News & Insights


June 29, 2015

Health Headlines – June 29, 2015


Supreme Court Rules that Tax Subsidies Are Available in States with Federal Exchanges More than six million Americans enrolled in health benefit Exchanges established by the Federal Government will retain their tax subsidies for purchasing health insurance following the United States Supreme Court’s 6-3 decision in King v. Burwell, announced June 25, 2015.  In brief, the Supreme Court ruled that a section of the Patient Protection and Affordable Care Act (“ACA”) providing tax subsidies to certain individuals who enroll in health plans through “an Exchange established by [one of the fifty] State[s]” also extends those subsidies to individuals who enroll through an Exchange established by the Federal Government. 

Brief Background

As the Supreme Court explained, the ACA adopts “three key reforms.”  First, the ACA adopts the guaranteed issue and community rating requirements.  Second, the Act requires “individuals to maintain health insurance coverage or make a payment to the IRS,” while creating “an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance.”  Finally, the Act seeks “to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line.”  Under the key statutory provision at issue in the case, tax subsidies are available to individuals who enroll in health plans through “an Exchange established by the State.”  42 U.S.C. § 18031.  The 2012 IRS regulations, however, made the tax subsidies “available on both State and Federal Exchanges.”  45 C.F.R. § 155.20.

The Challenge

The petitioners in King v. Burwell did not want to purchase health care coverage and lived in Virginia, one of the 34 States for which the Federal Government had established the Exchange.  The petitioners argued that absent the IRS’s rule interpreting the statutory phrase “an Exchange established by the State” to include exchanges established by the Federal Government, they would not have been eligible for the ACA’s tax subsidies.  And, without the tax subsidy, petitioners would be forced “to spend more than eight percent of [their individual] income[s] on health insurance” and would therefore be exempted from the requirement to buy insurance.

Summary of Ruling

In a 6-3 decision, the Supreme Court held that tax credits are available to individuals in States that have a Federal Exchange. While the majority recognized that “petitioners’ plain-meaning arguments are strong,” it explained that even “when deciding whether the language is plain, the Court must read the words ‘in their context and with a view to their place in the statutory scheme.’”  Looking at that broader context, the majority held that the tax subsidies should be available in States with Federal Exchanges.  First, the majority pointed out that if a State chooses not to establish an Exchange, the ACA tells the Secretary to establish “such Exchange.”  The majority argued that “by using the words ‘such Exchange,’ the Act indicates that State and Federal Exchanges should be the same.”  Second, interpreting the statute as prohibiting subsidies in States with Federal Exchanges would undermine two of the three key reforms of the ACA, the provision of tax credits and the coverage requirement, meaning that “only one of the Act’s three major reforms would apply in States with a Federal Exchange.” The majority held that it was “implausible that Congress meant the Act to operate in this manner.”  Finally, the ACA promises tax credits to those with a household income between 100 percent and 400 percent of the federal poverty line but, under the petitioners’ interpretation “those provisions are an empty promise in States with a Federal Exchange” since such individuals would “be eligible for a tax credit, but the amount of that tax credit would always be zero.”

In sum, the Court held that the ACA was intended “to improve health insurance markets, not to destroy them” and that the statute should be interpreted “in a way that is consistent with the former, and avoids the latter.”  The petitioners’ interpretation, by contrast, “would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.”

In a stinging dissent, Justice Scalia accused the majority of bending over backward to avoid the plain meaning of the statutory provision (“Contrivance, thy name is an opinion on the Affordable Care Act!”), and suggested that the law, which is colloquially known as Obamacare, should now be called “SCOTUScare.”

The Supreme Court’s decision is available here.  For information on the upcoming July 8, 2015 King & Spalding Roundtable addressing the decision, please click here.

Reporters, Daniel J. Hettich, Washington, D.C., +1 202 626 9128,; Ramsey B. Prather, Atlanta, +1 404 572 4624,

This article has been adapted from the original version, which was published by the American Health Lawyers Association.  Any further publication of this article requires the advance written permission of the American Health Lawyers Association.

CMS Releases ESRD PPS Proposed Rule On June 26, 2015, CMS released a Proposed Rule to increase payments by 0.3% for end-stage renal disease (ESRD) care providers in 2016 under the ESRD Prospective Payment System (PPS) for renal dialysis services.  CMS estimates that the proposed rule will result in an increase of approximately $20 million in payments in 2016: a 0.5% increase for hospital-based ESRD facilities, and a 0.2% increase for freestanding facilities.  Comments on the Proposed Rule are due by August 25, 2015.

The proposed rule also includes provisions for adding new injectable and intravenous products into the bundled payment under the ESRD PPS and increasing outlier payments for ESRD beneficiaries requiring higher resource utilization, as well as revisions to the Low Volume Payment Adjustment eligibility criteria (excluding facilities of common ownership located within 5 miles from one another), and the continuing delay of payment for inclusion of oral-only ESRD drugs until January 1, 2025.
Additionally, the Proposed Rule addresses the ESRD Quality Incentive Program, proposing changes including, among others:

  • A potential reduction of up to 2% from Medicare payments each year for facilities that fail to achieve a minimum score for performance on certain quality measures;
  • A reinstatement of the qualifying patient attestations for the In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems measure beginning in 2017;
  • Additions to the quality measure sets for the payment years 2018 and 2019;
  • Replacement of the four individual dialysis adequacy clinical measures with a single comprehensive clinical measure (the “Dialysis Adequacy clinical measure”);
  • Adoption of two new reporting measures beginning in 2019—the Ultrafiltration Rate reporting measure and the Full-Season Influenza Vaccination reporting measure;
  • Modification of the “small-facility adjuster” calculation; and
  • Continuation of the current data validation pilot program.

The proposal is set for publication in the Federal Register on July 1, 2015, with comments due August 25.  The CMS fact sheet regarding the Proposed Rule is available here.

Reporter, Katy Lucas, Atlanta, +1 404 572 2822,

CMS Announces Modifications to ACO Investment Model – On June 25, 2015, CMS announced modifications to the Accountable Care Organization (ACO) Investment Model.  These modifications are aimed at helping rural areas and small group practices participate in the Medicare Shared Savings Program (MSSP).

The ACO Investment Model, which was first announced in October 2014, allows for pre-paid shared savings.  The ACO Investment Model is designed to help provide support to organizations whose ability to invest in infrastructure and redesigned care processes would be improved with additional access to capital.

Pursuant to the two model design modifications announced on June 25, 2015, CMS will allow ACOs starting in the MSSP in 2015 to apply in the upcoming application round and will remove the 10,000 or fewer assigned beneficiary eligibility criteria for rural ACOs that started in the MSSP in 2015 (or will start in 2016). 

The application period for ACOs that started in 2014 and 2015—or will start in 2016—will open July 1, 2015 and close July 31, 2015.

To view the CMS fact sheet on the ACO Investment Model changes, click here.  To view CMS’s official blog post regarding the changes, click here.
Reporter, Isabella Edmundson, Atlanta, + 1 404 572 3527,

DOJ Sues Michigan Hospitals For Agreements Not To Compete – On June 25th, the Department of Justice, Antitrust Division (DOJ) announced that it sued four Michigan hospital systems for allegedly allocating territories for marketing of competing healthcare services. Three of the systems—Hillsdale Community Health Center, Community Health Center of Branch County, Michigan, and ProMedica Health System Inc.—agreed to settle the charges.  The DOJ will continue to litigate against a fourth, W.A. Foote Memorial Hospital (doing business as Allegiance Health).

According to the DOJ’s complaint, hospitals compete to attract patients by advertising, direct mailings to patients, outreach to physicians and employers, conducting health fairs, and offering free health screenings.  Hillsdale, Allegiance, Branch, and ProMedica’s Bixby and Herrick Hospitals  each competed through these marketing efforts to attract patients.  The DOJ’s complaint alleges that Hillsdale curtailed this competition for years by entering into “gentleman” agreements with Allegiance, Branch, and ProMedica to limit the marketing of competing healthcare services.  The DOJ also alleges that patients in Hillsdale County, Michigan, were prevented from receiving free medical services, such as health screenings and physician seminars, that they would have received from Allegiance but for its agreement with Hillsdale. 

The settlement with the DOJ prohibits Hillsdale, Branch, and ProMedica from agreeing with other healthcare providers, including hospitals and physicians, to limit marketing or to divide any geographic market or territory.  The proposed settlement also prohibits communications among the defendants about their marketing activities, subject some limited exceptions.  The settling hospitals must also implement compliance measures to prevent the recurrence of these types of practices.

The DOJ’s press release regarding the lawsuit is available by clicking here

Reporter, John D. Carroll, Washington, D.C., +1 202 626 2993,

 Also in the News

King & Spalding to Host Reception at AHLA – King & Spalding cordially invites you to a reception in conjunction with the American Health Lawyers Association (AHLA) Annual Meeting.  The reception will be held on Tuesday, June 30, 2015 from 5:00 – 7:00 p.m. on the rooftop deck of King & Spalding’s Washington office.  For more information and to RSVP, please click here.

King & Spalding to Host Roundtable on the Supreme Court’s Decision in King v. Burwell – On June 25th, the U.S. Supreme Court issued its decision in King v. Burwell,  upholding the availability of Affordable Care Act subsidies for private insurance in exchanges established by the federal government.  On Wednesday, July 8, 2015, King & Spalding will be hosting an Atlanta-based Roundtable addressing the decision, the political fallout, and its impact on healthcare providers, life sciences companies, and consumers.  For more information and to register, please click here.

The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice.

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