The Courts and Healthcare Policy

McGuireWoods Consulting

2020 saw the courts continuing to play an important role in health policy with several notable lawsuits related to the Affordable Care Act (ACA). Several other Trump administration policies were challenged, including Medicare payment policies, price transparency, how the Medicaid program can change and whether Medicaid beneficiaries can sue over curtailed benefits, and immigration changes affecting access to programs like Medicaid. In 2021, the courts will continue to play an important role.

Cases Related to the Affordable Care Act

Texas v. United States. The U.S. Supreme Court held oral arguments concerning this most consequential challenge to the ACA on Nov. 20, 2020.  The court’s decision is expected in the spring. In this case, a group of Republican-controlled states and two Texas residents argue that the entire ACA became unconstitutional when Congress eliminated the penalty for individuals who fail to obtain health insurance. In Oct. 2020, a divided three-judge panel of the 5th U.S. Circuit Court of Appeals issued a ruling stating the individual mandate was unconstitutional because it can no longer be justified as a tax since Congress set the penalty at 0. However, the panel also remanded the case to the lower court to determine what portions of the ACA are or are not severable from the individual mandate.

Another 17 states, led by California, were permitted by the trial court to intervene in the case and defend the ACA (the “state intervener-defendants”). Subsequently, the 5th Circuit allowed four more states to intervene in the case on appeal, bringing the total number of states defending the ACA in the case to 21. This coalition of Democratic attorneys general asked the U.S. Supreme Court to take up the case and not wait for the Texas court to rule on whether some or all of the ACA provisions are so intertwined with the individual mandate that they, too, must be deemed unconstitutional. The court agreed to do so.

Risk corridors. On April 27, 2020, the Supreme Court ruled in favor, 8-1, of commercial health insurers arguing that they are owed $12 billion under the ACA’s risk corridor program. The risk corridor program was designed to compensate insurers who lost money in the early years of the exchanges, but congressional Republicans blocked CMS from making most of the promised payments.

Association health plans. One lawsuit challenged the Trump administration’s expansion of association health plans (AHP) through a Department of Labor rule that sought to make it easier for small employers to band together and offer plans that do not have to comply with ACA consumer protections. A panel of the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in November 2019.

On July 22, 2020, two employers brought parallel litigation in Texas, asking for a declaratory judgment that their health coverage arrangement is a single-employer self-insured group health plan (and thus exempt from most ACA rules). The employers had requested an advisory opinion from the Department of Labor, which concluded that the arrangement did not qualify as a single-employer group health plan. Briefing was completed in late April of 2020.

On Aug. 3, 2020, the District Court for the Southern District of New York gave its opinion in favor of New York State, ruling that the Department of Labor too broadly defined the term “healthcare worker,” and exceeded its authority as a result. The Court ruled that the Labor Department’s definition was not in line with what Congress intended in enacting the Families First Coronavirus Response Act (FFCRA) and, as a result, could lead to non-clinical employees or medical practice affiliates being excluded from the FFCRA protections.

In oral arguments on the appeal held Nov. 14, 2020, the Court of Appeals for the District of Columbia Circuit was interested in narrowing the ruling, establishing whether the Department of Labor’s (DOL) new definition was reasonable. On Jan. 28, 2021 the Department of Justice (DOJ) requested a 60-day abeyance to give time for the Biden Administration to review the issues in the case and determine how to proceed.

Short-term plans. Similar to the association health plan case, this case involved the Trump administration’s expansion of short-term, limited-duration plans, which also need not comply with ACA protections.

On July 22, 2020, a divided panel of the DC Circuit upheld the short-term plan rule in July 2020, concluding that the government’s interpretation was entitled to deference and was neither inconsistent with nor impermissible under the ACA or HIPAA. The lead plaintiff, the Association for Community Affiliated Plans, suggested that it would ask for en banc review by a full panel of judges on the DC Circuit.

Cost-sharing reductions (CSR). Litigation occurred over the ACA’s cost-sharing reduction program, which was intended to compensate insurers for setting low deductibles and copayments on the exchanges. In 2017, the Trump administration decided to stop making the CSR payments, prompting numerous lawsuits from insurers. The insurers have won various lower-court rulings, and a consolidated group of the lawsuits was on appeal at the U.S. Court of Appeals for the Federal Circuit. Oral arguments were held Jan. 9, 2020

The CSR litigation raised legal issues similar to those posed by the risk corridor case at the Supreme Court because both involve government payments to insurance companies that were intended by the drafters of the ACA but subsequently revoked.

On Aug. 17, 2020, a three-judge panel of the Court of Appeals for the Federal Circuit issued two decisions for Sanford Health Plan v. United States and Community Health Choice v. United States. The Court concluded that under Section 1402 of the ACA, insurers are entitled to unpaid cost-sharing reductions (CSRs).

The Federal Circuit agreed with the lower courts that Section 1402 imposes an “unambiguous obligation” on the federal government to make CSR payments to insurers and that this obligation is enforceable for damages. The three-judge panel limited the amount of unpaid CSRs that insurers can recover based on premium loading. 

Contraceptive mandate. On July 22, 2020, the U.S. Supreme Court issued a 7-2 decision in Little Sisters of the Poor v. Pennsylvania, upholding the Trump Administration’s rules that allow religious and moral exemptions to the ACA’s contraceptive mandate. The Court vacated the prior nationwide injunction by a federal judge in Pennsylvania and remanded the case to the lower courts. Directly after that, the Court separately remanded an appeal of a similar injunction by a California federal judge from the Ninth Circuit Court of Appeals. Although the Trump administration, Little Sisters of the Poor, and the March for Life Education and Defense Fund had separately appealed the Ninth Circuit decision before, the Court had not taken action on those appeals while Little Sisters was pending and quickly remanded those challenges.

Nondiscrimination provisions. The Supreme Court heard Bostock v. Clayton Country, Georgia, a lawsuit over the Trump administration’s efforts to weaken some of the ACA’s nondiscrimination provisions, codified in Section 1557 of the law. HHS was finalizing regulatory changes expected to roll back Obama-era protections for groups such as transgender people, gay and lesbian people, and people who have terminated a pregnancy. The final rule led to a legal challenge.

On July 22, 2020, the Trump administration issued its new final rule in June 2020 to implement Section 1557. There is a new round of litigation over the final rule on Section 1557. There were at least five lawsuits challenging the rule, which include coalitions of plaintiffs arguing that the rule should be invalidated. Each lawsuit asks the court to vacate the Trump administration’s rule in its entirety and prevent HHS from implementing or enforcing its provisions. They argued that the 2020 rule violates the Administrative Procedure Act (APA) as arbitrary and capricious and contrary to law. They also argued that the rule exceeds HHS’s statutory authority and violates the Fifth Amendment.

On June 15, 2020, the Supreme Court ruled in Bostock v. Clayton County, and found that discrimination based on gender encompasses sexual orientation and gender identity in the context of employment. Based on that decision, two federal courts have issued nationwide preliminary injunctions blocking the Trump administration from implementing parts of the final rule.

A New York court blocked the implementation of provisions excluding sex stereotyping from the definition of sex discrimination. After the plaintiffs requested clarification of the preliminary injunction order, the court directed the plaintiffs to submit a list of provisions of the 2020 rule, beyond the definition of gender discrimination, that can be kept despite the Supreme Court’s Bostock decision for the court’s consideration.

The D.C. court blocked the implementation of provisions excluding gender stereotyping from the definition of sex discrimination as well as provisions incorporating a blanket religious freedom exemption from claims of sex discrimination. Several other legal challenges are pending.

“Take care” clause. This broad-based lawsuit, Columbus et al. v. Trump, was brought by a group of cities argues that the Trump administration violated the Constitution by sabotaging the ACA. The lawsuit said President Trump’s various administration actions weakening the ACA conflict with the Constitution’s requirement that the president “take care that the laws be faithfully executed.” The case was filed in 2018 and went to the federal district court in Maryland.

In April 2020, the district court held that the lawsuit could proceed under the Administrative Procedure Act (APA) but not the Take Care Clause of the Constitution. The plaintiffs did not appeal that ruling to the Fourth Circuit and will instead turn to their claims that major provisions of the 2019 payment rule violate the APA.

Medicaid in the Courts

The most prominent legal issue in Medicaid during the Trump administration was the fight over work requirements. On Dec. 4, 2020, Supreme Court granted Arkansas and Trump administration petitions for certiorari in Arkansas v. Gresham and Azar v. Gresham. The Court will hear the case in early 2021.

CMS advocated for work requirements to be included in Section 1115 waivers. As waivers including work requirements were approved, opponents responded with lawsuits challenging those waivers. District of Columbia District Court Judge James Boasberg repeatedly sided with the opponents of work requirements ordering Arkansas to suspend its work requirement program and blocking the policy from taking effect in Kentucky and New Hampshire.

Other lawsuits challenged the policy in Indiana and Michigan. Boasberg’s rulings against work requirements were on appeal at the D.C. Circuit, which heard oral arguments in October 2020. The D.C. Circuit considered the case on an expedited schedule.

On July 22, 2020, the Supreme Court heard Gresham v. Azar. The District Court for the District of Columbia set aside state Medicaid waivers with work requirements. That decision was affirmed by a unanimous panel of the Court of Appeals for the District of Columbia in a decision written by Judge David Sentelle. The attorney general of Arkansas and the Trump administration filed cert petitions on July 13, 2020

Beneficiaries’ right to sue. Another policy tested in the courts is the extent to which beneficiaries have a right to sue state officials to challenge state actions that curtail Medicaid benefits. The ability to bring such lawsuits in federal court has long been viewed as an important safeguard for beneficiaries, but in recent years, some courts have expressed doubt about the legal theories underlying such lawsuits.

The U.S. Supreme Court declined to weigh in on the issue in 2018. However, currently pending at the 5th Circuit is a lawsuit brought by beneficiaries challenging Texas’ attempt to remove abortion providers from its Medicaid program. The ruling could extend far beyond the abortion context and help clarify the authority of beneficiaries to sue over a wide range of allegedly unlawful coverage policies by states.

Medicare Payment Policy Challenges

In Medicare, CMS took part in over two controversial payment policies that the agency says will bring down costs but hospitals describe as illegal. Continuing to fight both policies is a priority for the hospital industry in 2021.

340B cuts. One lawsuit challenges the agency’s 2018 and 2019 reimbursement cuts for drugs in the 340B drug discount program. Hospitals argued that the agency does not have the authority to make those cuts, and a federal district judge agreed. Oral arguments were heard in Nov. 2019.

On July 31, 2020, the Court of Appeals for the District of Columbia Circuit overturned the 2018 district court decision that found the Department of Health and Human Services (HHS) exceeded its statutory authority when it reduced 2018 and 2019 Medicare payment rates by 30% for many of the hospitals in the 340B Drug-Pricing Program.

In December, 2020, the American Hospital Association, joined by four other national hospital groups and hospital pharmacists representing participants in the 340B drug pricing program, filed a federal lawsuit against the Department of Health and Human Services over the department’s failure to enforce program requirements and halt drug company actions that undermine the program including limiting the 340b program through contract pharmacies.

The groups are joined in the lawsuit by three 340B hospitals serving patient communities in need that have been harmed by the companies’ refusals to provide discounts on prescription drugs dispensed at community-based pharmacies, as required by the 340B program.

Site neutrality. American Hospital Association et al. v. Azar, challenged CMS’ site-neutral policy, which cut payments for outpatient clinic visits at certain off-campus hospital facilities in 2019. Under the policy, the agency reimbursed hospitals for those visits at a rate equivalent to the cost of such services provided in doctors’ offices under the physician fee schedule. In September 2019, a judge from the District Court for the District of Columbia said CMS lacked authority to make the cuts and vacated them. As with the 340B reimbursement cuts, the litigation did not stop CMS from going ahead with phasing in the cuts in its 2020 outpatient rule.

On July 17, 2020, the Court of Appeals for the District of Columbia Circuit reversed the district court to uphold the 2019 Medicare payment rule expanding outpatient “site‑neutral” payment policies to apply to all hospital outpatient clinic visits, i.e., even at longstanding off-campus provider-based hospital departments (PBDs). The decision by the Court of Appeals allowed the Expanded Site-Neutral Policy to stand, unless reversed by the Supreme Court.

Transparency Policy

CMS faces drug and hospital industry-led legal challenges to two final rules issued last year that require drug companies and hospitals to disclose more information about pricing. Both challenges are based on the First Amendment.

Drug prices. A drug-pricing rule, issued in May 2019 by the U.S. Food and Drug Administration (FDA), required pharmaceutical companies to include the list prices of their drugs in television advertising, which led to the lawsuit Merck & Co. Inc. et al. v. U.S. Department of Health and Human Services et al. On June 16, 2020, a three-judge panel from the D.C. Circuit Court backed a lower court's decision that the Department of Health and Human Services (HHS) overstepped its regulatory authority. The case is on appeal at the D.C. Circuit.

Hospital prices and transparency. The hospital transparency rule, issued in November 2019 by CMS, required hospitals to publish the confidential rates they negotiate with private insurers. The hospital industry sued, arguing the rule is highly burdensome and violates hospitals’ free speech. The district judge presiding over the case set an expedited schedule to review it.

In late June 2020, the district court upheld the Trump administration’s rule to require hospitals to publicly disclose negotiated rates and prices of certain “shoppable” items and services. The rule was promulgated under Section 2718(e) of the Public Health Service Act, a provision of the ACA known as the medical loss ratio provision. Hospitals challenged the rule, arguing that the government exceeded its authority, that the rule violates the First Amendment, and that the rule is arbitrary and capricious. The American Hospital Association, the lead plaintiff, quickly appealed to the decision to the DC Circuit. However, on December 29, 2020, the Court of Appeals for the District of Columbia upheld the district court’s ruling and rejected the American Hospital Association (AHA) and other hospital groups’ challenge of the hospital price transparency rule.

AHA had filed for an emergency motion to block the rule from going into effect on Jan. 1, 2021, but that motion was rejected.

Other Health Law Issues

Immigrants and health insurance. Two immigration policies finalized in 2019 have health law consequences. The “public charge” rule, issued in August 2019 by the Department of Homeland Security, and an executive proclamation on immigration, issued in October 2019, have led to two lawsuits.

The public charge rule makes it harder for legal immigrants who receive certain forms of public assistance, including Medicaid, to remain in the country and become permanent U.S. residents. The proclamation requires new immigrants seeking entry into the country to demonstrate that they will be able to obtain health insurance, not including subsidized ACA plans or Medicaid.

On Aug. 5, 2020, a Fourth Circuit panel ruled 2-1 in favor of the Trump administration policy and reversed the nationwide injunction of the policy issued by a federal judge in Maryland.

On Jan. 11, 2020, the U.S. Court of Appeals for the Fourth Circuit was the only federal appeals court to allow the rule to proceed.

The full panel of judges is scheduled to review the August 2020 decision the week of Feb. 8, 2021.

Conscience rule. The rule, issued in May 2019 by the HHS Office of Civil Rights, expands the ability of medical professionals to refuse to provide care based on religious or moral objections. On Jan. 11, 2021, the Ninth Circuit is scheduled to hear arguments Feb. 8, 2021 over the legality of a rule that lets anyone involved in the delivery of health care to deny patients care based on their religious and moral beliefs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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