Following a busy Supreme Court term with two decisions on the Affordable Care Act (ACA), many more ACA-related legal challenges remain pending at appellate and district courts across the country. This post discusses the status of long-standing ACA-related lawsuits and highlights newer lawsuits over ACA implementation. A prior post summarized the implications of recent Supreme Court decisions and California v. Texas. A third post will focus on the resolution of lawsuits over the risk corridors program.

This post covers a decision from the Court of Appeals for the Second Circuit holding that New York is preempted from making changes to ACA-governed risk adjustment transfers and a decision from the Court of Appeals for the Ninth Circuit holding that the ACA prohibits discrimination in plan benefit design under Section 1557 of the ACA. Additional decisions could be issued any day on a Trump-era rule on association health plans, whether insurers are entitled to unpaid cost-sharing reductions, and how the health insurance tax applies to Medicaid managed care organizations.

Risk Adjustment And The States

On July 20, 2020, the Second Circuit ruled that New York could not adopt a rule that made changes to ACA-governed risk adjustment transfers in the small group market. The regulation at issue was put in place by the New York Department of Financial Services and allowed the Department to adjust risk adjustment transfers in the small group market. New York believed it had federal approval to make these adjustments based on phone calls and emails with federal officials and because New York’s proposal was addressed in comments on the 2019 payment rule.

UnitedHealthcare and Oxford Health Insurance sued, arguing that the state’s regulation was preempted and that the required payments violate constitutional due process protections. The state rule would have resulted in a reduction of up to 30 percent in the amount of risk adjustment funding that the plaintiffs would have received under the federal risk adjustment methodology. A district court disagreed and upheld the regulation as complementary to the federal risk adjustment program.

The insurers appealed to the Second Circuit, which solicited feedback from the Department of Health and Human Services (HHS) on the federal risk adjustment program. HHS took the position that New York’s rule is preempted by the ACA and that the state cannot change federal risk adjustment transfer amounts “through unilateral state action” without obtaining formal federal approval.

The Second Circuit agreed with the federal government and reversed the district court to conclude that New York’s rule was preempted by the ACA’s risk adjustment scheme. Although a state can manage the risk adjustment program, it must seek formal federal approval to do so, and, in general, states cannot adopt restrictions that “prevent the application” of the ACA or its implementing regulations.

New York’s rule would modify the results of the federal risk adjustment methodology and redistribute payments based on the state’s own assessment. This modification poses a “direct and positive” conflict with the ACA and HHS’s implementing regulations and is preempted because it was never approved by HHS. Although HHS could have been clearer in its statements about whether New York could act without first obtaining explicit federal approval, the court gives some deference to HHS’s position as outlined in its amicus brief. Informal communications with agency officials via phone and email, the Second Court concluded, did not rise to the level of a formal determination.

From here, New York could ask for en banc review by a full panel of judges on the Second Circuit or appeal to the Supreme Court. In the absence of an appeal, the case will be remanded to the district court for further proceedings.

Short-Term Plans And Association Health Plans

Both the association health plan (AHP) and short-term plan rules were challenged in federal district court in the District of Columbia, with mixed results. Judge John D. Bates sided with a coalition of 12 Democratic attorneys general in concluding that the AHP rule violated federal law and was “clearly an end-run around the ACA.” Judge Richard J. Leon then ruled in favor of the Trump administration and against a coalition of consumer advocates and safety-net health plans who challenged the short-term plan rule. Both decisions—one against the Trump administration (over the AHP rule) and one for the Trump administration (over the short-term plan rule)—were appealed to the DC Circuit.

A divided panel of the DC Circuit upheld the short-term plan rule in July 2020, concluding that the government’s interpretation was entitled to deference and was neither inconsistent with nor impermissible under the ACA or HIPAA. The lead plaintiff, the Association for Community Affiliated Plans, suggested that it will ask for en banc review by a full panel of judges on the DC Circuit. (On the same day, a separate panel of DC Circuit judges upheld a rule adopting a site-neutral payment policy under the Medicare program.)

In the meantime, we await a decision from the DC Circuit on the validity of the AHP rule. Oral argument was held in November 2019 but no decision has been issued (even though the court had granted a request for expedited appeal). A decision could be issued any day.

While we wait a decision over the AHP rule, two employers brought parallel litigation in Texas, asking for a declaratory judgment that their health coverage arrangement is a single-employer self-insured group health plan (and thus exempt from most ACA rules). If approved, this could be a backdoor way of implementing the objectives of the Trump administration’s AHP rule. The employers had requested an advisory opinion from the Department of Labor, which concluded that the arrangement did not qualify as a single-employer group health plan. (A prior post describes the political undertones of this case, which is pending before Judge Reed O’Connor.) The parties had asked for a preliminary injunction in February 2020 but instead filed a motion for summary judgment. The government opposes the motion. Briefing was completed in late April. A hearing has yet to be scheduled.

Cost-Sharing Reductions

The Court of Appeals for the Federal Circuit will soon issue a decision on whether insurers are entitled to unpaid cost-sharing reductions (CSRs). Oral argument—over four consolidated cases brought by Sanford Health Plan, the Montana Health CO-OP, Community Health Choice, and Maine Community Health Options—was held in early January, followed by a request for supplemental briefing on damages calculations and the possibility of a double recovery by insurers because of silver loading.

The court later requested an additional round of supplemental briefs in late April on the impact of the Supreme Court’s decision in Maine Community Health Options v. United States. As discussed previously on Health Affairs Blog, the Supreme Court’s decision to award unpaid risk corridors payments also has implications for the lawsuits over unpaid CSRs. The insurers argued that Maine Community Health Options compels the court to rule for the insurers on CSRs and there is no reason to reduce the amount of unpaid CSRs owed. The government withdrew part of its argument on appropriations but maintained that insurers would be recovering twice if allowed to recover unpaid CSRs. This is because insurers raised premiums (and thus received higher premium tax credits) to account for unpaid CSRs.

The government distinguished between the long-ended risk corridors program and the ongoing CSR program, noting that the ACA allows recoupment of unpaid CSRs (but not risk corridors payments) through higher premiums and consequently higher premium tax credits, and thus there is no basis to infer a right of insurers to be compensated. Insurers might be able to recover unpaid CSRs from the end of 2017, the government acknowledged, since those CSRs had not yet been added to premiums. But this fact has “limited practical significance” because insurers have been more than made whole due to silver loading. With two rounds of supplemental briefing now complete, a decision could be issued any day.

Other CSR lawsuits have been stayed pending a decision by the Federal Circuit. Stayed lawsuits have been brought by Molina, Guidewell Mutual Holding Corporation (which includes Blue Cross and Blue Shield of Florida, Florida Health Care Plan, and Health Options), Health Alliance Medical Plans, Harvard Pilgrim Health Care, EmblemHealth, and Blue Cross Blue Shield of North Dakota. LA Care also resolved the amount it is owed for 2019, and the district court entered a judgment of about $16.7 million. Some of these insurers have filed more than one complaint for unpaid CSRs for a different year, including separate complaints by Sanford Health Plan and Maine Community Health Options.

In the meantime, insurers have begun filing new or additional CSR complaints or adding CSR claims to complaints over unpaid risk corridors payments. Many of these complaints were filed soon after the Supreme Court’s risk corridors decision, suggesting insurers expect a victory on CSRs. Recent complaints were filed by Anthem (for about $523.3 million for 2017 through 2020); Cigna (for about $195.9 million for 2017 and 2018 and an amount to be determined for 2019); the Montana Health CO-OP (for about $18.7 million for 2019 and an amount to be determined for 2020), to add to its other complaints over unpaid CSRs from 2017 and 2018); and Harvard Pilgrim (for about $10.2 million for 2019 and an amount to be determined for 2020), to add to its other complaint over unpaid CSRs. MDwise Marketplace amended its complaint (for about $3.6 million for 2017) and Common Ground was approved for a separate class action for insurers owed unpaid CSRs for 2019.

Health Insurance Tax

The Fifth Circuit will issue a decision regarding how the ACA’s health insurance tax applied to Medicaid managed care organizations. Judge Reed O’Connor in district court in Texas had ruled that the government owed six states about $479 million for the health insurance tax from 2014 to 2016. This decision was ultimately appealed to the Fifth Circuit where oral argument was held on June 1. The states also filed a separate lawsuit to recover the tax from 2018; that challenge remains on hold pending the appeal. (The health insurance tax was fully repealed by Congress beginning in 2021.)

Provider Conscience Rule

The Trump administration appealed three federal district court decisions—in California, New York, and Washington—to vacate its provider conscience rule. These decisions were appealed to the Second Circuit (New York) and the Ninth Circuit (California and Washington). The rule will remain on hold while the cases are appealed, and briefing will continue through the summer.

Some of those decisions included multiple underlying cases. For instance, the California decision was based on three separate challenges brought by the attorney general of California, the city and county of San Francisco, and the county of Santa Clara (alongside organizational and individual co-plaintiffs). In New York, lawsuits were filed by the attorney general of New York, Planned Parenthood, and the National Family Planning and Reproductive Health Association. The Christian Medical and Dental Association intervened to defend its interests alongside the Trump administration and separately appealed the New York decision to the Second Circuit.

The Ninth Circuit agreed to consolidate the California and Washington appeals, with the government’s opening brief due in mid-June, answering briefs due in mid-July, and optional reply briefs due in early August. However, the plaintiffs asked for a 90-day extension in filing answering briefs, requesting a shift in the deadline from July 15 to October 13.

The Second Circuit also agreed to consolidate its appeals, and the government and the Christian Medical and Dental Association filed separate opening briefs in late April 2020. While some of the parties requested extensions in the briefing schedule, the court denied these requests, noting that the plaintiffs’ briefs are due on July 27 and that no further extensions will be allowed.

Section 1557

There is a long history of litigation over Section 1557 of the ACA. After more than three years, a district court in Texas vacated parts of the Obama-era rule on Section 1557 that explicitly prohibited discrimination based on gender identity and termination of pregnancy. This ruling, known as Franciscan Alliance, followed a preliminary injunction over the same parts of the rule in December 2016. ACLU of Texas and the River City Gender Alliance were allowed to intervene in the lawsuit to defend the interests of transgender people and women.

The private plaintiffs—led by the Franciscan Alliance—appealed the decision to the Fifth Circuit and asked for a stay until after the Supreme Court issued its decision in Bostock v. Clayton County, Georgia. In the meantime, the Trump administration issued its new final rule to implement Section 1557. (As discussed here, Bostock calls major parts of the final rule into question and is being cited heavily in legal challenges to the new rule.) Following Bostock, the parties asked for a delay to work on a settlement negotiation, suggesting the possibility of dismissal without the need for briefing or argument. The ACLU and River City Gender Alliance did not object to the delay. The Fifth Circuit granted this request and the plaintiffs’ opening brief (if needed) is newly due on August 5. Proceedings are stayed until then.

New Lawsuits Over The Trump-Era Rule

As expected, there is now a new round of litigation over the Trump-era final rule on Section 1557, which will go into effect on August 18 if not blocked. I am aware of at least five lawsuits challenging the rule, which include coalitions of plaintiffs arguing that the rule should be invalidated. Lead plaintiffs in the five lawsuits are Whitman-Walker Health (filed in DC); the Boston Alliance of Gay, Lesbian, Bisexual, and Transgender Youth (filed in Massachusetts); the attorney general of New York joined by Democratic attorneys general from 22 other states (filed in New York); the attorney general of Washington; and two individuals (Tanya Asapansa-Johnson Walker and Cecilia Gentili who filed in New York). The last complaint includes harrowing accounts of the lifetime of discrimination that Walker and Gentili—two national leaders in the transgender movement—have faced in accessing health care and health insurance as transgender women of color.

Each lawsuit asks the court to vacate the Trump-era rule in its entirety and prevent HHS from implementing or enforcing its provisions. They argue that the 2020 rule violates the Administrative Procedure Act (APA) as arbitrary and capricious and contrary to law. They also argue that the rule exceeds HHS’s statutory authority, violates the Fifth Amendment, and is inconsistent with the Supreme Court’s recent decision in Bostock. Some also cite violations of the First Amendment’s Free Speech Clause and the Establishment Clause.

While most of the lawsuits focus on all aspects of the 2020 rule (including language access changes and changes to the rule’s scope and enforcement scheme), many emphasize the rule’s changes to sex-based discrimination and the broad religious exemption. Similar to the other complaints, the attorneys general note that the rule was “motivated by discriminatory animus towards transgender people and other members of the LGBTQ community” and put the rule in the context of other attempts by the Trump administration to erode civil rights protections for transgender people. This includes the appointment of Roger Severino as the head of the Office for Civil Rights. (Severino previously served as Director of the DeVos Center for Religion and Civil Society at the Heritage Foundation. While there, he wrote a brief in January 2016 that heavily criticized OCR’s proposed rule on Section 1557; he was then appointed and tasked with enforcing Section 1557 and the rule he decried.)

The Trump administration must respond to a request for a preliminary injunction in the challenge brought by Whitman-Walker Health by July 24. A reply brief is due on July 29, and a hearing will be held on August 3 in front of Judge James E. Boasberg. A similar response from the government is due on July 31 in the challenge brought by Walker and Gentili, with a reply brief due on August 7 and a hearing scheduled for August 12 before Judge Frederic Block.

Ninth Circuit On Section 1557 And Disability Discrimination

On July 14, a unanimous three-judge panel of the Ninth Circuit allowed a lawsuit brought under Section 1557 of the ACA to proceed against Kaiser Permanente and Regence. The plaintiffs—who have severe hearing loss and need hearing aids—argued that the insurers violated Section 1557’s ban on disability discrimination by excluding coverage of all hearing loss treatment except cochlear implants. The plaintiffs need non-cochlear implant treatment for their hearing loss (such as outpatient visits to an audiologist and hearing aids). The district court dismissed the suit, holding that insurers have discretion in defining their scope of benefits so long as they do so in a nondiscriminatory manner.

The Ninth Circuit reversed in part, concluding that the ACA prohibits discrimination in plan benefit design. Here, the court referred to Section 1557 itself, the statutory requirement to cover essential health benefits (EHB), implementing regulations for EHB, and the Obama-era rule for Section 1557 (which explicitly prohibited discrimination in benefit design). While the insurers argued that they complied with the state’s EHB benchmark plan, the court found this insufficient to comply with the ACA’s nondiscrimination standards, noting that ACA rules “make clear that a state-selected benchmark plan is only the starting point” for determining EHB and that benefit design must not discriminate based on factors that include disability. The court also rejected the insurers’ other arguments, including the objection that a nondiscriminatory plan design mandate would require insurers to cover all treatment. As the Ninth Circuit put it, insurers could have a “reasonable, nondiscriminatory reason” for excluding treatment for hearing loss other than cochlear implants.

The court went on to conclude that a categorical exclusion of treatment for hearing loss raises an inference of discrimination. But this exclusion is not categorical and, while inadequate to treat the plaintiffs’ health needs, may adequately serve the needs of hearing disabled people as a group. The case was remanded back to the district court so the plaintiffs can potentially amend their complaint and proceed. The insurers could ask for en banc review by the full panel of judges on the Ninth Circuit or go back to the district court to continue the litigation.

Hospital Transparency Rule

In late June, a district court upheld the Trump administration’s recent rule to require hospitals to publicly disclose negotiated rates and prices of certain “shoppable” items and services. The rule was promulgated under Section 2718(e) of the Public Health Service Act, a provision of the ACA known as the medical loss ratio provision. Hospitals challenged the rule, arguing that the government exceeded its authority, that the rule violates the First Amendment, and that the rule is arbitrary and capricious. Judge Carl J. Nichols disagreed and upheld the rule. The American Hospital Association, the lead plaintiff, quickly appealed to the decision to the DC Circuit. The rule is set to go into effect on January 1, 2021.

Double Billing Rule

Three district courts, one in California, one in Maryland, and one in Washington, have now set aside HHS’s recent “double billing” rule, which requires insurers to send and enrollees to pay two separate monthly bills for certain abortion services and all other services. The rule was set to go into effect in June but delayed to August due to COVID-19. The ruling in Washington was limited to Washington State and was decided on preemption grounds. The rulings in California and Maryland vacated the rule under the APA, meaning the rule is set aside on a nationwide basis. The federal government has already appealed the Washington decision to the Ninth Circuit (and will presumably do the same with the California decision). The government is expected to appeal the Maryland decision to the Fourth Circuit.

“Take Care” Case

Litigation will continue before the district court in Maryland over a range of Trump administration policy changes. The plaintiffs—five cities and two individuals—had also argued that the Trump administration violated the Constitution’s requirement that the President “take care that the laws be faithfully executed” by attempting to undermine the ACA through executive action. In April, the district could held that the lawsuit could proceed under the APA but not the Take Care Clause of the Constitution.

The plaintiffs did not appeal that ruling to the Fourth Circuit and will instead turn to their claims that major provisions of the 2019 payment rule violate the APA. The district court did not want to dismiss those claims because it did not have the full administrative record. From here, the parties will produce the administrative record, and the plaintiffs will file a motion for summary judgment by August 13. That will begin the briefing process, which will continue through mid-November.

Lawsuit To Require A Special Enrollment Period

As discussed here, the city of Chicago sued the Trump administration, asking a federal district court in DC to require HHS to authorize a special enrollment period due to the COVID-19 crisis. The Trump administration filed its response on July 20, arguing that the city lacks standing to sue, that the lawsuit inappropriately challenges agency inaction, and that HHS is not required to establish a COVID-19 special enrollment period. Briefing will continue through early August. The case is before Judge Timothy J. Kelly. Oral argument is not expected at this time.

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