By Rebekah Plowman, Kristi VanderLaan Kung, and Lindsey Lonergan*
As printed in the American Health Lawyers Association Practice Group Email Alert

U.S. Court of Appeals for DC Rules PPACA Mandate Constitutional

On November 8, 2011, the U.S. Court of Appeals for the District of Columbia issued a decision in Seven-Sky v. Holder, No. 1:10-cv-00950 (Ct. App., D.C., 2011), affirming the District Court for the District of Columbia's decision that the Patient Protection and Affordable Care Act (PPACA) is constitutional. The three-judge appeals panel, in a two-to-one decision, upheld the individual mandate of PPACA under the Commerce Clause and the Necessary and Proper Clause as "a regulation of economic activity that substantially affects the health insurance and healthcare markets and as an essential element of a broader regulatory scheme."

Judge Kavanaugh, in the dissenting opinion, did not reach the merits of the case, opining that the Anti-Injunction Act (AIA) precluded the federal courts from having jurisdiction over the case. AIA--a tax code provision that bars pre-enforcement lawsuits that restrain the assessment of any tax--was similarly cited by the Fourth Circuit Court of Appeals in its decision to set aside the ruling of a Virginia federal court on jurisdictional grounds this past September.

Judge Silberman wrote for the majority, opining that Congress, in designating the shared responsibility payment for uninsured individuals under PPACA a "penalty" and not a "tax," aimed to achieve universal health insurance coverage and not to gain revenue from penalties. The majority further opined that Congress did not intend for the phrase "any tax," as used in AIA, to include exactions unrelated to taxes that Congress labeled "penalties," and thus held that AIA was not a jurisdictional bar. In reaching the merits, the majority opinion emphasized that the burden is not on the government to show that the mandate is constitutional, but rather, on the appellants to show why it is not. The mere fact that the mandate is novel does not, in and of itself, make it unconstitutional. The majority held that the appellants failed to show that an existing activity was a necessary precursor to Commerce Clause regulation, and thus, Congress has the power regulate interstate inactivity.

Judge Edwards, in a brief concurring opinion, emphasized that Congress' authority to legislate under the Commerce Clause is not without limit. However, the means chosen under PPACA were reasonably adapted to the attainment of a legitimate end under the commerce power and did not violate boundaries emanating from the Necessary and Proper Clause.

Other Challenges to Healthcare Reform Law Making Their Way Through Federal System

This lawsuit is one of the many legal challenges to the health reform law making their way through the federal court system. Conflicting rulings by the different federal courts, coupled with the petition of the U.S. Department of Justice (DOJ) to the U.S. Supreme Court, leave this issue ripe for Supreme Court argument during the upcoming term.

Two recently initiated lawsuits demonstrate a growing trend of groups looking to the judicial system for relief from governmental actions that are perceived as threatening the stability of the publicly funded healthcare system. Further, the most recent federal court ruling on the Patient Protection and Affordable Care Act (PPACA), contributes another perspective on the constitutionality of the individual mandate, lending more momentum to PPACA's challenges in reaching the Supreme Court next year.

The California Hospital Association recently initiated a lawsuit against Medi-Cal, California's Medicaid program, seeking to block a 10% cut in Medicaid reimbursement to healthcare providers. This 10% cut was included in the 2011-2012 state budgets and was approved on October 28 by the Centers for Medicare & Medicaid Services (CMS). There is significant concern about the impact that a cut of this magnitude would have on healthcare providers who serve medically underserved communities and special needs populations who heavily depend on the Medicaid program. According to a recent media statement published by the California Hospital Association on its website, California already ranks last in the nation in Medicaid payments to doctors and hospitals. Once implemented, this budget cut will be retroactive to June 1, 2011.

At the same time, the Center for Medicare Advocacy has recently announced the filing of a class action lawsuit against CMS on behalf of seven individual patients alleging that the agency is inappropriately characterizing nursing home services as outpatient procedures rather than inpatient procedures and depriving these individuals of Medicare
Part A coverage of these services. The lawsuit alleges this practice results in Medicare beneficiaries being forced to absorb the costs of their nursing home care. This lawsuit was filed on Thursday, November 3, 2011. The Center for Medicare Advocacy claimed a victory in Vermont last month when a federal judge refused to dismiss a class action lawsuit filed against CMS challenging the agency's use of the "Improvement Standard" to deny Medicare coverage. The Center similarly argued that this standard is used by Medicare to deny coverage to individuals on the grounds that their condition is stable, chronic and not improving.

*We would like to thank Rebekah Plowman, Esquire, Kristi VanderLaan Kung, Esquire, and Lindsey Lonergan, Esquire (Nelson Mullins Riley & Scarborough LLP, Atlanta, GA, and Raleigh, NC), for providing this email alert.