This week, the 6th Circuit Court of Appeals upheld the constitutionality of the individual mandate portion of the healthcare reform law, the ACA (also known as PPACA).  In this first decision from a Federal Court of Appeals on the matter, a Republican appointee joined a Democratic appointee Wednesday for a 2 to 1 decision upholding the law.  The decision affirms the ruling of a federal circuit judge in Michigan.  

We have discussed in prior posts that the 6th Circuit case is one of several similar challenges pending in Federal Courts of Appeal around the country.   In mid-June, the 11^th Circuit Court of Appeals heard arguments in the government’s appeal of Circuit Court Judge Vinson’s earlier ruling that the individual mandate is unconstitutional and that, given the lack of a severability clause, the entire law is therefore unconstitutional.  And the 4^th Circuit heard arguments in mid-May in cases brought by the Commonwealth of Virginia and Liberty University challenging the individual mandate and PPACA generally.  The nation continues to await these additional Circuit rulings, with the expectation that some or all of these cases will be consolidated by the US Supreme Court for expeditious hearing this fall.

Available here are prior posts discussing these PPACA challenges, legislative efforts to repeal portions of the law and the Physician Hospitals of America (PHA) and Texas Spine and Joint Hospital (TSJH) court challenge to Section 6001 regarding limitations on physician-owned hospitals.

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As the Fourth Circuit Court of Appeals considers the constitutionality of the individual mandate of the Affordable Care Act (aka PPACA, or healthcare reform) and various GOP healthcare bills are deliberated, the healthcare plan spearheaded by Wisconsin Rep. Paul Ryan has  emerged as one platform for 2012 presidential hopefuls to stake out their positions on the U.S. healthcare system.

Ryan’s plan, part of the GOP budget proposal for 2012, would establish insurance exchanges for Americans age 55 and older and subsidize their purchase of a private insurance policy based on their income through vouchers. Republicans backing the plan say it would help cut the federal budget deficit by $5 trillion over the next 10 years.

Among other concerns, critics point out that the value of those vouchers would rise only as fast as overall consumer inflation, which has beeen outpaced by the rise in health costs for years, a result that would leave beneficiaries on the hook for rising health costs. Mindful of the political risks, most Republican presidential hopefuls treaded gingerly after Ryan and supporting House Republicans unveiled the plan.

A US News report describes the various positions on the Ryan plan publicly expressed by Republican hopefuls in the month since it was announced, ranging from former Minnesota Gov. Tim Pawlenty’s general approval of the ideals without approval of the Paul plan itself, to Indiana Gov. Mitch Daniels’s more clear support, to various others lingering on the fringes. 

Now that he is officially a candidate for the Republican presidential nomination, Newt Gingrich is beginning to more firmly define his positions on various on healthcare reform issues. Although, not surprisingly, he has been generally critical of Obama healthcare initiatives, on May 15^th Gingrich appeared on Meet the Press discussing his distaste for the Ryan bill as akin to Democrat efforts at imposing such a “radical change,” instead preferring “a system where people voluntarily migrate to better outcomes, better solutions, better options”. And while Gingrich has been generally critical of the Obama healthcare initiatives, he has endorsed the individual mandate to buy insurance that is one of the most well-known and controversial aspects of The Affordable Care Act. Not surprisingly, Gingrich’s comments have drawn criticism from many on the left, including a likely competitor for the GOP nomination, former Pennsylvania Sen. Rick Santorum who has defended the Ryan plan as not radical but a necessary and appropriate curb on the healthcare program effects on the federal budget deficit.  

We fully expect various presidential hopefuls to continue to define their healthcare positions in the coming months and will continue to discuss these developments.

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Yesterday, CMS released the much anticipated proposed regulations regarding the Shared Savings Program contemplated in Section 3022 of the healthcare reform law, PPACA.  The 429-page set of regulations is expected to provide greater clarity re CMS's implementation of HHS's authority to contract with Accountable Care Organizations (ACOs) under shared savings or other payment arrangements.  The proposed rule provides for a 60 day public comment period.  

 In conjunction with the CMS release, yesterday three other federal agencies issued related guidance.  First, the FTC and DOJ jointly issued a Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.  The joint proposed statement seeks public comment until May 31st regarding the two agencies' guidance, including the new proposed antitrust "safety zone" that would be created.

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On Monday, a  federal judge sitting in Florida, Judge Robert Vinson,  declared unconstitutional the portion of the healthcare reform law (aka PPACA, or the Affordable Care Act)  requiring most Americans to buy health insurance by 2014 or face penalties.  Judge Vinson also declared unconstitutional the section of the act that withholds Medicare funds from states that refuse to participate.  This ruling is similar in part to the decision out of Virginia in mid December we'd previously discussed.   However, the Florida ruling is different in one key way - - - Judge Vinson ruled that, because the law contains no savings clause permitting certain provisions to be voided while retaining the remainder of the law, the unconstitutionality of those provisions voids the entire law.

Florida is one of 26 states that has challenged the law to date, while other states have indicated  that they are considering challenging as well.   In contrast to the decisions out of Florida and the Eastern District of Virginia,  federal judges in the Eastern District of Michigan and the Western District of Virginia and have ruled to uphold the "individual mandate" to carry health insurance.

On a related note, the Physician Hospitals of America (PHA) and Texas Spine & Joint Hospital (TSJH) lawsuit challenging Section 6001 regarding physician-owned hospitals may be impacted by the ruling in Florida.   PHA and TSJH have been awaiting an opinion in their case in the Eastern District of Texas from Judge Michael H. Schneider, and they have already filed a motion asking Judge Schneider to adopt the decision and invalidate the ban on physician-owned hospitals.

As the Senate debates whether to vote on the healthcare reform repeal and modification bills introduced over the past several days and other federal courts tackle similar healthcare reform challenges, developments on the healthcare reform front are occurring seemingly daily.  

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As we'd previously reported, the U.S. House had scheduled to vote today on legislation repealing in full the healthcare reform law known as The Affordable Care Act (aka PPACA).   In response to the shootings of Arizona Congresswoman Gabrielle Giffords and others this past Saturday in Tucson, the historic vote has been postponed until a yet undisclosed date.

In the meantime, yesterday Missouri’s House of Representatives passed House Resolution 39 calling on Governor Jay Nixon and Attorney General Chris Koster (both Democrats) to cause the state to join a lawsuit challenging the constitutionality of certain aspects of The Affordable Care Act.   The Missouri resolution passed 115 to 46, with voting largely along party lines.   A companion resolution, SR 27, is currently pending in the Missouri Senate, and it seems unlikely that the Governor and AG will take action until both chambers have weighed in.  Currenly twenty states are parties to the lawsuit, and states such as Maine and Ohio are among a handful of states that  report strongly considering joinly the lawsuit as well. 

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The new Republican-controlled House of Representatives has scheduled a bold and symbolic vote to repeal the healthcare reform law (PPACA) next Wednesday, January 12th.  The proposed repeal legislation is expected to be a brief document that simply revokes the law in full.

Because the Senate is still controlled by Democrats, the repeal legislation is expected to go no further than the House, but despite the uphill battle, Republicans are working hard to win over enough Senate Democrats to pass repeal legislation in the Senate as well.  On Monday, key Senate Democrats sent a letter to incoming House Speaker John Boehner vehemently opposing the repeal and warning that a full-scale repeal would take away a 50 percent discount on brand-name drugs for seniors who fall into a coverage gap known as the doughnut hole.  Adding additional concerns to the mix,  the non-partisan Congressional Budget Office reported today that repeal would result in adding $230 billion to the federal debt by 2021.

Although a full-scale repeal of the law seems unlikely now, Republicans are expected to be looking at every available opportunity to slow down or roll back the healthcare legislation.  Many in the new Congress will be sure to stage strong opposition to new rulemakings and appropriations that are necessary to implement the key components of PPACA in an effort to minimize or delay the practical impact of the law. 

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In prior posts I’ve discussed the significant impact of the Patient Protection and Affordable Care Act (the PPACA, more commonly referred to as the healthcare reform legislation) on the physician-owned hospital industry.  Section 6001 of the PPACA stymies growth of the industry by prohibiting expansion of existing physician-owned hospitals and bans any new physician-owned hospitals that are not Medicare-certified by December 31, 2010 (i.e. hospitals violating those limitations will not be permitted to bill Medicare/Medicaid for referrals made by their physician owners). Although a number of exceptions apply to the expansion prohibition, most industry analysts believe meeting the exceptions will be challenging to virtually impossible for existing physician-owned hospitals.

According to a press release issued today by Physician Hospitals of America (PHA), the trade association for the industry, there are approximately 265 existing physician-owned hospitals, 29 of which are scheduled to open and receive their Medicare certification by December 31, 2010. An additional 45 hospitals are currently under development and are not expected to be open or Medicare-certified by December 31, 2010. According to PHA, there were also 39 hospitals that were previously under development but were abandoned as projects due to passage of Section 6001.

In response to Section 6001, PHA and Texas Spine & Joint Hospital (TSJH) jointly filed suit today in U.S. Federal Court, Eastern District of Texas, challenging the constitutionality of Section 6001 on grounds that the law is a violation of due process and equal protection rights, and that the Section is void due to a contradictory, vague and arbitrary nature. TSJH is a privately owned hospital specializing in orthopedic and spine surgery, procedures, and tests which had sought and won local zoning approval to expand its facility with an additional 20 Medicare beds, which expansion project would now be prohibited by Section 6001.

Industry supporters and opponents will be carefully following progression of the lawsuit as the resolution is anticipated to have a profound impact on the ability of the physician-owned industry to thrive.

Scott Oostdyk and Victor Moldovan of McGuireWoods are representing PHA and TSJH in the lawsuit. 

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Now more than ever, it is critical that anyone contemplating investment in a healthcare sector carefully review the target company’s compliance protocols. We have always strongly recommended that investors analyze the company’s compliance program, as well as efforts at adhering to the program requirements, in order to better gauge the company’s overall goals and philosophy regarding compliance. Understanding a company’s compliance culture can help the buyer assess the risks it may be taking with investment in the company and what challenges, if any, may be on the horizon for the company.

Now, under the Patient Protection and Affordable Care Act (the PPACA, more commonly referred to as the healthcare reform legislation), certain healthcare providers, as a condition to participation in Medicare, must have in place a compliance plan that meets the requirements to be laid out by the Secretary of HHS. The PPACA lists several detailed requirements for the compliance plans of skilled nursing facilities (SNFs), likely due to the industry’s historical scrutiny and highly publicized investigations from the SNF industry in the past few years. SNFs must implement these compliance plans pursuant to the requirements of Section 6102 of the PPACA within 36 months following passage of the PPACA, and regulations must be issued by the Secretary of HHS for SNFs with additional guidelines no later than two years following passage of the PPACA. 

By contrast, the Secretary of HHS is mandated with determining which provider types must have compliance plans in place and what those plans must entail. HHS has informally indicated that it would likely roll out the compliance plan requirements on an industry-by-industry basis. It is likely that the requirements for most industries will closely follow the key components of the DHHS Office of Inspector General model compliance plan published for healthcare providers in 1997, which has subsequently been updated.

For healthcare providers without compliance plans that wish to make early moves toward a full compliance program, or for buyers who seek additional comfort through early implementation, an article entitled “A Practical Compliance Plan Approach for ASCs” authored by Scott Becker, Melissa Szabad and myself is available here. Although this article speaks specifically to the ambulatory surgical center industry, it has practical implications for most healthcare providers. 

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On Wednesday, March 12^th, McGuireWoods hosted our 8^th Annual Business & Legal Issues in Dialysis & Nephrology Symposium. Leaders from various perspectives in the industry provided presentations and lead discussions on a wide array of topics, including the effects of the Patient Protection and Affordable Care Act (the PPACA, commonly referred to as the Health Care Reform Law), key compliance issues and investment scenarios.

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The Patient Protection and Affordable Healthcare Act (commonly known as the "healthcare reform" bill) includes significant new transparency and disclosure obligations that apply to physicians, hospitals, and medical device and pharmaceutical manufacturers. 

Some of these transparency and disclosure obligations are based on legislation introduced by Sens. Chuck Grassley (R-Iowa) and Herb Kohl (D-Wis.), which was previously entitled ‘‘the Physician Payments Sunshine Act of 2009.’’ The transparency and disclosure obligations have been included in the Act in an effort to reign in costs of expanded health care availability. The premise behind the obligations is that ‘‘sunshine’’ on physicians' financial relationships with industry will reduce conflicts of interest by deterring industry from spending excessive amounts of money on such relationships and consequently reduce the negative impact such relationships have on prescribing practices.  The transparency initiatives impact physicians, pharmaceutical and medical device manufacturers and PBMs.  For a full description of each new requirement, please read this article by Krist Werling and Holly Carnell published in BNA's Health Care Fraud Report.

These new initiatives will impact healthcare investors in two ways.  First, investors should be aware of added burdens on target investments.  For example, for medical device manufacturers, these disclosures will require added infrastructure to address tracking and reporting requirements.  Second, investors may find opportunities in these burdens.  Software, web services and consulting services have sprung up to assist physicians, pharmaceutical manufacturers and device manufacturers in remaining compliant with new obligations. 

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