News & Insights


December 23, 2019

Health Headlines – December 23, 2019

Fifth Circuit Rules ACA Individual Mandate Unconstitutional – On December 18, 2019, the Court of Appeals for the Fifth Circuit ruled that the Patient Protection and Affordable Care Act (ACA) individual mandate is unconstitutional but remanded to the district court to assess whether the rest of the ACA can stand without the individual mandate. 

As previously reported, the Northern District of Texas issued a ruling in December 2018, holding the entire ACA unconstitutional. The district court declared that Congress’s decision to set the individual mandate to zero dollars made the mandate an unconstitutional penalty and that the entire ACA was invalid because the individual mandate could not be severed.  In a split decision on appeal, the Fifth Circuit affirmed the district court’s decision that the zeroed-out mandate was unconstitutional but ordered the district court to reconsider the severability question on remand.  Texas v. United States, No. 19-10011, slip op. (5th Cir. Dec. 18, 2019).

The case began when a coalition of private individuals and states challenged the constitutionality of the individual mandate.  The individual mandate requires individuals to maintain health insurance coverage or make a payment to the IRS.  The individual mandate survived an earlier challenge, when the Supreme Court held that it was a tax and valid exercise of Congress’s taxing authority.  Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012).  In 2017, however, Congress set the individual mandate at zero dollars, effective January 2019.

On appeal, the Fifth Circuit affirmed the district court in part and remanded in part, in a 2-1 decision written by Judge Jennifer Elrod and joined by Kurt Engelhardt.  The majority agreed with the district court that the Supreme Court’s framework for upholding the individual mandate was no longer valid because the zeroing-out of the mandate meant that it could no longer be interpreted as a tax.  Therefore, the majority found, the individual mandate was unsupported by any Congressional authority and was unconstitutional. But the majority reversed and remanded on the question of severability. The majority found that the district court failed to perform a detailed severability analysis and was better positioned to address new severability arguments the federal defendants first introduced on appeal. In dissent, Judge Carolyn King argued that none of the plaintiffs had standing, so she would vacate the district court’s order. 

Although the decision is only binding in states within the Fifth Circuit (Louisiana, Mississippi, and Texas), it sets the stage for another potential challenge to the ACA before the Supreme Court.  A copy of the Fifth Circuit’s opinion is available here.

Reporter, Rebecca Gittelson, Atlanta, GA, +1 404 572 4679,

Federal Government Funded for Fiscal Year 2020; Surprise Billing and Comprehensive Drug Pricing Legislation Postponed Until 2020  – Last Friday, President Trump signed into law two bipartisan legislative packages that included all twelve Fiscal Year 2020 funding bills. Comprehensive surprise billing and drug pricing legislation were not included in the year-end appropriations bills.

One of the two legislative packages, H.R. 1865, the “Further Consolidated Appropriations Act, 2020” extended funding for various health-related programs, including the Community Health Centers Fund, and delayed Medicaid Disproportionate Share Hospital (DSH) cuts through May 22, 2020.  This five-month extension was largely paid for by incorporating one legislative proposal related to drug pricing: The Creating and Restoring Equal Access To Equivalent Samples (CREATES) Act, to deter pharmaceutical companies from blocking lower-cost generic alternatives from entering the marketplace.  With DSH cuts and health care program funding set to expire in May, debate over these health-related policies will be pushed until early next year.  H.R. 1865 also repealed three taxes established by the Affordable Care Act: the "Cadillac tax" on expensive employer plans, the medical device excise tax, and the health insurance fee.

Despite a last minute advocacy effort, surprise billing legislation was not included in the end-of-year appropriations packages. Debate over drug pricing bills will also continue into 2020, as no comprehensive drug pricing legislation was included in the comprehensive Fiscal Year 2020 appropriations bills.  The Senate Finance Committee marked up S. 2543, the Prescription Drug Pricing Reduction Act, in July that was endorsed by President Trump and updated this month. The Senate bill caps Medicare Part D out-of-pocket spending at $3,100 a year in 2022 and restricts drug pricing increases to the rate of inflation. Earlier this month the House passed a bill that would require the Health and Human Services Secretary to negotiate the price of Medicare drugs, at least 25 drugs in the first year and then a minimum of 50 drugs every year after the initial year, and impose financial penalties on pharmaceutical companies that raise drug prices at a rate higher than the inflation rate.   

King & Spalding’s prior analysis of H.R. 3, the Democratic drug-pricing bill passed by the U.S. House of Representatives on December 12th, can be found here.

Reporter, Taylor Whitten, Sacramento, CA, +1 916 321 4815,

HHS Proposes Rules to Increase Availability of Donated Organs – On December 17, 2019, CMS and HRSA announced two proposed rules intended to: (1) enforce accountability from Organ Procurement Organizations (OPO) for their performance; and (2) promote more organ donations from living donors. These proposed rules were released in accordance with President Trump’s Executive Order on Advancing American Kidney Health, which directs HHS to improve the organ donation allocation process. The executive order may be found here.

OPOs are non-profit organizations that play a crucial role in ensuring that transplantable human organs are made available to ill patients that are on a waiting list for organ transplant. OPOs are responsible for identifying potential organ donors, procuring as many organs as possible from donors, and ensuring that the organs are properly preserved and transported quickly to a suitable recipient. There are currently 58 OPOs in the United States, which are each assigned to a specific donation service area.  

According to CMS, CMS’s proposed rule is intended to improve organ donation rates by holding OPOs accountable in meeting certain performance metrics. Currently, CMS evaluates OPOs based on donation and transplantation rates that are determined using OPOs’ self-reported data. In accordance with CMS’s proposed rule, CMS will use federal death records to determine the size of the pool of potential organ donors when calculating an OPO’s donation and transplantation rates.

CMS’s proposed rule also requires that OPOs meet the donation and transplantation rates of the current, top 25 percent of OPOs. OPOs would have to meet the new donation/transplantation-rate standards at the end of each re-certification cycle. OPOs with rates that are statistically significantly below the top 25% will be required to undergo a quality assurance and performance improvement program, which CMS will assess at least every 12 months. CMS’s proposed rule may be found here.

HRSA’s proposed rule is intended to reduce the financial burden on living organ donors. Current law permits the Secretary of HHS to reimburse for travel and subsistence expenses incurred toward living organ donation. HRSA’s proposed rule would expand the scope of reimbursable expenses to include lost wages, and childcare and eldercare expenses for donors who lack other forms of financial support.  HRSA’s proposed rule may be found here.

Comments on CMS’s proposed rule are due 60 days after publication in the Federal Register. At the time of this article’s publication, the proposed rule had not yet been published in the Federal Register. Submissions received should include file code CMS-3380-P.

Reporter, Jennifer Siegel, Los Angeles, CA, +1 213 443-4389,

OIG Approves Customer Loyalty Program Involving Pharmacy Products -- On December 17, 2019, OIG published Advisory Opinion 19-06 approving a supermarket’s expansion of a loyalty program to allow customers to earn rewards points on out-of-pocket costs paid in connection with the purchase of pharmacy items or immunizations. OIG determined that while the proposal would implicate the Federal anti-kickback statute (AKS) and the prohibition on beneficiary inducements under the civil monetary penalties law (CMP Law), the arrangement would satisfy the CMP Law’s exception for retailer rewards and would pose minimal risk under the AKS.

The requester of the opinion operates supermarkets with in-store pharmacies and offers a loyalty program under which customers earn one point per dollar spent on purchases. Under the current program, customers could not earn points based on out-of-pocket costs for pharmacy items or immunizations (Pharmacy Products). Points may be redeemed for dollars off future purchases, except for Pharmacy Products. The supermarket proposed to expand the program by allowing customers to earn points on out-of-pocket costs for Pharmacy Products, including products covered by Federal health care programs. However, a customer could not earn more than $75 worth of points per year through the purchase of Pharmacy Products. Apart from the foregoing, the program would continue unchanged, and its other existing limitations would continue to apply. Notably, the program would be available on equal terms to all customers, and points would be subject to an expiration policy and could not be applied toward Pharmacy Products.

OIG first acknowledged the proposal would implicate the CMP Law because points earned on Pharmacy Products could induce a beneficiary to select the supermarket to supply federally reimbursable items or services. However, OIG determined the proposal would meet the CMP Law’s exception for retailer rewards programs, which applies where: (1) the rewards consist of coupons, rebates, or other rewards from a retailer; (2) the rewards are offered or transferred on equal terms available to the general public, regardless of health insurance status; and (3) the offer or transfer of the rewards is not tied to the provision of other items or services reimbursed in whole or in part by the Medicare or Medicaid programs. OIG had little difficulty determining the points are retailer rewards, the program would be offered on equal terms to all customers regardless of health insurance status, and the points would not be tied to federally reimbursable items or services. In reaching the final point, OIG observed that points could not be redeemed for Pharmacy Products, customers could earn points without purchasing Pharmacy Products, and the purchase of Pharmacy Products would not be incentivized through an increased point value.

Next, OIG explained the proposal would implicate the AKS because the points could induce a beneficiary to purchase federally reimbursable items or services from the supermarket. Although the AKS lacks an applicable safe harbor, OIG concluded the program would raise minimal risk because it would be unlikely to steer beneficiaries toward the supermarket or to result in overutilization or increase costs to Federal health care programs. In reaching this conclusion, OIG again observed that customers could earn points without purchasing Pharmacy Products and that there would not be a specific incentive for transferring prescriptions to the supermarket. OIG also observed the program would not involve the waiver or reduction of cost-sharing amounts and that any out-of-pocket costs that would generate points would result from previously prescribed or recommended Pharmacy Products.

A copy of the advisory opinion can be found here.

Reporter, Kyle A. Gotchy, Sacramento, CA, +1 916 321 4809,

OIG Report Finds CMS Made an Estimated $94 Million in Incorrect Medicare EHR Incentive Payments to Acute-Care Hospitals On December 12, 2019, OIG released a report finding that CMS made an estimated $94 million in incorrect Medicare incentive payments to acute-care hospitals for using electronic health records (EHRs) over an audit period from January 1, 2013, through September 30, 2017.  Based on its audit findings, OIG estimated that CMS made incorrect net incentive payments of $93.6 million, or less than one percent of the $10.8 billion in total EHR incentive payments CMS made to acute-care hospitals during the audit period.

The Health Information Technology for Economic and Clinical Health Act (HITECH Act) established the Medicare EHR incentive program in 2009 to promote the adoption of EHRs and to improve healthcare quality, safety, and efficiency through the promotion of health information technology and electronic health information exchange.  The EHR incentive program provides Medicare incentive payments to acute care and critical access hospitals that demonstrate “meaningful use” of certified EHR technology.  As of September 30, 2017, Medicare had made approximately $15.2 billion in EHR incentive payments to eligible hospitals. 

To determine whether CMS made EHR incentive payments to acute-care hospitals in accordance with Federal requirements, OIG conducted an audit covering $10.8 billion in 8,297 Medicare EHR net incentive payments made to acute-care hospitals from January 1, 2013, through September 30, 2017.  OIG selected a statistical sample of 99 net incentive payments (totaling $152.2 million), of which 53 were final and 46 were non-final payments.  OIG noted that a separate OIG audit would focus on Medicare EHR incentive payments made to critical-access hospitals.

OIG’s report found that CMS did not always make Medicare EHR incentive payments to acute-care hospitals in accordance with Federal requirements.  Specifically, of the 99 net incentive payments sampled, OIG found that 50 net incentive payments were incorrect, totaling $1.3 million, or less than one percent of the $152.2 million in payments reviewed.  OIG found that the incorrect net incentive payments occurred because (1) the Medicare administrative contractors (MACs) did not review the supporting documentation for all hospitals to identify errors in the hospitals’ cost-report numbers used to calculate the incentive payments; and (2) CMS did not include labor and delivery services in the incentive payment calculations, resulting in inflated incentive payments to hospitals. 

OIG’s report made the following recommendations to CMS to address the 50 incorrect net incentive payments identified in OIG’s sample:

(1) that CMS recover from acute-care hospitals, in accordance with CMS policies, the portion of the $1.3 million in incorrect payments within the reopening period; and

(2) for the remaining portion of the $1.3 million outside of the reopening and recovery periods, that CMS notify the acute-care hospitals associated with the incorrect payments so that those hospitals can exercise reasonable diligence to investigate and return any identified similar incorrect payments in accordance with the 60-day rule.

To attempt recovery of the $94 million in estimated incorrect incentive payments made during the audit period, and to ensure that all final and non-final payments made after the audit period are correct, OIG made the following additional recommendations to CMS:

(3) that CMS instruct the MACs to review all hospitals’ supporting documentation to identify errors in the hospitals’ cost-report numbers used to calculate the incentive payments, including supporting documentation for labor and delivery inpatient bed-days for cost reports with reporting periods beginning on or after October 1, 2013; and

(4) that CMS revise the incentive payment calculations to include labor and delivery inpatient bed-days reported on line 32 in column 8 of Worksheet S-3, part I, of hospitals’ Medicare cost reports for all incentive payments that were calculated using cost reports with reporting periods beginning on or after October 1, 2013.

OIG’s report indicated that CMS concurred with its recommendations and described actions that it planned to take to address OIG’s recommendations.  Regarding OIG’s first recommendation, CMS stated that it considers only final payments to be the payments of record upon which recoupment should be initiated and would use OIG’s findings to ask the MACs to make corrections to the impacted cost reports used for calculating non-final net incentive payments.  Regarding OIG’s third and fourth recommendations, CMS stated that it concurred with these recommendations to the extent they apply to non-final payments.

After reviewing CMS’s comments, OIG maintained that its findings and recommendations were valid.  Regarding its first recommendation, OIG responded that whether CMS initiates recoupment on final payments or asks the MACs to adjust cost reports for non-final payments, these actions should recover incorrect Medicare EHR incentive payments to acute-care hospitals for both final and non-final payments.  Regarding its third and fourth recommendations, OIG responded that CMS should implement both of these recommendations for final and non-final incentive payments, noting that 63 percent of the total overpayments OIG identified were final payments. 

A copy of OIG’s report is available here

Reporter, John Whittaker, Sacramento, CA, +1 916 321 4808,