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A new administration is set to arrive in Washington on January 20, 2021, amidst an ongoing global health pandemic, continued uncertainty about the future of the Affordable Care Act (ACA) following the most recent challenge in California v. Texas, an uncertain legislative landscape, and with an ambitious administrative agenda.
In reality, the Biden administration’s health policy goals are destined to be constrained by the policy focus necessitated by COVID-19. A recent poll from Morning Consult and Politico found that 68 percent of Americans believe controlling the spread of the coronavirus should be a top priority for the Biden Administration.1 Recognizing this expectation, President-elect Biden quickly appointed a coronavirus task force that is headed by Dr. David Kessler, former commissioner of the U.S. Food and Drug Administration; Dr. Marcella Nunez-Smith of Yale University; and Dr. Vivek Murthy, U.S. Surgeon General from 2014-2017.
The next Secretary of the U.S. Department of Health and Human Services (HHS) will need to immediately extend the Public Health Emergency declaration issued in response to COVID-19. The Public Health Emergency was most recently renewed on October 2, 2020, and is set to expire on Inauguration Day 2021.2 The declaration has permitted, under Section 1135 of the Social Security Act, extensive waivers of federal regulatory requirements and flexibility for certain stakeholders participating in federal health care programs, including Medicare and Medicaid. As a result, the federal response to the coronavirus has resulted in a rapid expansion in telemedicine utilization; expanded eligibility and benefits; relaxed requirements under HIPAA; modified coverage and payment rules; reduced reporting and audit requirements; and provided flexibility for alternative care sites.3 In addition, the incoming administration will need to seamlessly continue the coordination and distribution of COVID-19 vaccines. The administration will encounter these challenges on their first day, without consideration of their own policy goals and campaign promises.
As has become tradition, it is anticipated that on inauguration day a memorandum will be issued by Ron Klain, incoming White House Chief of Staff to President-elect Biden, instructing the heads of all federal agencies to “pause” any regulations that were published in the Federal Register but not yet effective.4 This provides a new administration the time and space to gain control of the administrative rulemaking process and prevent the release or finalization of certain regulations that do not align with the incoming administration’s priorities and prerogatives. However, what the new administration will be able to accomplish through notice-and-comment rulemaking and subregulatory guidance is directly correlated to the bandwidth of the agency. President-elect Biden has made clear his intention for a more robust and reinvigorated response to the COVID-19 pandemic, which will require the dedication of time and resources from all of the operating divisions at HHS.
The Biden administration is expected to strengthen the ACA and undo many of the regulatory and administrative changes to ACA implementation made through rulemaking and subregulatory guidance during the Trump administration. In a back to the future approach, there is likely to be an aggressive approach to rulemaking and subregulatory guidance to quickly signal the overarching change in approach to health policy and a return to many policies from the Obama administration. For instance, it is anticipated the Trump administration’s attempts to expand access to short term limited-duration insurance and association health plan will be reversed. Other reversals include eliminating the relaxation of essential health benefit requirements, reinstituting a 90 day open enrollment period, and reinstating Exchange outreach and enrollment funding that were cut by the Trump administration.
Additionally, to expand access to private insurance coverage, the administration likely has authority under section 1311 of the ACA to implement a special enrollment period that would permit individuals and families to enroll in Exchange coverage outside of the annual open enrollment period of November 1, 2020 – December 15, 2020. The Biden administration is likely to quickly withdraw section 1332 waiver guidance, that was of questionable legal authority, and would have permitted states to waive some of the most popular ACA consumer protections. It is also expected that the Biden administration will promptly issue rulemaking under section 1557 of the ACA to reverse the controversial 2020 final rule that changed definitions related to discrimination “on the basis of sex,” “gender identity,” and “sex stereotyping” that were significantly criticized and are currently being challenged in federal court.5
The Biden administration will bring about a dramatic change in tone towards the Medicaid program. First and foremost, the Biden administration will encourage holdout states to implement Medicaid expansion. There will be a return to the traditional use of waivers that seek to expand eligibility and types of benefits. In turn, the guidance permitting work and community engagement requirements as a condition of eligibility and block grants is likely to quickly be rescinded.6 While the Trump administration chose not to finalize the Medicaid Fiscal Accountability Regulation, it is not clear whether or how aggressively a new administration will pursue certain policies that were proposed, some of which were identified as merely codifying existing policy.7
Other policy changes implemented by the Trump administration may not be significantly modified. For instance, while the incoming administration will certainly examine the recently finalized changes to the Stark Law and Anti-Kickback Statute, the final rules did not face political resistance and align with prior administrations goals of transitioning to reimbursement based on value. Price transparency and site neutrality policies have found bi-partisan support and are unlikely to see major shifts in policy. Similarly, Medicare Advantage remains popular among beneficiaries and politicians alike.
Major health care initiatives, outside of matters related to the coronavirus, are not anticipated to materialize during the 117th Congress. The U.S. House of Representatives will continue to be led by Democrats, albeit with a small majority, and at the time of this Health Law Check-Up newsletter, control of the U.S. Senate could turn from two run-off elections in Georgia that will be held on January 5, 2021. Despite the final makeup of the U.S. Senate, there will not exist the type of significant majority needed to enact major reform legislation. Therefore, campaign goals such as coverage expansion through a public option or significantly expanding Medicare eligibility is unlikely.
However, attempts to codify some of the flexibilities undertaken during the public health emergency, such as telehealth expansion, will be pursued. As long as the coronavirus continues to effect public health and the economy, Congress will have to focus on coronavirus response legislation, which could include additional funding and support for providers and other stakeholders. It is also likely that Congress will again attempt to address surprise billing. While efforts in the 116th Congress failed to deliver a federal legislative solution, this issue has remained top of mind to voters as stories of individuals receiving surprise bills related to coronavirus testing and treatment have proliferated.8
If Democrats were to gain control of the U.S. Senate on January 5, 2021, the Congressional Review Act could be utilized to overturn regulations finalized in the final months of the Trump administration. Either chamber of Congress may put forth a disapproval resolution on a final rule, and a simple majority is required to pass the resolution. Importantly, should Congress take such an action, in addition to preventing the regulation from taking effect, the agency may not put forward “a new rule that is substantially the same” without authority from Congress.9
The future of the Affordable Care Act
The constitutionality of the ACA was once again challenged before the Supreme Court on November 10, 2020 in the case of California v. Texas.10 This time the challenge was brought by the State of Texas and other Republican states that alleged that the ACA became unconstitutional following the passage of the Tax Cuts and Jobs Act, which eliminated the individual mandate penalty for failing to maintain minimum essential coverage.11 According to the plaintiffs, without the revenue raised by the mandate penalty, it was no longer a tax, and under the Supreme Court’s 2012 holding in NFIB v. Sebelius,12 is no longer constitutional. In turn, if the mandate is now unconstitutional, they alleged that the entire ACA is unconstitutional because the mandate was so central to the ACA.
In December 2018, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas agreed, striking down the entire ACA.13 A year later, in December 2019, the U.S. Court of Appeals for the 5th Circuit agreed with Judge O’Connor’s finding that the individual mandate was now unconstitutional.14 However, they remanded the question about whether the provision may be severed from the remaining parts of the law back to Judge O’Connor. Twenty Democratic states and the U.S. House of Representatives, who had intervened in the case in support of the ACA (which the Trump administration had refused to defend) asked the Supreme Court to review the case. The Supreme Court granted a writ of certiorari and oral arguments were heard on November 10, 2020.
The oral arguments were scheduled for 80 minutes but ended up lasting two hours, with the justices asking a question of each practitioner in order of seniority. It appears likely the ACA will survive this challenge, though likely without the individual mandate. A significant amount of the oral argument was spent addressing whether the plaintiffs have standing and whether, without enforcement of the individual mandate, there is an actual injury they have suffered. The Court also explored the standing through inseverability argument advanced by the plaintiff states. Specifically, the states argued that they are harmed by other provisions in the ACA that are inseverable from the individual mandate. For example, Texas argued that the use of Modified Adjusted Gross Income to determine Medicaid eligibility increased enrollment in the program (despite Texas not expanding Medicaid under the ACA), causing additional expenditures. Many members of the Court appeared skeptical of such an approach to standing, with Chief Justice Roberts noting that it “really expands standing dramatically.”
The questions surrounding the constitutionality of the individual mandate were focused on whether the clause is now merely inoperative or precatory, as the states and House of Representatives believe, or alternatively, whether the mandate remains a command to maintain or purchase health insurance coverage as the plaintiffs allege. There was not a clear delineation of where the Justices will land on this question. Referencing the Court’s decision in NFIB, which found the mandate created a lawful choice to purchase insurance or not, Justice Kagan asked the Texas Solicitor General: “How does it make sense to say that what was not an unconstitutional command before has become an unconstitutional command now, given the far lesser degree of coercive force?” If a majority of the Court agrees with the plaintiffs that the mandate is an unconstitutional command, without the revenue generation that upheld the provision as a tax, then whether the ACA stands or falls will turn on questions of severability.
Oral arguments left the impression that there would be at least five votes that the individual mandate is severable from the remainder of the ACA. Chief Justice Roberts noted that there was “compelling evidence” that the 115th Congress intended the ACA to remain in place after they zeroed out the penalty, but did not repeal the entire law. The Chief Justice, addressing counsel for the House of Representatives, former Solicitor General Donald Verilli, who previously argued in favor the constitutionality of the ACA before the Supreme Court in NFIB and King v. Burwell,15 said: “I tend to agree with you that it's a very straightforward case for severability under our precedents, meaning that we would excise the mandate and leave the rest of the Act in place, reading our severability precedents.” Comments from Justice Kavanaugh also aligned with this approach, noting that the “proper remedy would be to sever the mandate and leave the rest of the act in place.” Justice Kavanuagh previously authored the majority opinion in Barr v. American Association of Political Consultants, which addressed the Telephone Consumer Protection Act of 1991, addressing the Court’s presumption of severability and stating that the Supreme Court “presumes that an unconstitutional provision in a law is severable from the remainder of the law or statute.”16
There are several potential outcomes: (i) The Court narrowly finds that the plaintiffs lack standing and doesn’t address the merits, leaving the entire ACA intact; (ii) The Court finds the mandate to be inoperative or precatory and upholds the mandate, leaving the entire ACA intact; (iii) The Court could find the individual mandate is unconstitutional without a penalty that raises revenue, severing only the individual mandate or the individual mandate and related provisions (the so-called “three-legged stool”) such as community rating and guaranteed issue, but leaving the remainder of the law in place; (iv) The Court strikes down the entire law as unconstitutional, creating a health care crisis and instantly burdening the Biden administration and 117th Congress.
No matter the result, the Court’s ruling in 2021 will again place the ACA and state of the American health care system at the center of the political universe, likely intensified by the pressures and challenges individuals and stakeholders have experienced during the COVID-19 pandemic. It is worth noting that beyond that, Congress has relied on provisions in the ACA for coronavirus relief efforts and the much of the Trump administration’s administrative reforms are reliant on authority under the ACA.
President-elect Biden comes into office constrained by public health and economic challenges that will likely limit his ability to effectuate major changes in health care policy, at least in the short term. The past four administrations have all attempted to reform various parts of the health care system and the Biden administration will be forced to confront the same challenges of rising costs and significant portion of Americans being un- or underinsured. Any changes made through executive or administrative action are likely to face the same types of legal challenges faced by the Obama and Trump administrations. While the overriding challenges stressing the American health system are unlikely to be addressed at the outset of the 117th Congress, stakeholders should expect the robust pace of health care policymaking to continue in the early years of the Biden administration.
This update discusses M&A opportunities after exploring the pandemic-related challenges to be overcome in M&A dealmaking.
© Norton Rose Fulbright LLP 2020