquired Condition Reduction Program (HACRP) to be consolidated into the Hospital Value Incentive Program (HVIP). Five key performance categories—including patient experience, readmissions, mortality, spending, and hospital-acquired conditions—would be measured on an HVIP points-based system that could be used to allocate funds. Additional changes under the plan include the elimination of the Inpatient Quality Reporting Program (IQR) as well as elimination of the “incident to” billing model, which is often used when care provided by a nurse practitioner or physician’s assistant is billed under a physician identifier.

MedPAC shared this idea in its June 15 Report to the Congress: Medicare and the Health Care Delivery System (see the June 26, 2018 Health Care Current) but voted on specific recommendations this month.

Adult uninsured rate reaches highest level in four years

The uninsured rate among US adults has reached a four-year high of 13.7 percent, according to new Gallup National Health and Well-Being Index data. The uninsured rate increased 2.6 percentage points between 2016 and 2018—representing a net increase of 7 million uninsured US adults. Some of the other findings from the report include:

  • The uninsured rate increased for most subcategories across age, gender, annual household income, and region. The uninsured rate, however, did not increase in the Eastern region of the US.
  • Women between the ages of 18 and 34, and people with annual household incomes of less than $48,000, experienced the biggest increases in uninsured rates.

(Source: Gallup, U.S. Uninsured Rate Rises to Four-Year High, January 23, 2019)

GAO: Bonus potential often drives participation in voluntary Medicare bundled-payment models

Hospitals and other providers that participate in voluntary bundled-payment models for Medicare are often motivated by the potential for financial gain, according to a Government Accountability Office (GAO) report published on January 22. GAO analyzed six of CMS’s bundled-payment models, including one mandatory model. The study focused on CMS’s six episode-based payment models implemented as of February 2018. These models include:

  • Bundled Payments for Care Improvement (BPCI)
  • Comprehensive Care for Joint Replacement (CJR)
  • Oncology Care Model (OCM)

According to GAO, hospitals often chose to participate in the voluntary BPCI model because one track of the program includes payment for services provided after hospitalization. Some hospitals believed this allowed for the greatest amount of care delivery for under the target price, resulting in bonus payments. Financial risk was also a factor, as participation in a voluntary payment model was found to decrease if physicians were required to assume downside financial risk—having to pay CMS for financial losses if spending exceeds a target.

GAO found that mandatory models are more likely than voluntary models to provide CMS with generalizable evaluation results. Further, mandatory models can include higher levels of financial risk without concern that participants will drop out.

(Source: GAO, Medicare: Voluntary and Mandatory Episode-Based Payment Models and Their Participants, December 2018)

Drug legislative news roundup

Shortly after the 116th Congress began, lawmakers turned their attention to an issue that has received bipartisan support—tackling prescription drug costs. Drug pricing has been an ongoing topic of concern among consumers, and both the administration and Congress have introduced ideas on this topic (see the January 22, 2019 My Take). Already, several proposals are making their way through the House and Senate:

Proposal Details
Drug importation from other countries
  • Legislation has been introduced in both chambers
  • H.R. 447 and S. 97 would allow wholesale distributors, pharmacies, and individuals to import drugs, while the other set of bills (H.R. 448 and S. 61) would only permit individuals to import drugs 
  • All the bills focus on importation from Canada
Government negotiation of drug prices
  • Legislation has been introduced in both chambers
  • All the bills focus on drugs covered under Medicare Part D
  • The bills would amend the Social Security Act to allow the HHS Secretary to negotiate drug prices directly with manufacturers  
Capping drug prices at international levels
  • Two companion bills (H.R. 465 and S. 102) have been introduced
  • The bills would require the HHS secretary to establish a process for reviewing brand-name drugs and identifying those that have “excessive” prices
  • “Excessive” would be defined by comparing the median price for each drug in five countries in comparison to the average US price 
  • If a drug’s price is determined to be excessive, HHS could approve generic versions of the product regardless of any patents or market exclusivities for the brand-name drug
Eliminating cost sharing for insulin drugs
  • H.R. 366, Insulin Access for All Act of 2019, would eliminate cost-sharing for insulins under Medicare Part D and for outpatient services under Medicaid
Prohibiting pay-for-delay deals
  • S. 64, Preserve Access to Affordable Generics and Biosimilars Act, would prohibit brand and biologic drug manufacturers from paying generic and biosimilar manufacturers to delay bringing their products to market
Prohibiting manufacturers from misclassifying drugs
  • The Right Rebate Act of 2018 would prohibit pharmaceutical manufacturers from classifying branded drugs as generic drugs to pay smaller rebates under the Medicaid program
  • According to GAO, in 2016, 885 drugs were misclassified, and drug companies owed Medicaid an additional $1.3 billion in unpaid rebates for 2012-2016


It is unclear which, if any, of these proposals will gain traction in the coming months. Many of them have both Democratic and Republican sponsors. In addition, the administration has supported several of these ideas, such as price negotiation and capping prices at international levels. Legislators have scheduled hearings to discuss the bills and other related issues. The Senate Finance and House Oversight Committees, for example, have hearings on January 29 to discuss solutions to drug prices.

Related: On January 17, the Institute for Clinical and Economic Review (ICER) released a draft protocol for its new annual review process to determine if drug-price hikes are supported by increased benefits or new evidence. This report will look at 13 drugs, including new and already-marketed drugs, that contribute the most to US health spending, including drugs that had significant price increases during the past two years. Reviewers will look for data from the same time period, including requesting input from drugmakers, to assess if evidence supports the price increases. The first report is expected in October.

Breaking Boundaries

A new blood test could detect Alzheimer’s disease years before symptoms appear

Researchers in Germany recently demonstrated that a blood test could help predict pre-symptomatic disease progression and brain neurodegeneration at very early stages of familial Alzheimer's disease. The research, which appeared in the journal Nature Medicine, focuses on the identification of elevated levels of two fluids that could show changes in the blood up to 16 years before the onset of dementia symptoms. Alzheimer’s disease is the most common form of dementia, affecting 5.7 million Americans and 44 million people worldwide.

Researchers determined that changes in the amount of the fluids, rather than just the absolute concentration of fluids, could be meaningful in detecting early signs of Alzheimer’s. These findings strengthen prior research into how these fluids could serve as a biomarker for neurodegenerative diseases. When brain neurons are damaged or dying, they release proteins, which can be measured through a blood test.

This study included 405 people from the Dominantly Inherited Alzheimer's Network (DIAN), a research consortium. Participants in DIAN carry one of the most common gene mutations known to cause dominantly inherited Alzheimer's disease. Researchers are studying this cohort to help determine whether or when a family member will develop dementia. A parent who has one of these gene mutations has a 50 percent chance of passing it to a child, and a child who inherits a variant is likely to develop symptoms of dementia around the same age as the parent.

The researchers examined both DIAN participants who carried an early-onset genetic variant, and a group of unaffected relatives as controls. Researchers evaluated the participants at baseline and during subsequent follow-up visits (annually to every third year) with blood tests, imaging, and cognitive tests. The results showed that the identified fluids were elevated before dementia symptoms occurred. This suggests that the detection of fluid levels could be used to track the rate of disease progression—and could potentially be used in clinical trials as a surrogate endpoint.

RELATED: Alzheimer’s drug development is increasingly focused on prevention. During the last two years, two major studies have focused on blocking the earliest steps of plaque formation in the brains of people who have a gene associated with Alzheimer’s.

(Source: Oliver Preische et al, Serum neurofilament dynamics predicts neurodegenerative and clinical progression in presymptomatic Alzheimer’s disease, Nature Medicine, January 21, 2019)

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