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July 31, 2017

Health Headlines – July 31, 2017


Senate Fails to Achieve Consensus on ACA Repeal; Outlook for Healthcare Legislation Uncertain

Last week, the Senate debated and voted upon legislation (1) to repeal-and-replace the Affordable Care Act (ACA); (2) to repeal the ACA without a replacement; and (3) to repeal-and-replace the ACA in a more limited—or “skinny” way. None of these proposals garnered 50 votes in the Senate. Following the last vote in the Senate, to defeat the “skinny bill,” Senate Majority Leader Mitch McConnell (R-KY) said, "it's time to move on.”  President Trump tweeted right after the vote “let ObamaCare implode, then deal” and later urged Republican Senators to find a path to 50 votes, stating “Repeal & Replace is not dead!”  It is unclear exactly what the next steps will be. There have been reports of bipartisan discussions among House and Senate members on ways to stabilize the individual insurance market, and President Trump is expected to decide early this week whether the administration will make ACA cost-sharing reduction (CSR) subsidy payments.

The House of Representatives has begun its August recess and will not return until September 5. The Senate is scheduled to be in session for the next two weeks. While discussions in Washington about the future of healthcare will continue, it may be instructive to review the events of the past week.

Last Tuesday afternoon, the Senate voted 51-50 in favor of the motion to proceed to debate H.R. 1628, American Health Care Act of 2017, with Senator John McCain (R-AZ) flying back to Washington after being diagnosed with brain cancer and with Vice President Pence casting the tie-breaking vote.

Over the course of the week, the Senate voted 43-57 against the ACA repeal and replace Better Care Reconciliation Act (with nine Republican Senators voting against), and voted 45-55 against the ACA repeal-only bill (with seven Republican Senators voting against). Following the failure of amendments both to repeal and replace and to repeal-only, it was expected that the Senate would vote on Thursday evening on a more limited ACA repeal and replace bill nicknamed the “skinny bill,” to be followed by a “vote-a-rama” session in which senators may introduce an unlimited number of amendments and vote immediately on these amendments. There is no time limit to a “vote-a-rama,” so senators were preparing for an all-night voting session.

On Thursday afternoon, Senators McCain, Lindsay Graham (R-SC), Ron Johnson (R-WI), and Bill Cassidy (R-LA) held a news conference to announce that they would not vote for a “skinny bill” unless they were assured by the House of Representatives that there would be a conference on the House-passed and Senate-passed health care bills. House Speaker Paul Ryan (R-WI) issued a statement indicating that the House would proceed to a conference on the health care bill, stating, “if moving forward requires a conference committee, that is something the House is willing to do.” 

On Thursday evening, the eight-page “skinny bill, a scaled back version of ACA repeal, was released. The “skinny bill” proposed to eliminate the individual mandate and repeal the employer mandate for three years. Under the “skinny bill,” Planned Parenthood would be defunded for one year, the medical device tax would be suspended for three years, States would be granted waivers to develop their own healthcare approaches, and contribution limits to health savings accounts would be increased. Before midnight, the Congressional Budget Office (CBO) released its estimate that the “skinny bill,” as compared with current law, would result in 16 million more Americans uninsured, a 20-percent increase in premiums, and a reduction of the deficit by $180 billion over a decade.

However, early Friday morning, by a vote of 49-51, the “skinny bill” was defeated, with Senators McCain, Lisa Murkowski (R-AK), and Susan Collins (R-ME) joining all of the Senate Democrats in opposing the bill. McCain returned to Arizona to begin treatment for his cancer and is not expected to return to Washington until September.

Reporter, Allison Kassir, Washington, D.C., +1 202 626 5600, akassir@kslaw.com.

D.C. Circuit Decides Part C DSH Issue in Favor of Providers

On July 25, 2017, the United States Court of Appeals for the District of Columbia Circuit held that HHS violated the terms of the Medicare statute by failing to undertake notice-and-comment rulemaking in implementing its policy to treat Medicare Part C days as “days entitled to benefits under part A” in calculating hospitals’ disproportionate share hospital (“DSH”) calculations. See Allina Health Servs. v. Price, No. 16-5255 (D.C. Cir. July 25, 2017) (“Allina II”). Allina II is the culmination of many years of ongoing litigation on the Part C DSH issue. Generally speaking, treatment of Part C days as Part A days in the DSH calculation serves to severely ratchet down payments to hospitals. The D.C. Circuit’s decision is, therefore, a clear victory for providers, but it is likely that the Secretary will appeal the determination to the Supreme Court.

History of the Secretary’s Part C DSH Policy

In the 2014 case Allina Health Servs. v. Sebelius, the D.C. Circuit ruled that HHS’s 2004 regulation on the same was not a logical outgrowth of the proposed rule and therefore was “deficient” from a notice standpoint. 746 F.3d 1102 (D.C. Cir. 2014) (“Allina I”). Allina I vacated the 2004 regulation and remanded to the CMS Administrator the question of, in the absence of the vacated 2004 rule, how Part C days should be treated for the purposes of DSH. In 2015, the Administrator issued a decision reaffirming the Secretary’s prior position that Part C days were days entitled to benefits under Part A for purposes of DSH. The plaintiffs in Allina I have once again challenged that position, and their appeal is pending in the United States District Court for the District of Columbia. See Allina Health Sys. v. Burwell, Case. No. 1:16-cv-00150-GK (D.D.C.).

In June 2014, just two months after its defeat in Allina I, HHS published DSH data for fiscal year 2012 adjustments. HHS explicitly included Part C days as “days entitled to benefits under part A.”  Hospitals brought suit based on the Secretary’s 2012 data and policy – this is the subject of the Allina II decision.

Allina II Holdings

In Allina II, the D.C. Circuit held that the Secretary’s 2012 policy was invalid because the Medicare statute required CMS to undergo notice and comment before treating Part C days as days entitled to Part A.

In particular, the court held that the Medicare statute’s notice-and-comment requirements necessitated notice-and-comment rulemaking for any 1) “rule, requirement or other statement of policy” that 2) “establishes or changes” 3) a “substantive legal standard” that 4) governs “payment for services.” 42 U.S.C. §§ 1395hh(a)(2), (b)(1). The D.C. Circuit found that each of these four requirements was met and therefore notice-and-comment rulemaking was required.

HHS argued that the Medicare statute incorporates the Administrative Procedure Act’s (“APA’s”) exceptions to the notice-and-comment. Under the APA, “interpretive rules” need not go through notice-and-comment rulemaking. Without deciding whether the Secretary’s 2012 policy was indeed interpretive, the court rejected the Secretary’s argument. Specifically, the court held that the Medicare statute did not incorporate the APA exceptions, and that the Medicare statute explicitly required notice-and-comment rulemaking for all “statements of policy,” even if they were “interpretative,” whenever the other three elements of the statute were also met. See 42 U.S.C. §§ 1395hh(a)(2), (b)(1).

The D.C. Circuit also held that another provision of the Medicare statute independently required notice-and-comment rulemaking, such that it would reach the same outcome even if the APA’s interpretive rule exception to notice-and-comment rulemaking applies. In particular, 42 U.S.C. § 1395hh(a)(4) states that a regulation that is not a “logical outgrowth” of proposed rulemaking is to be treated as a mere “proposal” until new notice-and-comment rulemaking is undertaken. Because the Allina I court vacated the Secretary’s 2004 rule, HHS was required to provide “further opportunity for public comment and a publication of the provision against as a final regulation” before imposing the rule, per 42 U.S.C. § 1395hh(a)(4).

Although the Secretary adopted the same policy through new notice-and-comment rulemaking for periods starting on or after October 1, 2013, the court found that that rulemaking was irrelevant for fiscal years prior to 2014 (though it noted that the Secretary’s post-10/1/13 policy was the subject of separate litigation before the D.C. District Court).

Having concluded that the Secretary’s 2012 policy was invalid from a procedural standpoint under the Medicare statute in two distinct ways, the court did not address whether the policy was also arbitrary and capricious.

The case was therefore remanded to the D.C. District Court for additional proceedings consistent with the issued opinion.

Implications of the D.C. Circuit’s Decision

Although the only fiscal year before the court was 2012, the logic of the holding should apply to all fiscal years prior to the Secretary’s 2013 notice-and-comment rulemaking, starting in 2004 with the vacated rule.

Given the scope of the court’s holdings addressing not only Part C days, which alone is worth hundreds of millions of dollars to providers, but also the larger procedural holding that the Medicare statute’s imposition of a more stringent notice-and-comment requirements than the APA, we believe it is likely that the Secretary will take advantage of one or both of his two opportunities for appeal. First, the Secretary has 45 days to request an en banc rehearing by the entire D.C. Circuit. Second, the Secretary has 90 days to request that the Supreme Court grant a writ of certiori to review the decision.

The Supreme Court is under no obligation to hear a case upon such a petition (and in fact only accepts approximately 100-150 of the more than 7,000 cases it is asked to review each year). Nonetheless, the odds of the Supreme Court granting review of this case if requested is greatly increased by several factors, including that the D.C. Circuit’s Allina II holding creates a “circuit-split,” given that several other U.S. Circuit Courts of Appeal have suggested that the Medicare statute and the APA create identical notice-and-comment standards. During Allina II oral arguments, Judge Kavanaugh acknowledged that such a determination would create a split amongst the circuits that could lead to Supreme Court review.

As it stands, the Allina II decision represents a major win for providers. If and when it becomes final, i.e., non-appealable, providers should expect to see CMS recalculate their FFY 2004-2014 SSI ratios to exclude Part C days. (Notably, the court’s opinion only discusses the treatment of Part C days for the purposes of the SSI or Medicare fraction of the DSH formula and does not directly address the treatment of dual-eligible Part C days for purposes of the Medicaid fraction.)  In addition, under the broader holding of this case, any time CMS has denied reimbursement based upon the application of a manual provision or some “other statement of policy,” providers should question whether the Medicare statute required that policy to be subjected to notice-and-comment rulemaking under the standard announced in Allina II.

The D.C. Circuit Court’s decision is available here.

Reporters, Daniel Hettich, Washington D.C., +1 202 626 9128, dhettich@kslaw.com and Elizabeth Swayne, Washington, D.C., +1 202 383 8932, eswayne@kslaw.com.

Also in the News

CMS Explains “Special Status” Calculation – CMS released new information explaining the calculation for determining whether a clinician has “special status” and is exempt from the Quality Payment Program. According to the explanation, CMS analyzes Medicare Part B claims data and runs a series of calculations to determine the number of total measures, activities or categories that a clinician or group must report under the program. CMS’s explanation is available here.

King & Spalding to Host Medical Device Summit on September 6-7 – King & Spalding, in conjunction with FDANews, invites you to register and participate in the 2017 Medical Device Summit. Exploring cutting-edge issues facing the medical device industry, the Summit features two tracks of in-depth presentations from which attendees can build a program to suit their interests and needs. The event will begin on Wednesday, September 6, 2017, at 6:00 pm with a Welcome Dinner followed by a full day of sessions on Thursday, September 7. The Summit will close with a networking reception that evening. Subjects will include regulatory, reimbursement, enforcement, compliance, commercial, litigation, cybersecurity and other topics that demand the attention of medical device manufacturers in the coming year. Additional information and registration forms are available here.

King & Spalding to Host Annual Pharmaceutical University on November 9 – King & Spalding will hold its tenth annual Pharma U event in Philadelphia on November 9. Join us for a full day of presentations on subjects critical to drug and biologics manufacturers, their in-house counsel, managers, and executives. The three-track symposium will address regulatory, enforcement, intellectual property, commercial, corporate, litigation, international trade, and political issues. Up to seven hours of CLE credit will be applied for. Additional information about the event and registration is forthcoming.

Atlanta Life Sciences & Healthcare Group Event – On August 3, 2017, King & Spalding LLP will host the Atlanta Life Sciences & Healthcare Group (formerly Atlanta Young Professionals in Healthcare) for a summer networking event to learn about the mission of MedShare, an Atlanta-based 501(c)(3) humanitarian aid organization that delivers surplus medical supplies and provides biomedical equipment training to communities in need around the world. The event will be held from 5:30 pm – 7:30 pm in our Atlanta office. Registration is available here.

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