The Supreme Court’s Decision on PPACA & Implications for Physicians

By Sidney S. Welch, Esq., MPH and Ashley Worrell^[1]

On June 28, 2012, the United States’ Supreme Court published its decision in National Federation of Independent Business et. al. v. Sebelius, Secretary of Health and Human Services,^[2] which, in short, upheld the provisions of the Patient Protection and Affordable Care Act,^[3] with the exception of the Medicaid expansion provisions.

In the majority opinion, authored by Chief Justice John Roberts, noted the Court’s role in the decision:  “Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments.  Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them.  It is not our job to protect the people from the consequences of their political choices.” 

I.  Jurisdiction to Decide the Case Not Barred by the Anti-Injunction Act

The Court began by determining that it had jurisdiction over the case by determining that the Act does not necessarily imply a tax, meaning that it would not fall under the scope of the Anti-Injunction Act, which would bar the Court from rendering a decision. The Anti-Injunction Act precludes lawsuits on taxation purposes until after the tax is paid and can only be used to obtain a refund.

II. PPACA’s Individual Mandate Upheld, but Under Congress’ Taxing Powers

In a 5-4 decision, the Supreme Court of the United States upheld PPACA’s individual mandate, which required individuals to purchase health insurance providing a minimum level of coverage or face a “penalty.”   The decision, which rested on the last of the government’s three arguments, defined the penalty provision for not obtaining health insurance as a “tax,” which could be controlled under Congress’ taxing authority.  In doing so, the majority opinion dismissed the government’s arguments that the mandate was enforceable under the Constitution’s Commerce Clause and its Necessary and Proper Clause.

A. The Commerce Clause

The Constitution authorizes Congress to “regulate commerce with foreign Nations, and among the several States, and with the Indian Tribes.”^[4]  Under this provision, the government theorized that Congress may order individuals to buy health insurance because the failure to do so affects interstate commerce.  However, in the majority opinion, Chief Justice Roberts concluded that the mandate was not supported by the Commerce Clause.  He opined that Congress, in establishing the individual mandate, “regulated in advance” (future actions of buying insurance), and no precedent exists to support such future actions under the Commerce Clause.  Instead it can only regulate commerce that is already established (i.e. activities that have already occurred). Whereas the government argued that the mandate’s efforts to cost shifting nature of the mandate is integral to the regulation of interstate commerce because it drives down costs, the Chief Justice compared a provision to requiring people to buy vegetables and eat their broccoli, because eating healthy food would also drive down the costs of healthcare.

In her opinion, disagreeing with the majority’s opinion that the Commerce Clause did not support the mandate because Congress may not regulate “inactivity,” Justice Ginsburg argued that the courts have viewed the Commerce Clause as a “technical legal conception” that case law does not support.  Justice Ginsburg and the justices joining her opinion argued that the majority was incorrect in ruling that the individual mandate created something to be regulated that was not already present. Rather the healthcare markets and interstate health insurance systems are an existing entity that the individual mandate is used to regulate, rather than a future activity.

B. The Necessary and Proper Clause

The government’s second argument, that the individual mandate is valid under the Necessary and Proper Clause, fell to a similar fate. This clause of the Constitution vests the power to “make all Laws which shall be necessary and proper for carrying into Execution” the powers enumerated in the Constitution.^[5]  Chief Justice Roberts held that even if “necessary,” the individual mandate is not “proper” because it is amounts to an inappropriate expansion of federal power and is not as narrow in scope as other laws upheld under the Clause in the past.  Additionally, the Chief Justice mentioned that, in every circumstance where the Court has upheld the extension of power under the Necessary and Proper Clause, it has involved exercising authority that is derivative to another power already granted.  The individual mandate, he concluded, while possibly “necessary” to PPACA’s insurance reforms, would not be a “proper” means for effectuating those refers because of its expansion of federal power.^[6]

C. The Individual Mandate as a Tax

The majority ultimately ruled that the individual mandate could be upheld as a taxable measure under Congress’ authority to lay and collect taxes. Chief Justice Roberts relied on precedent stating that “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.”^[7]  The majority opinion reasons that, though not a tax by name, the individual mandate is a tax in form based on the language of the statute.  Because the mandate does not apply to those who do not pay federal income taxes, is paid to the IRS, and is determined by the number of dependents and household income, the individual mandate could be viewed under the taxing authority of Congress.  Additionally, the penalty required would not be so high that one is forced to buy health insurance and is not only limited to willful violations. The Chief Justice analogized the mandate to the increased tax for cigarettes, which is clearly used to deter their purchase and is a lawful use of Congress’ taxation authority.^[8]  By upholding the mandate, the Court has simply said that Congress has acted within its existing authority; it did not create any new federal powers.

The dissenting opinion, comprised of Justices Scalia, Kennedy, Thomas, and Alito, counters that the individual mandate is a means to compel behavior, and thus cannot be considered merely a tax. According to the dissent, the majority’s argument that the mandate is not a penalty because it does not punish unlawful behavior was ill-conceived. The dissent also points to the mandate’s location in PPACA. Rather than sitting amongst the other “revenue provisions,” the individual mandate remained at the forefront within the “operative core” of the first title. The dissent further argues that to consider the individual mandate anything other than a requirement to purchase healthcare insurance would require the statute to be re-written entirely.

III. Medicaid Expansion

Medicaid, which originally applied to four groups (the disabled, blind, elderly, and needy families with dependent children), is to be expanded under PPACA to all individuals under 65 with incomes below 133% of the federal poverty line.^[9] In a 7-justice majority, the Supreme Court struck down the provision in PPACA that would deny Medicaid funding to states that do not comply with the Medicaid expansion.

The majority struck down the provision on the basis of the Spending Clause, which allows Congress “to pay the Debts and provide for the . . . general Welfare of the United States.” U.S. Const., Art. I, § 8, cl. 1. Relying on precedent, the Court concluded that Congress may use financial incentives to encourage states to act in a particular manner but, when “pressure turns into compulsion” the legislation has gone too far.^[10] Chief Justice Roberts compared the Medicaid penalty as a “gun to the head” because states stood to lose their entire Medicaid funding. According to the majority, because states do not have the option to opt out without severe penalty, that is, losing all existing Medicaid funding on top of any new funding from the program, it creates more than a minor penalty and would be impermissible under the Constitution.

The majority viewed the Medicaid expansion as a new project rather than an addition to old law. The Court reasoned that Congress could impose conditions for the new program or reasonable expansions thereof but it could not deny existing funding for failure to comply with provisions of a new program that the states did not see coming.  Justice Ginsburg and Justice Sotomayor disagreed, reasoning instead that the Medicaid expansion did not constitute a new program but simply an outgrowth of the existing one. Additionally, where the majority noted that states could not foresee new conditions coming and could not be bound by them, the dissenting opinion pointed out that the Medicaid Act put all states on notice that the program might expand when it reserved a right “to alter, amend, or repeal any provision.”^[11]

IV.  Rest of PPACA Affirmed

In deciding to strike down the Medicaid expansion penalties to states not in compliance, the Court was tasked with determining whether or not to uphold the balance of PPACA. The Chief Justice, despite a strong dissent, concluded that Congress would not have intended for all of PPACA to be eliminated should this provision be struck down. As such, the Court ruled that any constitutional violation of the Medicaid expansion was entirely remedied by striking down that specific provision and leaving the balance of PPACA otherwise intact.   Justices Kennedy, Scalia, Alito, and Thomas disagreed, believing that it is not the role of the Court to sever one part of a statute and allow the rest to stand as it could “impose unknowable risks that Congress could neither measure nor predict.”

Ultimately, the decision left the Affordable Care Act largely intact, basing its decision on Congress’s authority to tax rather than the Commerce Clause or the Necessary and Proper Clause. The only section that will be removed is the penalty eliminating all Medicaid funding from states who do not comply with the program’s expansion.

V. Implications for Physicians

Lawyers, politicians, pundits, and the public are still trying to digest the immediate and potential implications of the Supreme Court decision.  Our thoughts as to potential implications for physicians are as follows:

• At a practical level, we know that provisions of PPACA, such as the ban on specialty hospitals, the disclosures of physician interests in ancillary services, the Sunshine Act, the fraud provisions described below, and some of the benefits for physicians outlined below will remain in effect for now.

• As a practical matter, we know some issues critical to physicians remain unaddressed, including reimbursement, access to care for patients due to physician shortages, and cost-containment.

• The decision affirms some of the benefits of PPACA for physicians, such as patients’ improved access to care, assuming physician supply, elimination of patients’ concerns regarding coverage based on pre-existing conditions, elimination of Medicare Part D donut hole, primary care physician payment rates and bonuses, geographic payment differentials benefits for rural areas, and tax credits for small businesses.

• Payment mechanisms remain in flux and enter an era of “collaboration” and “quality” measures with value-based purchasing, shared savings, quality measures, bundling, and others.

• Fraud enforcement will increase in prevalence with a need to fund healthcare expansion.  These efforts will be assisted by provisions of PPACA that remain in effect for now including the 60 day overpayment rule, the self-disclosure protocol, a liberalized intent standard, enhanced Civil Monetary Penalties, and relaxed standards for qui tam actions.

• We also know or can predict with some assurances that, for the immediate future, the wave of consolidation and integration, largely of physicians and hospitals, will continue due to reform internal and external to PPACA.  Physician engagement will be critical.

• Physicians can take comfort in some expanded coverage for their patients.  The scope, degree, quality and long-term reality of which remains to be seen.

• Election platforms in the fall certainly will include healthcare reform as a component.  Physician engagement will be critical.

• Challenges as to the scope of the Supreme Court’s decision, particularly with respect to the Commerce Clause and the taxing authority, will be tested in the future.

• Physicians, as employers and employees, will face decisions about insurance offerings to their own employees and for themselves, with options depending, in part, based on practice or employer size.

• States will struggle to make decisions about whether to opt-in or opt-out of the Medicaid expansion, which will have significant impact for physicians and for their patients.  Some of this decision-making may be deferred to election time, much will involve politics, and much will involve cost-benefit decisions over the short and long-term.

• The decision will continue to have intended and unintended consequences as we wrangle with a new era of healthcare.  We will update you as new issues arise.