News & Insights


January 6, 2020

Health Headlines – January 6, 2020

Coalition of States Petitions for Supreme Court Review of Affordable Care Act Ruling – On January 3, 2020, a coalition of 20 states and the District of Columbia, led by California Attorney General Xavier Becerra, petitioned the U.S. Supreme Court for a writ of certiorari to review the recent Affordable Care Act (ACA) ruling by the United States Court of Appeals for the Fifth Circuit, which found that the ACA’s individual mandate is now unconstitutional because Congress reduced the mandate’s penalty to zero dollars for an individual’s failure to have health insurance coverage.

The Fifth Circuit held on December 18, 2019 in a 2–1 decision that the mandate “can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power.” The appellate court remanded the case and found that the district court was better positioned to address severability arguments that the federal defendants first introduced on appeal. A copy of the Fifth Circuit opinion is available here.

The California-led coalition seeks the Supreme Court’s review of the case during this term, which ends in June 2020. The petition argues that:

The actions of the lower courts have cast doubt on hundreds of other statutory provisions that together regulate a substantial portion of the Nation’s economy. States, health insurers, and millions of Americans rely on those provisions when making important—indeed, life-changing—decisions. The remand proceedings contemplated by the panel majority would only prolong and exacerbate the uncertainty already caused by this litigation.

Joining Attorney General Becerra in the filing are the Attorneys General of Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Massachusetts, Michigan, Minnesota (by and through its Department of Commerce), Nevada, New Jersey, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, Washington, and the District of Columbia, as well as the Governor of Kentucky. A copy of the January 3, 2020 petition for writ of certiorari can be found here.

Reporter, Kathryn T. Han, Los Angeles, +1 213 443 4336,

Tenth Circuit Upholds HHS Risk Adjustment Methodology – On December 31, 2019, a 3-0 panel of the United States Court of Appeals for the Tenth Circuit upheld the methodology adopted by HHS to administer the risk adjustment program under the Affordable Care Act (ACA). See New Mexico Health Connections v. U.S. Department of Health & Human Services et al., No. 18-2186 (10th Cir. 2019).

The ACA’s permanent risk adjustment program, designed to discourage insurers from cherry-picking healthier enrollees over sicker patients, transfers funds from non-grandfathered plans with healthier enrollees in the individual and small group markets to non-grandfathered plans with enrollees who are less healthy. Section 1343 of the ACA directs HHS to develop standards for this program, and several insurers challenged parts of HHS’s formula, particularly taking issue with HHS’s decision to base transfers on statewide average premiums—rather than each plan’s premium—in its risk adjustment formula.

These insurers have argued that the use of a statewide average premium disadvantages smaller, newer, and lower-priced health plans in favor of larger ones. New Mexico Health Connections (NMHC), a CO-OP in New Mexico, brought this challenge in district court. The district court ruled that the formula was arbitrary and capricious, striking it down for the years 2014 to 2018 until HHS could justify its rationale for adopting a budget-neutral risk adjustment program. See New Mexico Health Connections v. United States Department of Health and Human Services et al., No. 1:2016cv00878 – Doc. 55(D.N.M. 2018). This determination resulted in the Trump administration’s immediate suspension of about $10.4 billion in risk adjustment payments in the summer of 2018.

The Tenth Circuit, however, disagreed with the district court, and concluded on December 31, 2019 that HHS’s use of the statewide average premium was not arbitrary or capricious, that the risk adjustment program must be budget neutral, and that HHS should have been given more deference. Judge Scott Matheson wrote that HHS acted reasonably in using a formula that relied on the statewide average premium, stating that courts “cannot second guess an agency’s rulemaking decision when it provided reasons for its chosen course of action.”

The ruling reinstates HHS’s risk adjustment methodology and means that HHS need not take additional action to justify its methodology for 2014 through 2016. Risk adjustment payments based on the methodology will continue without disruption. Because HHS had subsequently issued new rules covering the 2017 and 2018 methodologies, the challenges over the rules for those years are moot.

Reporter, Yujin Chun, Los Angeles, +1 213 443 4322,

Senators Grassley and Wyden Reintroduce Legislation to Reduce Medicare Appeals Backlog – On December 17, 2019, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) reintroduced legislation to address the backlog of Medicare appeals cases awaiting review before an Administrative Law Judge (ALJ) in the Office of Medicare Hearings and Appeals (OMHA) at HHS.

As previously reported, OMHA has struggled to keep up with sustained, significant growth in requests for an ALJ hearing. Although 42 U.S.C. § 1395ff requires ALJs to adjudicate appeals within a 90-day timeframe, HHS reports that the average processing time in FY 2019 was 1,372 days. As a result, providers often wait over three years for their appeals to be adjudicated.

The Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2019 (AFIRM Act), S. 3078, would grant HHS the power to create a new Medicare magistrate program within OMHA to handle less complex, lower-dollar appeals. ALJs would handle cases in which the amount in controversy is equal to or greater than $1,630, while magistrates would handle cases in which the amount in controversy is at least $160 but less than $1,630. Notably, the AFIRM Act would allow ALJs to issue expedited decisions on the record when there are no material issues of fact in dispute, and binding authority controls the decision in the matter under review.

The AFIRM Act also includes communication and transparency components. The Act would require HHS to create a Medicare Provider & Supplier Ombudsman, who would investigate and respond to complaints and questions. The Ombudsman would also evaluate trends that affect the audit and appeals process. Furthermore, HHS would be required to publish on its website key information regarding OMHA appeals, such as the percentage of appeals that received fully favorable, partially favorable, and unfavorable decisions. To make the audit practices and review methodologies of Medicare contractors more transparent, the AFIRM Act would require the Secretary’s approval of contractor audit review guidelines before their use by Medicare contractors. Additionally, the AFIRM Act would direct the Secretary of HHS, within six months of enactment, to report to Congress on recommendations to change the payment structure for Recovery Audit Contractors (RACs) from incentive-based to non-incentive based without additional financial burdens to providers.

A 2015 version of the Act, previously described here, was approved by the Senate Finance Committee by unanimous consent but failed to pass the Senate.

The King & Spalding RAC Coalition, an ad-hoc group of hospital clients created in April 2013 to communicate jointly to CMS and Congress regarding the need for meaningful and common-sense reforms to the RAC program, pressed for fundamental and lasting RAC reform. The Coalition advocated for a number of critical provisions contained in both the current AFIRM Act, and an unenacted version introduced in 2015, including the establishment of an Ombudsman, advanced notification of audit review guidelines, and revision of the RAC incentive structure.

The new legislative text of the AFIRM Act is available here.

Reporters, Mark Polston, Washington, DC, +1 202 626 5540,; Allison Kassir, Washington, DC, +1 202 626 5600,; and Rebecca Gittelson, Atlanta, +1 404 572 4679,


King & Spalding Submits Public Comments to CMS and OIG about Major Stark, Anti-Kickback, and CMP Proposed Rules – In October, as part of HHS’s Regulatory Sprint to Coordinated Care, CMS and OIG proposed substantial changes to the regulations implementing the Stark Law, the Anti-Kickback Statute (AKS), and the Beneficiary Inducements Civil Monetary Penalty (CMP) Law. If finalized, these proposed rules would address obstacles to the delivery of coordinated, value-based care to patients and help relieve associated regulatory burdens that have long stymied innovation and the compliance efforts of health care providers. Click here to read King & Spalding’s Client Alert highlighting the key proposals.

Driven by the opportunity to influence the trajectory of these important proposals, King & Spalding organized and represented a coalition of hospitals to submit detailed comments to both agencies. The comment period closed on December 31, 2019, and we will be closely monitoring the agencies’ development of the final rules.

If you have questions about the proposed rules or would like additional information about the public comments submitted by King & Spalding, please contact Rob Keenan (, Kim Roeder (, Adam Robison (, or Kate Stern (