February 7, 2011

To no one’s surprise, the United States Senate last week rejected a bill that would have repealed last year’s healthcare reform legislation, the Patient Protection and Affordable Care Act (PPACA). The vote proceeded along strict party lines, with all 51 Democrats present voting against the bill and all 47 Republicans voting in favor. It was, as the Washington Post said, “scripted political theater.” PPACA thus remains on the books, although it is widely anticipated that the new majority in the House of Representatives will try to starve it by withholding funding.

Judge Roger Vinson likewise fulfilled expectations when he became the second federal district court judge to rule that PPACA was unconstitutional, in Florida v. U.S. Dept. of Health and Human Services, on January 31, 2010. What does this judicial decision mean for the implementation of the statute?

Federal Courts: 2 – 2

Four federal district courts have now ruled on PPACA’s constitutionality. The central issue in all four cases was the constitutionality of the individual mandate to buy health insurance or be subject to a tax withhold. The 26 states that jointly brought the suits argued that a federal requirement that individuals obtain a specific service—a costly one in the case of health insurance—is unprecedented and oversteps the authority the Constitution gives Congress to regulate interstate commerce. In addition to Florida—Virginia filed its own action based on a Virginia statute—states that signed on to the lawsuit are: Alabama, Alaska, Arizona, Colorado, Georgia, Indiana, Idaho, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Wisconsin and Wyoming.

The first two courts (one in Lynchburg, VA and the other in Detroit) upheld the statute, including the mandate. In December, in the independent Virginia action, Judge Henry Hudson in Richmond declared the requirement that individuals buy health insurance unconstitutional. On January 31st, Judge Vinson in the Northern District of Florida went further and invalidated not just the mandate but the entire statute. If the individual mandate could not be enforced because it was unconstitutional, Judge Vinson reasoned, neither could the rest of PPACA since the mandate provision was not severable.

Judge Vinson declined to issue an injunction against implementation of PPACA, however, indicating that he expected his “declaratory” judgment to have the effect of blocking implementation until and unless a higher court overrules him.

There is now a good deal of confusion as to whether implementation of PPACA can or should proceed while survival of the statute is being litigated. The Justice Department has already filed its appeal from the Florida decision, but it has not yet determined whether to seek a stay of enforcement given the ambiguity of Judge Vinson’s statement on his expectations regarding implementation. While a number of advocates believe that PPACA now goes on hold until the appeal is decided, various experts reject that view. Judge Vinson is one of about 700 federal district court judges. Two of his peers have upheld PPACA. David Engstrom of Stanford Law School does not interpret the opinion as preventing the law from going forward. "The issue that the court has ruled on has been specifically contradicted by two other district courts," he said. "So, the idea that the Obama administration should somehow stand down from implementing the act, based on a fourth district court, doesn't have any basis in law."

It remains to be seen whether states will put the brakes on implementation, particularly on their preparations for the requirement that they create insurance exchanges through which individuals and small businesses will be able purchase private insurance with federal subsidies, which also does not take effect until 2014. The Virginia Attorney General has indicated that preparations would cost his state $20-$30 million. Some PPACA provisions are already effective, such as one prohibiting states from saving money by tightening their eligibility standards for Medicaid. Their immediate fate, too, is something of an open question.

Onward to the Supreme Court

On Thursday, February 3, the Attorney General for the state of Virginia asked the Supreme Court for expedited review. A Justice Department spokesperson stated that the DOJ "continues to believe this case should follow the ordinary course of allowing the court of appeals to hear it first so the issues and arguments concerning the Affordable Care Act can be fully developed before the Supreme Court decides whether to consider it." Legal experts consider it unlikely that the Supreme Court will allow the court of appeals to be bypassed, especially since the individual mandate does not take effect until 2014.

As noted above, the federal government has already filed its appeal from the January 31 Florida ruling by Judge Vinson with the Court of Appeals for the 11th Circuit.

Columnist/blogger Ezra Klein (Washington Post) has opined that: “Vinson's ruling does not halt, slow, or otherwise impede implementation of the act. What it does do is speed the law's route to the Supreme Court, which is where this question will ultimately be decided. It could also have the effect of making the Supreme Court more comfortable with adopting Hudson's stance, under the theory that Vinson's ruling makes a limited rejection of the individual mandate seem less extreme. We'll see.”

A common theme in the politico-legal blogosphere is that Justice Anthony Kennedy, often a swing vote, will ultimately decide the constitutionality of PPACA—probably in 2012.

Will Overturning PPACA Help or Hurt Anesthesiologists?

That is a huge question, which we will not attempt to answer here in its myriad aspects. We would note, however, that a number of experts have observed that if PPACA survives minus the individual mandate, its insurance reform provisions will bankrupt many of the smaller health insurance plans. Without a requirement that they buy heath care coverage, many individuals will wait to do so until they are ill or catastrophe strikes. If health plans are required to offer coverage to all comers, with no exclusions for pre-existing conditions, their costs will skyrocket apace with the “adverse selection” insurance phenomenon.

There has already been significant consolidation among carriers, with many markets currently served by only a couple of third party payers. The large payers will continue to grow by swallowing small plans that would otherwise fail. As the dominant payers gain even more market power, the theory goes, they will drive down provider fees. That does not augur well for anesthesiologists or any other providers.

Fortunately this consequence remains speculative. We will continue to watch legal and political healthcare reform developments and do our best to bring you timely information.

With best wishes,

Tony Mira
President and CEO