Do the Plaintiffs in King v. Burwell Have Standing Issues?

Much has been argued, discussed, analyzed, and predicted in regard to the potential outcomes in the upcoming Supreme Court matter King v. Burwell (4th Cir., July 22, 2014). Yet, as the date of the Court’s hearing approaches, new information has emerged that is relevant to the very foundation of matter, in a procedural sense. In particular, certain facts have come to light that could undermine the standing of the multiple individual plaintiffs in King. Determining whether the plaintiffs have proper standing in King is no small matter as the potential implications of a plaintiff-friendly decision in King could have disastrous consequences in terms of the future of the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

King in a nutshell

The plaintiffs in King—David King, Douglas Hurst, Brenda Levy, Rose Luck—are challenging the IRS’ interpretation of sections 1321 and 1311 of the ACA. In particular, the plaintiffs claimed that IRS, through the implementation of the Internal Revenue Code Section 36B, inappropriately applied premium tax credit subsidies, which were available to state-run Health Insurance Exchanges under section 1311 of the ACA, to federally-facilitated Exchanges, which are allowed to be administered by the federal government pursuant to section 1321 of the Act. In other words, King, Hurst, Levy, and Luck claim that IRC Section 36B oversteps the authority granted in the ACA, which only allows for subsidies for those enrolled through state Exchanges, and allows individuals who enrolled through the federal Marketplace to be eligible for those subsidies as well. The Fourth Circuit rejected that argument and deferred to the IRS’ interpretation of the ACA through section 36B.

What is especially interesting about the King matter is that the High Court decided to hear this matter at all and why it did so. On the same day the King matter was decided by the Fourth Circuit, the D.C. Circuit Court of Appeals decided, via a three-judge panel, virtually the same issue and came out with the opposite opinion—that is, that the ACA did not explicitly provide that subsidies would be available to those enrolling in federally-facilitated Marketplaces and that the IRS interpretation as such was improper (Halbig v. Burwell, D.C. Cir. July 22, 2014). Despite the fact that the D.C. Circuit was set to re-hear Halbig en banc, the Supreme Court stepped in and decided to treat King and Halbig as a circuit split, causing the D.C. Circuit to hold the Halbig hearing in abeyance as it awaited the ruling by SCOTUS.

What is even more pressing, when considering how we got to this point with regard to this issue, is the potential fallout of a reversal of the Fourth Circuit opinion. Many experts have opined on what would become of the individual mandate and the availability of coverage (and of subsidized coverage) through the Exchanges if some states continued to opt out of creating Exchanges and if the High Court said that subsidies would not be available for those enrolled in the federal Marketplace. In particular, some experts are bracing for the worst in this scenario and predicting that if such circumstances were to come to fruition, the entire structure of the ACA could be threatened.

Standing issues in King?

The week of February 9, 2015, less than a month away from the scheduled arguments before the Court, brought about a new King controversy. This time the upheaval was focused on the four individual plaintiffs themselves and potential issues in standing in the matter. Specifically, sources reported that one of the plaintiffs, Luck, used a Virginia (a state that has opted to forgo creating a state-based Exchange and rely on the federally-facilitated Marketplace) motel address to describe her residency and to receive subsidy payments. It was reported that Luck no longer resides at the motel, which has a 28-day stay maximum. Additionally, according to the same reports, the standing of plaintiff King was also questioned as facts emerged that suggest he likely qualifies for other sources of benefits outside the Exchange coverage, namely veterans’ benefits. In that same light, Hurst, another Plaintiff, is also reported to be a veteran and may be qualified for such coverage. Finally, it was also alleged that plaintiff Levy’s income may have been previously misstated and that her true income would be too low to make her subject to the individual mandate under the ACA.

In order for the Supreme Court to find a lack of standing in the matter, all of these allegations against each of the four plaintiffs would have to be true, as each of the plaintiffs would have to lack standing for a basis of dismissal to exist. While the validity of these allegations have yet to be fleshed out, in the scenario that they can all be confirmed, King, which has the potential to dismantle a large source of subsidies (all of those directed to those enrolled in federally-facilitated Exchanges in 37 states) and potentially the underpinnings of the entire health reform initiative, could be dismissed on a procedural issue.

The IRS Tax Credit Revisited -A Quick Rundown of the Circuit Court Split and What to Know Moving Forward

By Hillary Cook, DePaul University College of Law

In July 2014, two United States Circuit Court of Appeals ruled on the issue of whether the tax credit promulgated by the Internal Revenue Service (“IRS”) within the Patient Protection and Affordable Care Act (“ACA”) is applicable to health insurance purchased by individuals on federally-facilitated health insurance exchanges established in the absence of state run health insurance exchanges. The United States Court of Appeals for the District of Columbia held health insurance purchased on a federally-facilitated exchange established in the absence of a state run exchange is ineligible for the IRS tax credits pursuant to ACA. Hours after the decision from the D.C. Circuit Court of Appeals, the Fourth Circuit Court of Appeals ruled in the reverse, affirming the lower court’s decision to uphold the IRS rule authorizing tax credits to individuals who enroll in health insurance programs on both state-run and federally-facilitated health benefit exchanges valid.

The petitioners from the Fourth Circuit decision filed a petition for a writ of certiorari in the United States Supreme Court urging the Court to immediately hear the issue because of the Circuit Court split. On September 4, 2014 the D.C. Circuit Court granted a petition for the case to be heard en banc with oral arguments beginning December 17, 2014 and vacated the July 2014 decision invalidating the tax credit.

In addition to the circuit court decisions regarding the IRS tax credit two Federal district courts have ruled on the issue. In Oklahoma ex. rel. Pruitt v. Burwell, the State of Oklahoma alleged that the IRS tax credit is contrary to the express statutory language of PPACA. The Court held the IRS tax credit rule invalid upholding a strict interpretation of ACA as it was written. In Indiana v. IRS, the Court dismissed and granted certain motions in the case on August 12, 2014, and scheduled oral arguments October 9, 2014 as to the merits of the case.

The issue at hand arises from the IRS rule promulgated to extend the PPACA tax subsidy to enrollees in both state run and federally-facilitated health benefit exchanges. To increase the number of Americans covered by health insurance PPACA regulated for the creation of health benefit exchanges. The purpose of health benefit exchanges was to organize a marketplace for individuals to shop for affordable coverage. PPACA legislates in the absence of a state establishing a Health Benefit Exchange by January 1, 2014, the Secretary of Health and Human Services shall establish and operate a federally-facilitated health benefit exchange in the state; however, Section 1311 only allows for an available tax credit to enrollees in an exchange established by one of the fifty states or the District of Columbia. In contrast, the IRS permitted individuals who purchase insurance on state-run or federally-facilitated exchanges to be eligible for tax credits for enrolling in, “one or more qualified health plans through an Exchange,” regardless of how the exchange is operated. With a split on how to apply the tax credits, it is not far fetched for the Supreme Court to intervene.

A United States Supreme Court ruling could have a mild or a detrimental effect on enrollees in federally-facilitated exchanges receiving a tax subsidy because those individuals will be ineligible for the tax subsidy. Without the tax credit permitted by the IRS, individuals will lose the federal subsidy, and will most likely forfeit enrollment in a health insurance exchange at the risk of not being able to afford health insurance.

The King Court reasoned the tax credit promulgated by the IRS was a reasonable interpretation of ACA, and further advanced one of the main purposes of ACA in providing more affordable healthcare to Americans. The Court concluded even though the IRS regulation deviated from a literal interpretation of PPACA the tax credit was providing an economic framework to provide tax credits to insurance purchased on a federally-facilitated exchange in the absence of a state-run exchange. Lastly, the Court concluded the IRS regulation must stand to prevent Congress from enforcing a tax penalty on Americans it never envisioned imposing.

Distinguishably, the IRS tax credit can be invalidated because the language of Section 1311 in ACA does not expressly allow for the IRS tax credit to apply to insurance purchased on federally-facilitated exchanges. The D.C. Circuit Court and the District Court in Oklahoma both articulated their reluctance to attempt to rewrite legislation to expand rule-making authority to agencies where the statute has remained silent.   Both Courts concluded PPACA is not to mean anything other than what the statute expresses and upheld a strict interpretation of ACA regarding agency rule-making.

Moving forward, the decision for the Supreme Court to reconsider taking the case will be a waiting game; the Supreme Court initially denied review of the case on November 3, 2014. Specifically, the en banc hearing in the D.C. Circuit Court will determine if the IRS tax issue has been resolved at the Circuit Court level. The increased need for a high court ruling has become more pressing with the Circuit Court split, the vacated D.C. Circuit Court decision, the District Court decisions, and the awaited en banc hearing in the D.C. Circuit Court.*

*Wolters Kluwer Editorial Note: at the time of publishing, the Supreme Court had granted cert in King v Burwell and the D.C. Circuit has held the Halbig case in abeyance pending the Supreme Court’s ruling in King.

Hillary Cook is a second year law student at DePaul University College of Law. She graduated magna cum laude from the University of Dayton in 2013. She is a member of DePaul’s Health Law Institute.

To Expand or Not to Expand: Medicaid Under the Affordable Care Act

By Jaime Whitt, University of Kansas School of Law-

Famed US Supreme Court Justice Louis Brandeis wrote, in his dissent to the majority opinion in New State Ice Co v. Liebmann, 285 U.S. 262 (1932), that “It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” With these words Justice Brandeis generated one of the most prominent analogies of US Federalism—one that still holds true today: the States as the “laboratories of democracy.” This concept has seemingly come to life with the implementation of the ACA (P.L. 111-148) and its provisions. Though it is federal health care reform, there is considerable leeway for each State to individualize the legislation’s impact. From the choice between utilizing www.HealthCare.gov or creating its own state-based health insurance Exchange, to regulation of the health care Navigators and other ACA outreach programs, to whether or not to expand Medicaid and how, each State has several opportunities to either fully roll out the ACA and its initiatives or stifle the bill’s impact.

One of the mostly hotly debated issues of the ACA has been Medicaid Expansion. With 2012’s National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566, the Supreme Court invalidated the federal Medicaid Expansion mandate as unlawfully coercive and left the Medicaid decision to the states. Since then, contentious arguments in favor of and against expansion abound. To exhaust the minutia surrounding this hotbed topic would arguably be fruitless in this context, but even a cursory review of the myriad issues involved reveals that the expansion decision is a complicated one.

To Expand

On the side in favor of Medicaid Expansion, the arguments typically stem from the vantage point of viewing expansion as a moral and fiscal imperative. States who choose to expand Medicaid get considerable financial support from the federal government in the form of 100% funding for the cost of newly enrolled Medicaid beneficiaries. In a December 2013 study of how states stand to gain or lose under Medicaid Expansion, the Commonwealth Fund found that expansion dollars would represent a major source of federal revenue to state enterprises—nearly 2.5 times the value of highly sought-after federal highway funds in some cases. These dollars are necessary, the argument often goes, to strengthen and protect state health care providers against uncompensated care and to expand health coverage and financial protection to a state’s neediest constituents. The Oregon Health Insurance Experiment (OHIE), which conducted a randomized clinical trial of the effects of expanded Medicaid coverage, found that expansion resulted in improvements in mental and physical well-being as well as protection from catastrophic medical expenses for those who previously had no such resources.

Not to Expand

On the other hand, many states have been leery that the federal government, whose ACA expansion funds match the states at 100% until 2019 when the rate levels out at 90%, will take back that funding, leaving state budgets strapped and on-the-hook to find a way to continue coverage. Recently, this argument has come under fire, as more states consider expansion and research into the history of federal Medicaid funding has revealed that once such funds become entrenched, they are rarely reversed. To that same point, however, many economic and health policy analysts have expressed concern that this massive expansion of public funds will further contribute to the already currently unsustainable growth of national health care expenditures. In support of this argument, results from the aforementioned Oregon study, as well as trends seen in Massachusetts after its 2006 health care reform, indicate that an (expensive) increase in ER utilization is a likely consequence of status-quo Medicaid expansion.

Conclusion

It seems clear, even after just a merely skin-deep examination of this issue and its many interrelated and dependent corollaries, that this debate may indeed be appropriate. Our federal government has the right and responsibility, many argue, to ensure health coverage and financial protection for its citizens to the extent that it can. Likewise, the States each have the right and responsibility to be concerned about their financial welfare when state budgets directly impact state citizens. This is US Federalism at its core.

And the debate is far from over. Certainly, the Republican routing in the November mid-term elections, given that party’s distaste for all things Obamacare, does not forecast a favorable future for the initiative. Having said that, it is no secret that Medicaid funds are generated by and distributed from general federal tax revenues. This means that even states that choose not to expand Medicaid are paying for it. How long will citizens in states that choose not to expand, such as Texas, be complacent with the denial of additional federal revenue, all the while knowing that their federal tax dollars are paying for benefits enjoyed by other states? Only time will tell.

Which brings me back to Justice Brandeis’ historic dissenting admonition. The States are the laboratories of democracy. No one would or could legitimately argue that either the Federal or State governments do not want to provide for and protect their citizens. The question comes down to who should do it and how. Overall, whether states choose new innovations designed to privatize and control Medicaid Expansion funds or choose to use increased funding to focus locally on educating beneficiaries on what resources are available and how to more efficiently use the system, choosing not to participate at all seems like a loser here. The States know their citizens and circumstances better than the Federal government and changes need to be made to the status-quo. The fallout is certainly not clear, but the “courageous” state that Brandeis highlighted will take the money and see what positive progress it can make.

Jaime Whitt is her fourth and final year of a joint-degree program at KU.  She will graduate in May 2015 with a Masters in Health Services Administration from the University of Kansas School of Medicine and a J.D. from the University of Kansas School of Law, with a focus in Healthcare and Health Law.  When she is not in school, Jaime is a Law Clerk at Simpson Logback Lynch Norris, P.A. in Overland Park, KS and is a Graduate Research Assistant in the Department of Health Policy & Management at the University of Kansas School of Medicine studying health policy and health reform.

Don’t Apply Wartime Extensions of Limitations to Qui Tam: PhRMA, AHA, AMA

Three major players in health care litigation have urged the Supreme Court to reverse a Fourth Circuit decision that would extend the deadlines to bring whistleblower suits under the False Claims Act (31 USC sec. 3729 et seq.) when the United States is involved in armed conflict. The Pharmaceutical Research and Manufacturers Association (PhRMA), the American Hospital Association (AHA), and the American Medical Association (AMA) joined with the national Chamber of Commerce and the Clearing House Association, an organization of banks, to file an amicus curiae brief in Kellogg Brown & Root Services, Inc. v United States ex rel. Carter. The United States Supreme Court granted certiorari on July 1, 2014.

The Wartime Suspension of Limitations Act

Congress enacted the Wartime Suspension of Limitations Act (18 U.S.C. sec. 3287) in 1942 in order to preserve the options of federal prosecutors to bring criminal charges against perpetrators of fraud against the federal government during wartime until three years after the war was over. Before a 2008 amendment, it provided that the running of any statute of limitations applicable to any offense involving fraud committed against the United States was suspended “while the United States is at war.” In 2008, the Wartime Enforcement of Fraud Act (P.L. 110-417) amended the law to apply when Congress has enacted specific authorization for the use of military force, until there is either a presidential proclamation or concurrent resolution of congress declaring that hostilities have ended. The law originally applied only to criminal prosecutions, but the words “now indictable” were deleted in 1944, and courts have accepted the government’s position that the law applies to civil actions as well.

Application to Qui Tam Actions

The case before the Supreme Court involves allegations of fraud by government contractors billing for their work in Iraq. The relator was an employee of one of the contractors; the United States declined to intervene. The contractors raised the statute of limitations as a defense, and the relator argued that the WSLA tolled the statute of limitations. The trial court dismissed the complaint, ruling that the WSLA applied only when the government was a party to the litigation.

The Fourth Circuit Ruling

The Court of Appeals reversed, ruling that the WSLA applied to all matters involving alleged fraud against the United States government. In addition, it held that the “first to file” rule did not bar the relator’s claims because the earlier lawsuits had been dismissed.

Amici Concerns About the WSLA

Although the particular case involved government contractors doing work for the military, the court’s ruling was not limited to defense contractors. Thus, the decision would suspend the statute of limitations in all actions under the False Claims Act, including those involving alleged health care fraud, anti-kickback violations, or other matters completely unrelated to activities of the military. The amici contend that business generally, and health care-related businesses in particular, would be unable to plan when the country is involved in military operations. The United States’ intervention in Afghanistan, for example, has lasted more than 10 years and is ongoing. Neither the President nor Congress has any obligation or incentive to declare that hostilities have ended.

The amici argue first that the law was intended to apply only to criminal prosecutions. They do not address the argument that Congress was aware that courts had applied the law to civil litigation and chose not to address the question when it amended the statute in 2008. Their main point is that the lack of a definitive deadline to bring an action will encourage relators to delay filing in order to increase their awards, according to amici. The level of uncertainty is intolerable for business. The amici also argue that there is no need to extend the limitations period to qui tam actions once the government has decided not to participate, as the government has decided it has no interest to protect. They note that only about 10 percent of the cases the government declines ever result in a payment; the rest are dismissed. The need to preserve scarce government resources does not apply to private parties.

First-to-File Rule

Although 31 U.S.C. sec. 3730(b)(5) provides that no party other than the government may sue under the False Claims Act when there already is another action pending on a related claim, the Fourth Circuit ruled that the provision no longer applies if the previous litigation has been dismissed. The amici contend that this interpretation allows relators to dismiss and re-file, adding to the uncertainty that potential claims may never die. Indeed, the relator had dismissed and re-filed after earlier litigation was dismissed; it did not matter that the same litigation was pending when he originally filed.

Oral argument has not been scheduled. The respondents’ brief is due October 14, 2014.