GGRA v. San Francisco concerns review of a 9th Circuit decision upholding the “Healthy San Francisco” (HSF) program against a challenge that is preempted by ERISA. Under the program, certain employers must  either spend a minimum amount for the health care expenditures of their employees or pay what amounts to a tax to the city. If the employer pays the City directly, its employees who are City residents and whose family incomes are less than 500% of the federal poverty level can obtain health care services through the HSF program. Contributions for nonresident employees or those whose incomes are too high to qualify for HSF are deposited in medical reimbursement accounts created on their behalf, which employees can use to pay out-of-pocket health care expenses. Any resident of the city who meets the income eligibility criteria can obtain care through the program; those who work for contributing employers receive a 75% discount on participation fees.

The 9th Circuit ruled that there was no conflict with ERISA because employers are coerced neither to offer benefits through an ERISA plan nor to pay the tax. 546 F.3d 639 (9th Cir. 2008). The Bush administration took the opposite position, and submitted a brief in support of en banc review, which the 9th Circuit denied. The Obama administration’s SVSG brief argues that the Court should deny cert because PPACA  “significantly reduces the potential that state or local governments will choose to enact health care programs like [HSF] and may also affect the question whether such programs are preempted by federal law.” The brief also notes that the Department of Labor has not had time yet to address “whether such [state or local] laws might form the basis for waivers under Section 1332 of the PPACA of provisions concerning the creation of insurance exchanges.” Therefore, according to the SG, the enactment of PPACA deprives this case of its importance, thereby eliminating the strongest argument for certiorari.

If the Court denies cert, the strategy to enact pay or play laws, used by state and local health reform advocates since the demise of the Clinton proposal, will end.  Not with a bang…

Lester Feder: You argue that the ongoing fight against the health reform legislation in the courts and in the bureaucracy during implementation marks a break from a longstanding political tradition that politics end when legislation is passed. Why do you think this has happened now? Is it simply because our politics have become so bitterly partisan?

James Morone: There are two explanations: One is exactly what you said, that our politics have so become bitter. But secondly, I think somewhere between Reagan, who did it with a smile, and Newt Gingrich, who did it with a scowl, the Republicans have defined the Democrats as basically un-American and bad for the nation. It has taken on a kind of moral fervor against liberals. That makes legitimate a battle that in previous generations would have been outside the bounds of normal politics.

Lester Feder: And yet at the same time, Obama remains the most popular in the country relative to other politicians. How is that possible?

James Morone: That raises a whole other question: How did Obama do it? I think Obama’s incredibly success has gone under the media’s radar—the story lasted only two weeks in the media, and then replaced with a story line about dropping poll numbers. But it is remarkable that he got this bill trough under such partisan circumstances. This is a very important point and I want to underscore it.

If you just look at the history of trying to pass health reform—Truman, Kennedy, Johnson (who succeeded with Medicare), Nixon, Carter, Clinton—it is a remarkable group of people who tried to pass sweeping legislation. The broad consensus in Washington was, as Lee Hamilton told me at one point, “The reason we can’t do it is that health reform is non-incremental, and Congress is an incremental body.” The wisdom always was that it can’t be done. Obama and the Democrats, and you have to underscore Pelosi here, too, they managed to do it. (I would put Reid third on the list—he certainly had a less dramatic and visible role as Pelosi and Obama.)

Lester Feder: Given the bitter history of health reform, could there have been a different scenario? Might it just be in the nature of the issue that no matter who passed it, we would see an equally bitter aftermath?

James Morone: I think it’s symptom of our political climate more than the difficulty of the issue, simply because Medicare was fought just as hard, but the implementation of Medicare for all its problems went through relatively easily.

Lester Feder: Let me just counter here: Medicare touched a smaller segment of the population and a smaller portion of the economy, in terms of the percentage of GDP health care represented. It was a much smaller piece of legislation, in that sense. If the current health reform touches most everybody in some way and accounts for 16 percent of the economy, is it possible that as the problem gets bigger, the politics get more bitter?

James Morone: That’s right, a much smaller percentage, I’m guessing six or seven percent, if that. In sheer economic terms, it was much smaller, but there were worried about the economic effects. But remember, implementation of Medicare got tangled up with civil rights through the desegregation of Southern hospitals. If you put together the two largest and boisterous issues of the time, that ups the ante again.

Lester Feder: Ok, but on the flip side, I find it hard to believe that America is more divided today than it was during desegregation.

James Morone: It’s very hard to sort out how much is the issue and how much is the current situation. I think that by and large the parties today see each other as illegitimate actors. Republicans see Democrats in some fundamental way as un-American. The reason that’s different today is that, in the past, the two parties overlapped a lot. Southern Democrats were more conservative than Northern Republicans. The divisions didn’t map onto party politics—they never have, because the parties were so overlapping. That’s no longer true. The most liberal Republican in the House today is still to the right of the most conservative Democrat. As far as I know, that’s never been true, and certainly not since the civil war. Add that on top of the scope and seweep of health reform, and you’ve got a very combustible kind of politics.

Lester Feder: Do you see a path to resolving these issues? If the Republicans don’t win an overwhelming landslide in 2010, does that settle it? Or is this going to continue under any circumstances?

James Morone: Regardless of the size of the Republicans’ victory—short of having a veto-proof majority, which seems highly unlikely—implementation goes steadily along. Then the question becomes, how effective is the legislation that they put together?

Lester Feder: I spoke with William Sage the other day. Although the political process was successful in that it managed to pass legislation, he felt it was a failure the really large questions about “social solidarity”—the sense that would get Americans to invest in a collective system—were not resolved in the debate. We got legislation through without building public consensus for it. The Obama administration has the power to implement it, but does that lingering lack of consensus threaten to destabilize health reform and politics more broadly?

James Morone: Yes, I think that’s a shrewd point. Here’s how I would put that: There are two kinds of rhetoric that came out around health reform. One form of rhetoric has to do with the specifics of the legislation, and Obama and his administration really blew that until the special election in Massachusetts. At that moment, Obama really kicked his narrow rhetoric around the legislation into gear in a really remarkable way. I think political scientists will be studying that rhetoric for years to come: he talked about people who were sick, he talked about people who were denied health insurance, he stood next to people who were in trouble and said, “We have to support these folks.” At he last minute, when all Democrats were all willing to back off, he rallied the party and gave them cover through brilliant rhetoric. Narrowly, around health reform, he did what he probably should have done months earlier.

What was missing in all this—and it’s been missing in the Obama administration—is a larger framework about the kind of country we have. I go back to Ronald Reagan. During his inauguration, he very simply said government is no longer the solution. We’re a country of individuals, government is the problem.

That turned the page on the rhetoric of John Kennedy, Lyndon Johnson, and Franklin Roosevelt, all of whom projected an image of a nation where people helped each other out. “These dark days will be worth all they cost us if they remind us that our true purpose is to minister to ourselves and to our fellow man.” That’s Roosevelt in his first inaugural address. These are two great rhetorical traditions.

What I’ve been waiting for Obama to do is to say, “Reagan was a great president, but he was wrong about his basic view of America.” He did it during the campaign during the whole debate with Joe the Plummer about “spreading the wealth around.” I sat in vain, almost in tears during his inaugural address, waiting for him to say, “We’re going back to an earlier vision of what America is: a place where we pick one another up when they fall down.” He still hasn’t done that.

While he’s won health reform with rhetoric about health, but he hasn’t painted a larger picture of America that frames health reform and makes people sheepish about saying, “I think this reform makes me worse off, so the hell with it.” Roosevelt would have said, “That’s selfishness, and that’s what got us into this fix, and if you keep on being selfish, we’ll never get out.” I’m baffled why Obama hasn’t done that, because more than any other president we’ve had, he’s got the rhetorical gift.

He’s got the heart, the brain, and the tongue to do this, but he seems relentlessly to refuse to present us with an alternative philosophy to Reagan’s philosophy of individualism. We don’t have a sense of American identity that gives logic to health reform that helps some people more than others. Though I admire what Obama’s done, I can’t understand why he hasn’t presented his understanding of what America is.

James Morone: There is something unique—and, to me, alarming—about this health reform process. Normally in our political system, when we have enormous battles over legislation, most political actors consider the politics done when the legislative battle is over. What’s new here is the idea that the battle goes on into the implementation phase. This wasn’t true for Social Security, it wasn’t true for Medicare, it wasn’t true for civil rights. Of course, interest groups always continued to fight to get the best deal possible in implementation. But that’s very different from it being Democrats versus Republicans or liberals versus conservatives. Today’s situation is very different.

Given how difficult implementation is, to have the politics continue both in the courts and bureaucracy really makes you worry about the American political process as a whole and this health reform in particular.

Lester Feder: When you talk about the politics continuing, what specifically are you referring to?

James Morone: For starters, the legal challenge—that casts a shadow over the whole business. It’s also the impression that the Republicans have vowed to battle this in the bureaucracy as well. I haven’t seen the details, but if that’s true, it’s really unprecedented.

Lester Feder: What would a battle in the bureaucracy look like?

James Morone: Usually, policymakers have to make two kinds of judgments: what’s going to make this happen most efficiently, and how to buy off the interest groups so that they’ll participate. Now you have a whole other set of players—particularly the state governments—who have very central role in this and are in the process of suing the legislation to stop it from going into effect. If 20 states—40 percent—try to resist reforms, there are a lot of opportunities for them to do so.

Lester Feder: Is that a symptom of the political process that produced the legislation not working in the first place?

James Morone: Yes. I think it’s a symptom of the quite extraordinary division at least in Washington between the parties, particularly the passion of the Republicans. I’m not sure the Democrats have been quite this insistent after losing legislation. To have the Republican Party be this forceful about a position after the normal political process has run its course is pretty extraordinary.

Lester Feder: Looking at the history of passing of major legislation, while there may not have been stark partisan divisions, there were ideological divisions—if you counted conservative Democrats—that were as close as what produced health reform. Is there something special about it being a partisan division?

James Morone: I think if you look at Medicare, there was no fiercer debate between the end of World War II (when it was about national health insurance) and 1965 when the bill passed as Medicare. Senators Bob Taft (R Ohio) and James Murray (D-Montana) almost came to blows in committee hearings.  There was the first major interest group campaign against a specific piece of legislation. There were cries of socialism right in the middle of a red scare. It was as intensely as partisan as one could imagine.

In the original vote in the House, the legislation passed by some 45 or 46 votes. It got exactly 10 Republican votes in the House. But that was on a preliminary vote on a parliamentary maneuver to stop it from being buried back in committee. When that vote failed, almost all Republicans then crossed over and supported Medicare. Going into implementation, the parties had basically agreed that the battle was over and the liberals had won.

Lester Feder: Why did the Republicans change their votes?

James Morone: The thinking was that they had lost, and they wanted to take credit for legislation that was likely to become popular. This was not an unusual maneuver in an earlier era. Social Security was the same way. The signal to the partisan sides was, “Ok, the politics is now over and we should close ranks around this legislation.”

Lester Feder: When did this stop being common?

James Morone: In health care, the answer is now, with this legislation. As far as I can see, we’ve crossed a kind of boundary line where the idea that the legislative process marks the end of politics between parties and ideology. I think this is the first time that I know where the battle continues essentially unabated. I think this is a really important event.

Lester Feder: Let me push you a little bit on that. In 2006, several Democratic campaigns were running against Part D. How is that different?

James Morone: I don’t know of any effort to bollocks up the implementation of Part D. While Democrats were outraged and ran against the program, they didn’t to sue to stop it, nor was there the sense that they were going to fight it in a campaign in the bureaucracy. People always run to put stuff back into the political process. What’s new is the suggestion that the fight go beyond Congress.

Lester Feder: Let me start by asking you what do you think has not been adequately discussed about the health reform law?

David Orentlicher: Some aspects have not gotten as much emphasis as I’d like. There are two big problems with our health care system: inadequate access and unaffordable costs. The cost part was really left much more to another day. While there was much more done about the access problem and the projections are that more than 30 million more people will be covered, we’re still going to have more than 20 million uninsured after the legislation is fully implemented.

As long as we try to maintain the framework of our current system, we’re never going to solve either problem. We have a defective system. We really need to fix the problems with the current system rather than put more people into a defective system.

Lester Feder: Let’s go back to the cost piece. You recently wrote about rationing, and that’s obviously part of the difficulty of taking steps towards real cost control because the politics and the rhetoric around rationing make it very difficult to have a responsible conversation. What would you like to see happen? And do you see a way to turn that into politics that could get that into place?

David Orentlicher: I think the “tragic choices” argument, which Calabresi and Bobbitt made in their book, is very important. As a society—and we’re not unique in this way—it’s very hard for us to make rationing choices, life and death decisions, in an open way. When you have to disclose when and how you’re favoring some people at the expense of others, the public doesn’t like that. Who wants to accept the fact that we’re not meeting the needs of everyone? We’re a rich society and we like to believe that we take care of everybody in need. That’s why I think that although proposals about open transparent processes make sense in some ways, they’re doomed to failure.

It’s not hard to find examples. Going back to the late ‘60s, when dialysis was rationed: People tried to do it through committee deliberations, but once the public understood the kind of decisions the committees were making, it fell apart and Congress authorized funding for anyone who needs dialysis. And when Oregon tried to contain Medicaid spending, they did it in exactly the way the proceduralists say you should do it: they went out and had town hall meetings, invited public input, and created a ranking based on benefits and costs. It worked for a while, but it really only worked because they increased funding. They really didn’t make the difficult choices. Once the economy turned in Oregon, the plan didn’t keep up with its promises and the percentage of uninsured was back where it started within about a decade.

So my view is, and that’s the argument I make in this recent piece, how do you restructure the way we deliver health care—and it’s really how we finance health care—so that doctors implicitly act in a more cost-effective way? Doctors sort of understand what their cost constraints are and they incorporate that in their practices. They don’t have to sit down with a calculator and say, “How much money do I have to care for my patients?” They know what the reimbursement system allows and doesn’t allow and they adapt to their financial environment.

There are two problems with the current system: one is the rightly criticized fee-for-service system, where if you get paid more for bypass surgeries, you’re going to do more bypass surgeries. The second is the tremendous capacity that we have. You need an MRI, you can get it tomorrow, maybe this afternoon. We have plenty of hospital beds and plenty of operating suites.  Supply creates its own demand, as it’s often said, in medicine.

An important study of intensive care unit use is really illustrative: Back in the ‘80s, there was a nursing shortage so they had to close intensive care beds. It varied from day to day, but there was as much as a 50 percent reduction in beds in the hospital that was studied. So of course fewer patients got intensive care because they didn’t have room in the unit. We learned a couple of important things: One, the patients did not suffer from the lack of intensive care. Two, the doctors were able to make prudent allocation decisions without formal guidance.  The hospitals didn’t give doctors rationing guidelines. They just relied on the doctors to make the triage decisions.

This is exactly what I think we need to do: give doctors a different financial structure by reducing capacity and changing the way they’re reimbursed, and they will adjust to a more cost-effective level of care. It won’t be perfect, mistakes will be made. But we have to always remember we’re talking about the least-harmful approach,  Also, we don’t get into the tragic choices problem because the doctors will allocate resources in some implicit fashion.

Lester Feder: Do you have any hope that the pilot programs in payment reform might produce a system that could be put in place?

David Orentlicher: That’s the hope. The hard part is how well will they be funded—it’s not like we haven’t had pilot programs in the past, and we already have models out there. The bigger problem seems to be the willingness to make the major changes we need in the system we have. I think change will happen not because we’re doing the pilots, but because we’ll be forced to change as costs continue to become unaffordable. Necessity is the mother of invention.

Lester Feder: In some ways, does reducing the number of uninsured through this legislation but not getting all the way to universal coverage make it harder to address the needs of those uninsured populations down the line?

David Orentlicher: That’s a good point. The fewer the people that are left behind, where is their political voice? As the most marginalized of the marginalized, they don’t wield a lot of influence. Right now we’re at 85 percent coverage, and if you get up to 94 or 95 percent, and the costs get even higher, it certainly does make it harder to find funding for the remaining uninsured. On the other hand, if costs become a problem for everybody, maybe then we can get the real overhaul that we need.

I’m a big believer in a single system. The only way the powerless in society are looked after is when their fates are tied to everybody else’s. That’s why Social Security and Medicare work for the poor—they’re programs for everybody.

Lester Feder: Do you think the legislation is a framework that can be strengthened to provide the kind of overhaul you’re describing? Or do you think the scope of change needed is so large that you’d have to redo the whole thing?

David Orentlicher: I think what we did here is that we maintained the current system, and we just provided more money to get more people into the system. Medicaid should be an entirely federal program—these federal/state partnerships just don’t work. Food stamps are an important example of that. Until we federalized eligibility for food stamps, it wasn’t a universal program.

Lester Feder: So take the food stamp analogy: you passed something, there were problems with it, it became federalized and it worked better. Do you think the same could follow from this health reform law, or do you think the tradeoffs that are inherent in making it better are so difficult that it can’t happen that way?

David Orentlicher: If you really want universal coverage, I think you have to have a single system. I think food stamps illustrate that too. Eligibility is nationalized, and that’s good. But what you see is that only two-thirds of people who are eligible actually enroll because any time you have a program that’s means tested, there’s a stigma, there’s the hurdle of producing the paperwork. Nobody has a problem enrolling in Medicare, but lots of people have difficulty enrolling in Medicaid or food stamps. If you want universal coverage, you have to have a single system.

That doesn’t mean it has to be British, or even Medicare-for-all like in Canada. You could do the voucher-for-all, a workable version of the McCain plan.

How you fund the system also really matters. There’s a broad sentiment in America (and I’m not suggesting it’s universally shared), that you have to be “deserving” if you’re going to get a government benefit. Either you’re an innocent victim like a child, you’re elderly, or you’ve paid into the system. That’s Medicare and Social Security. I understand the politics—since Obama said he would not raise taxes on those who earn less than $250,000, he couldn’t propose a payroll tax. But to sustain a public program, you have to have people pay in so that it creates the perception that people have earned their benefits.

Lester Feder: What do you think are the most interesting aspects of the health reform legislation that we’re still trying to make sense of?

William Sage: Where should one start? I worked in the Clinton White House in early 1993, and can’t help but think about this reform effort in light of that one.  I began teaching law a couple of years later, so my academic career tracks the intervening period of health policy, especially the rise and fall of managed care.

I think the legislation is very good about asserting its priorities. The law’s table of contents provides a nice road map: Title I says we’re going to reform private health insurance markets so that almost everyone is insurable at a reasonable price. Title II says we’re going to extend public programs for people who still can’t afford coverage, largely though Medicaid. Title III says we need to reform health care delivery, Title IV says we need to keep people healthier through public health and prevention, and Title V—which I think is absolutely essential—is about the workforce that will assure access, reduce the cost of services, and improve health. That’s a very good set of priorities that I completely agree with.

But tensions are also apparent. If you’re going to make almost everybody insurable, you’re going to have to include almost everybody in the system. I don’t think the legislation is clear enough about social solidarity, which is essential if we are going to put ourselves into what is essentially one giant insurance pool, or about the mechanics of risk-pooling in state-based exchanges, which are tentative because proponents were nervous about federalism and about suggesting that people might have to change existing coverage. To me, the insurance exchanges are insufficiently specified, and I worry about implementation.

Lester Feder: Implementation can now be done well or not well. What are you hoping to see from the administration as it writes the rules?

William Sage: I am very encouraged by how much effort the administration seems to be putting into the insurance exchanges, both in its outreach to the states and in creating a useable web interface for people to compare insurance options.

However, I keep coming back to the lack of solidarity that seems to exist around the collective importance of health reform—this worries me. I don’t feel that individual shopping tools convey a message that health reform was a national decision and we now have to think of ourselves as committed to a national project.

I also find myself thinking about the old joke where the English are the cooks and the Germans are the lovers: I worry that we’re taking some expertise that has resided at the state level and trying to recreate it quickly at the federal level.  We may not be matching skills to tasks as well as we could.

Lester Feder: I’m interested in what you say about “social solidarity.” Are you saying that while there may be a market infrastructure in place, as individuals see premiums go up or become concerned about the quality of their individual care, that bigger question about whether some people are subsidizing others have not been adequately settled through the political process and could return to undermine the system?

William Sage: I think solidarity operates at a lot of levels and connects the discussion of insurance reform to the discussion of delivery system reform. We’re still engaging the health reform problem as, “What is care going to look like between me and my doctor. What is financing going to look like between me and my insurance exchange or my employer?” There’s a very big gap between making the health care system work for those individual transactions and making it work for society as a whole.

Lester Feder: How could that have been done differently and how can that be dealt with by during implementation?

William Sage: Keep your eye on your ball.  Policymakers understand that the fiscal calculation of front-loaded costs and back-loaded benefits makes the reform politically vulnerable.  People need some immediate relief, which the law provides through high-risk pools and reductions in medical underwriting.  But they also need patriotic reasons to wait until 2014 for the full upsides.

At several junctures in history we have succeeded in creating collective mobilization connected to health, Medicare for the elderly generations that brought us through two World Wars and the Great Depressions being an example. But I don’t think we’ve taken that on here because we’ve been afraid of the politics of “government takeovers,” “socialized medicine,” and “death panels.”  These concerns have also made the delivery system reforms much more tentative than I think they should be.

One lesson is not to take the insurance exchanges for granted.  Plunge into getting them up and running as soon as possible because there are lots of unsettled issues.  The law could have specified many of them, which would have made the new system much more centralized and therefore much more politically contentious. Laying out clearly what will happen and who will be running it would have given me a lot more confidence.  I hope some things can be resolved with regulations.

Lester Feder: Are you concerned that the same political caution that led to those kinds of ambiguities in the legislation might carry through the regulatory process?

William Sage: That’s a fair way to put it.

Lester Feder: As somebody who has done a lot of work on malpractice reform, what do you think of the malpractice policies that are in the law?

William Sage: There are two reasons for including malpractice in the legislation.  One is as a bipartisan olive branch, and I regret that that doesn’t seem to have been successful. The tort reformers on the Republican side are not just malpractice reformers. They’re a general business tort reform community.  Finding common ground between them and traditional Democratic constituencies is very difficult.

The second point is that the malpractice risks are extremely important to physicians, and the extent to which malpractice liability constrains practice innovation is therefore important to take on in legislation. Personally, if I could get a credible commitment from the American medical profession that it would dramatically alter the health care delivery system and adopt a much more cost-effective and effective mode of practice, I’d be willing to abolish the current liability system.

Delivery system reform is what really matters.  Making patients safer, improving the quality of care, having services be more accessible and more affordable. Apart from that, malpractice reform is just symbolic.

There are many good ideas for delivery system reform in the Obama administration’s health reform law: medical homes, accountable care organizations, expansions of the primary care workforce.  There is even plenty of money thrown at them.  This is refreshingly different from the 1993-94 health reform debate, when efforts to convey the importance of delivery system reform were met with puzzlement or hostility.  But very little is mandatory and there is no clear vision in the law about how we get the delivery system from where we are to where we want to be.

There are a lot of worried lobbyists out there, whose clients have strong interests in protecting parts of the existing delivery system.  I think Americans might have rejected their anti-rationing rhetoric about things like comparative effectiveness research if it hadn’t been for the death panel debate last summer and fall.  I was both saddened and amused to read the provision in the Senate bill that said, almost verbatim: “We will have no death panels.” That confirmed for me how hesitant Congress would be about engaging delivery system reform, which was certainly the case in the final law.  Again, building social solidarity is important.

Lester Feder: On that thought, are there a few things you’d like to see policy makers do now?

William Sage: I think most experts agree that we need a dramatic effort at Medicare payment reform that continues what happened with prospective payment for hospitals in the 1980s. DRGs were implemented quietly, but reshaped acute care and altered how hospitals relate to physicians.  We need another payment revolution, with bundled payment and measurable outcomes finally getting physicians, hospitals, and other providers to work together efficiently.

Finally, I think investing in a broad community-based health workforce is the key to long-term improvement, especially nurses, health educators, and public health workers.  There is more than enough money in a $2.5 trillion system to employ these people to keep us healthy and provide our basic care.

Lester Feder: What happens now that the health reform law and the reconciliation bill have passed?

Sara Rosenbaum: The starting point is understanding that we have a new normal, which I think is an enormous. At one time, health insurance coverage was understood as aspirational: You hoped you got a job that had insurance, you hoped you married someone who had insurance, and if you were a child, your parents hoped that they could get insurance for you.

This is all about to change. It will take a while to phase in, of course, but for the vast majority of the population, the new normal is the expectation of health insurance. Of course, this is not true for everyone, and much work remains to be done to make this expectation universal. This is a foundational change in American society, and not one without speed bumps along the way.

Lester Feder: So what—especially for the legal community—are the steps now in turning this into reality?

Sara Rosenbaum: Health reform is 2,700 pages of law; the process of digesting it is a serious undertaking. Some of the reforms are new law, while some are grafted on to underlying law. All of the new law must be interpreted and explained. Furthermore, once the law is interpreted and explained, it has to be operationalized. Three major federal agencies will bear primary responsibility for implementation, including the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury. Within this troika, HHS probably bears the largest burden. And the workload means probably thousands of new personnel, a problem since Congress has been quite frugal in the amount of money it’s given the federal government to implement reform.

Lester Feder: What are the roles, then, of those three agencies? What’s the difference, and which part of the job does each agency take on?

Sara Rosenbaum: There are several basic moving parts. The first is establishing the exchanges, which go live four years from now, but of course, four years is just around the corner in implementation time. The second are the tremendous changes in Medicare and Medicaid, both of which are good examples of the degree to which existing laws need to change. A third is translating new standards for employer-sponsored plans, insurers, and states. This is the job of all three agencies. A fourth is changes to the tax code for employers, insurers, and health care providers, particularly nonprofit institutions. This will be the job of Treasury. A fifth is implementation of the health care fraud, health care quality, workforce, public health, and access provisions, primarily the responsibility of HHS. A final area worth noting is how all of the above, in particular the new emphasis on clinical and financial integration in the health care marketplace, plays out in terms of the evolution of antitrust enforcement principles.

Lester Feder: How do the states fit into this?

Sara Rosenbaum: States play a leading role in the establishment of exchanges, reforms to the exchange-based health insurance market, and of course, implementation of Medicaid reforms. Today there are about 60 million Medicaid beneficiaries; in four years there will be over 75 million, including some of the poorest and most medically vulnerable adults. How to bring these new beneficiaries into Medicaid and assure appropriate care represents one of the central challenges of reform.

Lester Feder: What about setting up the exchanges on the state level?

Sara Rosenbaum: Exchanges represent a huge challenge, since they are the pathways to coverage for millions of people. And assuring that insurers will participate in the exchange system is a challenge as well. The history of Medicare Advantage and Medicare Part D both suggest that at least early on the participation level will be strong, but how does participation remain sustained over time, particularly in the face of efforts at cost control? This is why I think one can only understand Health Reform as a continuously evolving phenomenon.

Lester Feder: For the legal community, what are the biggest unknowns coming out of this?

Sara Rosenbaum: The first, of course, is the spate of legal challenges to the constitutionality of health reform, which will be dealt with in the coming years. Another is how employers and the insurance industry will respond to a new regulatory environment. Yet another is the extent to which enforcement of new health care fraud and abuse provisions or the new tax law requirements for nonprofit organizations will play out.

Another huge unknown is whether the new health insurance coverage scheme, which involves multiple payers including Medicaid, employer plans, and the individual exchange markets, will be able to respond to an increasingly dynamic and mobile society. Will we be able to achieve stable and continuous coverage?

Asking how health reform will change American life going forward is, of course, like asking fifty years ago how the enactment of Medicaid and Medicare would change society, including the population, health care, and the national economy. Health reform is one of those seminal events that happens every once in a while in a society. It is like dropping a very large stone into the water and watching the ripples go out. Health reform will change the way individuals will relate to health care, the way they relate to their jobs, the way they relate to family members and enter into living arrangements. It will change the way in which employers relate to employees and the interaction between the health care system, patients, and the economy. Ultimately it will affect the way in which the federal and state governments relate to one another. In short, health reform is the type of change that will redefine many relationships in society. The challenge is to use reform as the means by which the federal government, state governments, and markets work together in order to improve health and health care and to minimize the potential risks of reform.

Our new project, Health Reform GPS is designed to chronicle this implementation effort in the coming years and to serve as an information hub as the vast process of change unfolds.

It should be noted that even as the Court announced its decision, it was already moot. Section 10404(j) of the Patient Protection and Affordable Care Act has amended 29 U.S.C. 3730(e)(4) to provide:
“The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed—
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.”

Under this statute, information found in a state administrative report (or in a state court case or even in a federal court case to which the federal government is not a party) is not publicly disclosed, and can form the basis of a qui tam case, contrary to the Court’s holding.

The statute also amends the definition of “original source”:

“For purposes of this paragraph, ‘‘original source’’ means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing.”

I discussed the ramifications of this change in an earlier post.

This analysis is strengthened by the definition of “group health plan” in section 1301(b)(3), which incorporates the definition of section 2791 of the PHSA (42 U.S.C. 30gg-91), which defines “group health plan” to mean an employee welfare benefit plan as defined in ERISA 3(1), 29 U.S.C. 1002(1). Section 1551 also provides that the definitions of PHSA 2791 apply to the PPACA.

The provisions of Part A of the PHSA, as amended by the PPACA, and the entities to which they apply, are, as best I can figure out, the following;

• Sec. 2701. Fair health insurance premiums, limiting rating to age, geographic area, individual or family unit, and tobacco use. (Health insurance issuers for individual and small group market. Also insurers of large groups if offered through exchange.)
• Sec. 2702. Guaranteed availability of coverage. (Former sec. 2011). (Health insurance issuers offering individual and group coverage.)
• Sec. 2703. Guaranteed renewability of coverage. (former sec 2012) (Health insurance issuers offering individual and group coverage.)
• Sec. 2704. (former sec. 2701) Prohibition of preexisting condition exclusions or other discrimination based on health status. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2705. (former sec. 2702) Prohibiting discrimination against individual participants and beneficiaries based on health status. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2706. Non-discrimination in health care. This section both prohibits discrimination by insurers against providers operating within their scope of practice, and against individuals in violation of section 1558, which prohibits retaliatory action against employees who complain about actions their employers take in violation of the reform act. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2707. Comprehensive health insurance coverage. Requires insurance issuers in the individual and small group market to provide essential benefits under sec. 1302(a) and group health plans to comply with the cost sharing requirements of sec. 1302(a).
• Sec. 2708. Prohibition on excessive waiting periods (over 90 days). (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2709, Coverage for individuals participating in approved clinical trials (group plans and insurers in the group and individual market)
• Sec. 2709. (Formerly 2733). Disclosure of information by health insurance issuers.
• Sec. 2711. No lifetime or annual limits (group health plans and health insurance issuers offering group and individual health insurance coverage, more permissive rules for self-insured and large group plans.)
• Sec. 2712. Prohibition on rescissions. (Group health plans and health insurance issuers offering group and individual health insurance coverage.
• Sec. 2713. Coverage of preventive health services. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2714. Extension of dependent coverage. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2715. Development and utilization of uniform explanation of coverage documents and standardized definitions. (Secretary to develop standards. To be applied by health insurance issuers and sponsors of self-insured plans.
• Sec. 2715A Provision of information required by sec. 1311(e)(3) to HHS and to state insurance commissioners.. (Group plans and insurers in the group and individual market).
• Sec. 2716. Prohibition of discrimination based on salary. (Plan sponsors of group health plans other than self-insured plans.)
• Sec. 2717. Ensuring the quality of care. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2718. Bringing down the cost of health care coverage. (minimum loss ratios) (Health insurance issuers offering group or individual health insurance coverage. Does not apply to self-insured plans.)
• Sec. 2719. Internal and external appeals processes. (Group health plans and health insurance issuers offering group and individual health insurance coverage.)
• Sec. 2719A Patient Protections.
• Sec. 2722. (Formerly 2721). Exclusion of certain plans (i.e. governmental plans)
• Sec. 2723. (Formerly 2722). Enforcement provisions.
• Sec. 2724. (Formerly 2723). Preemption, state flexibility, construction.
• Sec. 2725. (Formerly 2704) Drive through delivery. (Group health plan and health insurance issuer offering group and individual coverage.)
• Sec. 2726. (Formerly 2705). Mental health parity (group health plan and health insurance issuer offering group and individual coverage.)
• Sec. 2727. (Formerly 2706). Reconstructive surgery following mastectomies. (Group health plan and health insurance issuer offering group and individual coverage.
• Sec. 2728. (Formerly 2707). Coverage of dependent students during medically-necessary leave of absence. (Group health plan and health insurance issuer offering group and individual coverage.
• Sec. 2731 (Formerly 2711). Section rewritten as a limitation on guaranteed coverage based on network or financial capacity and transferred to 2702
• Sec. 2732. (Formerly 2712). Guaranteed renewability of coverage in small group market. (revised and transferred to section 2703)

Of these provisions, section 2704, 2705, 2706, 2707 (as to maximum cost sharing), 2708, 2709 (clinical trials), 2711, 2712, 2713, 2714, 2715, 2715A, 2717, 2719, 2719A, 2725, 2726, 2727, and 2728 apply to group health plans, and thus to self-insured plans. The remaining sections apply only to insured plans.

Several sections of the PPACA refer specifically to self-insured plans. Section 2701(a)(5), applying the health status underwriting provisions to large group plans in the exchange, does not apply to self-insured plans. Section 2715 requires the plan sponsor or designated administrator to make the disclosures required by that section for self-insured plans. Section 2716, discrimination in favor of highly-compensated employees, expressly states that it does not apply to self-insured plans, which are already covered by a similar requirement under sec. 105(h). Self-insured plans are expressly subject to the external review requirements of 2719 established by HHS. The reinsurance provisions of 1341 expressly apply to self-insured plans; the risk-pooling provisions of 1343 expressly do not. Self-insured plans are expressly subject to a per-member fee to fund patient centered outcomes research under a new section 4376 of the IRC. Section 1253 requires the Secretary of Labor to collect information on self-insured plans and to file a report with Congress, while 1254 requires a similar report on the large group market, including self-insured plans.

One puzzle of the PPACA with respect to self-insured plans is section 1301(b)(1)(B), which provides

(B) EXCEPTION FOR SELF-INSURED PLANS AND MEWAS.—Except to the extent specifically provided by this title, the term ‘‘health plan’’ shall not include a group health plan or multiple employer welfare arrangement to the extent the plan or arrangement is not subject to State insurance regulation under section 514 of the Employee Retirement Income Security Act of 1974 [i.e. a self-insured plan or MEWA].

Read literally, this would mean that self-insured plans are not subject to any of the insurance reforms, since the term “group health plan,” used throughout the PPACA to define coverage, includes the term “health plan.” This would, however, run contrary to all of the other provisions of Title I that state or indicate that self-insured plans are included in “group health plans” and covered by the PPACA. The application of this exception, therefore, must be limited to section 1301, which defines “qualified health plans” as “health plans” that meet specific requirements. It would thus mean that self-insured plans cannot be qualified health plans.

The essential health benefit requirements of section 1302 specifically do not apply to self-insured plans under section 2707. This raises a final puzzle under the statute. Under section 1401 of the PPACA an employee can qualify for a premium tax credit to purchase insurance through the exchange if his or her employment-related plan fails to cover 60 percent of the allowed cost of benefits covered by the plan. An employer whose employees receive credits under this provision is liable under 1513 for a penalty of $3000 per employee who qualifies for premium subsides under the legislation. Since self-insured plans, however, are not subject to a minimum essential benefit requirement, could the employer not always offer a slim enough benefit package so as to cover 60 percent of it and avoid the fine? This issue will, it is hoped, be addressed through regulations.

The legislation does not affect 514 or 502 preemption. ERISA plan beneficiaries will still be limited to ERISA’s remedies. States will still not have jurisdiction over ERISA plans. Section 2715A (in Title X) would seem to require ERISA plans to report information to state insurance commissioners as well as to the federal government, but I would hope that the regulations will sort this out.

First, the Florida complaint, which a dozen other states joined (AL, CO, ID, LA, MI, NE, PA,SC, SD, TX, UT, WA), focuses mainly on the financial burdens of expanding Medicaid.  This is challenged under the “commandeering” principle, as requiring states to devote sovereign resources to achieve federal aims.  But, as we know, states are free to withdraw from Medicaid, so the argument seems to fall entirely flat.  The complaint makes a bait-and-switch type of estoppel argument , that states got into Medicaid without any expectation of this expansion, and now it’s too damaging for them to withdraw.  So, in effect, states argue that the Constitution allows them to keep the federal carrot but refuse the federal stick.  Good luck selling that to an appellate court.

Second, these states complain about having to implement the insurance purchasing exchanges and their rules, but here again, states are entirely free to opt out and let their citizens use the federal exchange.  The only reason states have to implement exchanges is that they insisted the legislation give them this option, rather than forcing everyone into a single national exchange.  States can hardly complain about the responsibilities they asked for, especially when they’re still free to duck them.

Third, there are procedural problems.  States probably have no standing to enforce arguments about violation of individual rights (which is the main concern regarding the individual mandate).  Also, consider the remedy if states were to prevail:  It would wreak havoc to overturn the mandate to purchase, but not the mandate for insurers to sell without any medical underwriting.  Doing that would cause massive adverse selection and probably destroy some companies and some portions of the market, so a court would have little option but to strike down most or all of the entire law.  Surely that measure is extreme enough to give even the most activist judge pause, and so will compel most courts to find every possible way to uphold constitutionality, regardless of political persuasion.

Finally, do state nullification statutes like Virginia’s make a difference?  Not according to Harvard’s Charles Fried (who was Reagan’s Solicitor General):

The notion that a state can just choose to opt out is just preposterous…. As long as the federal law is independently constitutional, it doesn’t matter what Virginia says… It’s like Virginia saying we don’t have to pay income tax….One is left speechless by the absurdity of it.”

This leaves only the well-worn arguments about exceeding powers to regulate commerce and to tax for the general welfare.  On these, most legal scholars are loud and clear about the merits.  In sum, as Sandy Levinson’s (Univ. Texas) says, “The argument about constitutionality is, if not frivolous, close to it.”

Senior Fellow and Project Director of the China Health Law Initiative

O’Neill Institute

The passage of universal health care, or (near-universal health care in this case), as Obama proclaimed, finally affirms in principle that as a society, we owe some security to one another against the life-and-death risks that can befall anyone from illness or injury.   And it was in honor of this proposition that when the House passed the Senate bill and the package of fixes, I got out the crystal, poured a toast.  And then I started thinking about how the sides would already be girding for the next battle.

And I don’t mean the lawsuits to block reform, or the fantasy scenario of repeal.  Instead I’m thinking about the slow grinding battle that will take place over years, even as a similar battle has been waged in previous decades over Medicare.  At stake in this struggle—which will be a struggle of inches–is the nature of health insurance.  Repeal is not the way to roll-back the transformation in our social safety net that health reform has wrought.

Health reform skeptics and opponents have already managed to slip in provisions that could serve as toeholds for future incursions—including a carveout from health insurance standards for the so-called “young invincibles” (Sec. 1302(e) of the Senate Bill) so they can buy catastrophic high-deductible coverage.  This fragments the risk pool and sets the conditions for health care to be viewed as something people fund through cash savings.

Examples abound, but even a recent history of Congressional fights over Medicare reveals exactly this type of maneuvering. As society’s guarantee of certain hospital and physicians’ benefits primarily for the aged, Medicare was a target for opponents of health care entitlements who worked to erode the defined benefit promised under the program.  Representative Paul Ryan nakedly avows the voucherization of Medicare in his recent bill, but voucherization by increments, shifting risk (under the guise of choice) to the seniors, and transforming assistance to a defined contribution by Medicare and no more, has been the creeping agenda of conservative interests for a while.  The success in Medicare has been limited, but sufficient to constitute a thorn in the side of the left.

Medicare Advantage, for example, transfers set subsidies out of the Medicare Hospital Insurance and Supplemental Medical Insurance Trust Funds to private insurance plans to provide benefits.  Medicare had already guaranteed certain benefits to seniors; the delivery of those benefits through a private insurance product served as a fig leaf only. But even that seems marginally better to those driven by an ideological horror of citizens expecting any guarantee from the government. When it became clear that the private insurance plans could not afford to provide the benefits as cheaply as the government, we did not allow them to trim back benefits.  The logic of Medicare, as a promise of certain benefits, clashed and ultimately prevailed against the logic of a voucher system.  We paid more and more to the private plans to bribe them to maintain coverage, ultimately much more than it would have cost to deliver the benefits through traditional Medicare. That overpayment, to appease the demand for private delivery of benefits, even if entirely cosmetic, will finally be reined in by this health reform bill.

The Medicare prescription drug benefit, passed in 2003, represented a masterful play by the opponents of health entitlements, posing as a new health benefit, but introducing for the first time into Medicare a health item that the government was barred from directly assuring.  Instead the government provided a “voucher”-like subsidy to private entities to offer drug coverage.  This was all the more shocking given that these private prescription drug plans were not a product the market had ever thought to offer—they did not exist and had to be wholly created in order to satisfy the uncompromising ideological refusal to allow government to provide benefits to anyone but private industry.  Recognizing the possibility that no such private entities would be willing to undertake this new function, the legislators were at least willing to allow a trigger for government to step in to assure that the benefit would still be provided.

If this was what Medicare was up against, at least Medicare started with the premise of a benefit that the government would arrange for and guarantee more or less directly, and seniors have a chance to re-enroll in traditional Medicare if they are dissatisfied with the private Medicare Advantage plans.  In health reform, the Democrats relinquished that ground early on, excluding a “public option.”  The path toward voucherization of health care is arguably within sight, and it is but a short distance further to argue that individuals should be able to “cash out” the premiums and subsidies into some kind of savings account.  Instead of guaranteeing health security, this framework could devolve into a defined contribution, and a rejection of governance as a mechanism for addressing collective risks.  If I were an opponent of health reform, once the volume dies down on repeal and lawsuits, I’d be trying to expand the domain of health savings accounts.

In addition to defending their ground against these efforts, what might Democrats consider as next steps?  Many are undoubtedly developing their list of fixes even now.  Medicare buy-in, a perennial issue, should be kept alive.   It seems to me that Medicare Part D should be rethought—when we as a society guarantee benefits, we should be able to assure that we can manage those benefits affordably, and government delivery should be an option.  The administrative standards on insurance, benefits, and exchanges will be crucial, I imagine.  I would be curious to see what others think will emerge as key items on both sides’ long-term strategic wish-lists.

Kara Ryan: We were excited for the House to pass the health reform bill last night.

Lester Feder: Well, let me ask you about that, because I thought NCLR came out opposing the bill right before the vote.

Kara Ryan: We didn’t actually oppose it, though it got reported that way. The point that we were trying to make is that we weren’t going to be able to support the bill if there were no changes made from the Senate version. So what the House did last night was to pass the bill, but also the reconciliation bill. The reconciliation language came out with a number of important changes that we thought on balance made a lot of sense to support the bill.

Lester Feder: So overall, what does the passage of the legislation mean for Latinos?

Kara Ryan: We are happy that the health care reform bill builds on the current employer-sponsored system, we know that that’s how a lot of immigrant families are able to access coverage, and we’re very happy to see that it expands the Medicaid program to everyone living under 133% of poverty, which includes legal immigrants who have had qualified status for at least five years. (There could be cases in which a legal immigrant has been present for more than five years, but became categorized as a “qualified” immigrant for fewer than five years.) And of course it creates the new health insurance marketplace in the form of these state-based exchanges, and it includes a lot of important consumer and patient protections. And legal immigrants can actually access the affordability tax credits, without any sort of waiting period for purchasing coverage in the exchange.

One of the things that the bill did was make a very large investment in community health centers. Community health centers are already on the front lines serving folks that are uninsured, having very little access to care. Many of them are immigrants, many of them are undocumented. And they’re already doing a great job at providing family-centered, high quality care. However, I don’t think that makes up for the fact that these populations were excluded from access to coverage.

Lester Feder: So what were the changes in the reconciliation bill that were so important to you?

Kara Ryan: One of the major things is that previously, Puerto Rico residents were not able to participate in the exchange, and the reconciliation language fixed that. The reconciliation language also provides a major boost to their Medicaid program in Puerto Rico, which had previously been capped and the island would not have the ability to draw down on the federal funds to implement that extension. There were also some small fixes in legal immigrant affordability. It also removed a penalty for the very poorest legal immigrants who are unable to buy coverage.

Lester Feder: You didn’t mention some of the provisions that were of concern to a lot of advocates, such as barring undocumented immigrants from using their own money to purchase insurance and the five-year waiting period for legal immigrants to be able to participate in Medicaid. What is the status of those, and how do you feel about them?

Kara Ryan: Unfortunately, those were not fixed in the reconciliation language, and we continue to have great concerns about how undocumented and legal immigrants subject to the bar will be able to access coverage. However, we received some assurances from the administration that we’re going to work on connecting folks with coverage and care in the implementation phase.

The bill doesn’t make any changes to state programs that are already covering legal immigrants inside that waiting period, with state-only money.  The problem with that, though, is that when state budgets are tight—as we’ve seen in California and Massachusetts—legal immigrants’ coverage is first on the chopping block. So while those programs can be maintained with state-only money, it would have been a much better situation if the five-year bar had been removed and states were able to draw down on federal funds to cover those populations.

Lester Feder: Are legal immigrants subject to the mandate, once it kicks in? And are they subject to the mandate before they are eligible for participation in Medicaid?

Kara Ryan: Yes they are. In the reconciliation language that was passed by the House and not yet passed by the Senate, there were a couple of fixes for very poor immigrants, who would be subject to the mandate, but they are no longer subject to penalties.

Lester Feder: The CBO estimates that some eight percent of US residents will remain uninsured. Do we know what portion are likely to be immigrants? Do we know how many of those are undocumented folks, and how many of those will be legal immigrants who are just not yet eligible for Medicaid?

Kara Ryan: We haven’t actually been able to do those calculations yet. But if you look at all of the barriers that have been put in place—such as the prohibition and the exchange for undocumented folks—if you look at not lifting the five-year bar it is reasonable to assume that a lot of the folks that are uninsured at the end of the day will be composed of non-citizens.

We’re also concerned that one of the things that the legislators did, in order to make doubly sure that undocumented immigrants wouldn’t be able to access the exchange or the subsidies, was to require several layers of verification. That’s verifying your citizenship, legal status, and your identity. We have seen when, for example, documentation requirements were imposed on the Medicaid and CHIP programs, that it ends up impacting citizens and legal immigrants especially. It prevents folks from getting enrolled, it creates delays, and—while costing states a lot of money to implement—and really not finding very many ineligible people receiving benefits. A GAO study said that they only found eight people receiving benefits who shouldn’t be in all the states they researched.

Lester Feder: Eight?

Kara Ryan: Eight.

The Brennan Center for Justice did a study a couple of years ago about how many working age adults had the ready availability of some of these documents that were required. Folks who were especially affected were elderly folks, particularly in the black community, who may not have access to their original birth certificates. Very few working age women—I think about half—have access to their original birth certificate with their current name, and then children, of course.

Lester Feder: So, once everything is in place, will the uninsured primarily be immigrants? Do we know how heavily immigrant that pool will be?

Kara Ryan: I don’t actually know, but if you look at all of the barriers that have been put in place—such as the prohibition in the exchange for undocumented folks and not lifting the five-year bar—it is reasonable to assume that a lot of the folks that are uninsured at the end of the day will be composed of non-citizens. Since obviously coverage is very important in access to care, at the end of the day what we’re really concerned about is people being able to access care.

We now know most of what’s in the legislation, who the winners and losers are, and the continuing shape of the political battle to come. What we don’t know are the contours of the political and cultural changes to follow. Will its enactment stimulate a broad political shift toward sustained libertarianism (along the lines of the current level of civil disobedience) and hence the legislation’s collapse? Or, will the implementation process accelerate broad cultural changes that fundamentally reshape health care delivery? Given the level of vitriol directed toward proponents of the bill, smart money will probably be on collapse.

But maybe the smart money is wrong. (Am I setting up a straw man here? Would I do that?) Every legislative enactment has unintended consequences. Up to now, the legitimate critiques of the legislation have been the failure to adopt more stringent cost controls, the potential for an increased tax burden on middle-income Americans, and the failure to change the health care delivery system. Combined with the sustained distortions and illegitimate critiques, the opponents have dominated the debate, though, fortunately, not the legislative outcome.

As unlikely as it may now seem, there’s a chance that the legislation will actually stimulate the kinds of reforms that many hoped would be included in the bill from the beginning. But these changes may not need additional legislation to occur. Instead, there’s a serious possibility of deep cultural change that will force stakeholders to achieve voluntarily what they failed to achieve through the legislative process.

First, the legislation includes numerous demonstration projects with the potential to provide information that will encourage policymakers and stakeholders to develop new delivery arrangements. For example, demonstrations may indicate which cost control mechanisms will be effective and how to implement them across the country. These projects may determine whether accountable health systems will reduce inefficiency and improve the coordination of care. Taken together, the demonstrations may stimulate the broad re-thinking of how health care is delivered that health policy scholars have advocated for many years.

Second, many actions can be taken voluntarily. As I’ve argued in previous posts, health insurers could have deflected some of the public’s antipathy toward them through changes that would have reduced the adverse consequences of pre-existing conditions. Tobacco control provides an analog. Many businesses decided to go smoke-free, even in the absence of tobacco control laws, because it was in their economic interests, because the public demanded it, or because they saw the inevitability state and local clean indoor air laws. Without doubt, health insurers could argue that their economic model precluded coverage for pre-existing conditions absent the full mandate included in the current legislation. But practices such as rescission were unnecessary and certainly compromised the industry’s public image.

Third, don’t underestimate the power of culture to change and to force policymakers and stakeholders to meet public demands. Once the hysteria over “government takeover,” etc., subsides and people get a better sense of how the legislation can improve their health insurance coverage, a swing in how the legislation is viewed is entirely possible.

Facts matter, and the facts favor reform. Opponents have saturated the media with lies and distortions, and it will take time for the benefits of the legislation to be disseminated and absorbed. For instance, several provisions, nicely summarized in Monday’s New York Times, may mollify Medicare recipients once they learn that the donut hole is less onerous, etc. When people digest that pre-existing conditions will no longer bar them from health insurance coverage, average citizens may well rethink their initial opposition. As passions cool and people realize that the fear mongering was deceptive, the environment for cultural change, which now seems quite hostile, will be more favorable.

Two counterexamples, however, should give pause. First, Congress enacted the Medicare Catastrophic Coverage Act of 1988. A year later, the Act was repealed later after massive protests from Medicare recipients. Second, the managed care backlash seriously undermined managed care’s implementation of cost containment initiatives.

Republicans, along with its Tea Party and talk radio/TV sympathizers, will surely foment the kind of outrage that saw angry senior citizens surround Representative Dan Rostenkowski’s car following the Medicare Catastrophic Coverage Act. I honestly believe that’s a losing strategy in this case. For one thing, AARP strongly backs the current legislation. For another, the Obama administration has the opportunity now to convince the public that the fears are overblown, and, to the contrary, many people will benefit from the changes.

At a minimum, the public is more engaged now and perhaps susceptible to a reasoned explanation of what’s actually in the legislation as opposed to the misleading distortions they’ve heard for months. None of this will mollify the Tea Party acolytes, who are beyond reach. And we can assuredly expect a period of continuing trench warfare to shape the legislation’s public image.

Nonetheless, the early signs are not terrible. It’s interesting that many Republicans have been predicting economic calamity if the bill is enacted. It would appear that Wall Street doesn’t agree. Even though the reconciliation process has yet to unfold, Wall Street’s initial response was a shrug. If Atlas Shrugged and Ayn Rand is rolling over in her grave, the mavens of Wall Street also shrugged. To be sure, Wall Street factors in the potential benefits to pharmaceutical manufacturers and hospitals, whose stocks rose on Monday, though health insurance stocks fell. But if Wall Street truly thought the legislation would wreck the economy, the market would have taken a dive. Maybe it will today or next week. Maybe not.

And if the legislation survives the initial onslaught, Republican members of Congress may be compelled to rethink their obdurate opposition to the law. Ultimately, their just say no philosophy did not impede enactment of a law they refused to help shape. Assuming that the Democrats retain their majorities in Congress, the real bargaining will begin after the 2010 elections. When the new Congress convenes in 2011, bargaining to strengthen the legislation will commence. At that point, the cultural shift will have begun. Once Republicans stop fomenting civil resistance and begin to bargain in good faith, the reforms will gain bipartisan legitimacy.

As congressional attention returns to other issues, such as banking reform, the exclusive focus on health care will subside somewhat, allowing the cultural process to operate naturally. With banking reform, Democrats may be able to place the Republicans on the defensive, forcing the Republicans to defend Wall Street malefactors. This, too, can help solidify the health insurance reforms.

Despite claims to the contrary, the President’s Executive Order Ensuring Enforcement and Implementation of Abortion Restrictions in the Patient Protection and Affordable Care Act is clearly authorized by the Constitution, and consistent with the Patient Protection and Affordable Care Act itself and existing law and regulations. Section 2 of the Executive Order simply directs federal agencies to rigorously implement the express provisions of the Act requiring that premium credits and cost-sharing subsidies not be used to finance abortions. The Executive Order also implements the Act’s requirements that federal funds be strictly segregated from private premium payments that may be used to purchase abortion coverage. Section 3 of the Executive Order directs the Secretary of Health and Human Services to assure that all community health centers comply with the Hyde amendment, which governs their HHS appropriations, in all of their operations. The Secretary is also directed to update grant policy statements and issue new interpretive rules to make this clear. There is nothing in the Patient Protection and Affordable Care Act or existing law governing federally qualified community health centers that contradicts or limits the scope of this order. Indeed, the Order repeats longstanding regulations governing community health centers, which in turn simply interpret and implement that statutory mission of community health centers to provide primary care. This executive order is clearly legal.

Is this procedure constitutional? Professor McConnell, writing in the Wall Street Journal, contends that it is not. He argues that it violates the bicameralism and presentment requirements of Article 1, sec. 7 of the Constitution. He cites an earlier case, Clinton v. City of New York (1998), in which the Supreme Court struck down a statute as unconstitutional because it violated the procedures established by this provision of the Constitution. But the Clinton case (and the case of INS v. Chadha (1983), cited by other critics of the deem and pass rule) dealt with very different circumstances. Clinton addressed the line-item veto law which allowed a President to sign a bill and then cancel parts of it, clearly not allowed by the veto provisions of Art. 1, sec. 7. Chadha allowed one House to by vote overrule an executive determination, clearly violating the bicameralism requirement. Neither addressed the validity of an internal Congressional procedural rule.

In fact, Article1,sec.5 provides that “each House may determine the Rules of its proceedings” Although the federal courts will hear challenges to federal laws that are not adopted in accordance with express constitutional requirements, United States v.Munoz-Flores (1990), the Courts do not get involved in disputes over internal rules, which are the provenance of the legislative branch. Public Citizen v.District Ct. (D.C.Ct . App. 2007). Professor McConnell cites the “yeas and nays” vote requirement of section 5 as demanding a vote on any bill passed by a house of Congress, but that provision only applies if such a vote is demanded by one fifth of those present, and does not specify what rule the vote shall be on. Indeed, the rule refers to a vote on a “question,” not a bill.

The special rule procedure has been used repeatedly for nearly 80 years to pass dozens of bills at the instance of both parties; often politically decisive or unpopular bills. If it were to be ruled unconstitutional, dozens of laws would come under challenge, including a many of the federal expenditures appropriated in recent years since the raising of the debt ceiling is often done under a special rule. Who wants to open this can of worms? The real question is whether there will be a vote that adopts the language of the Senate bill, meeting the bicameralism requirement. If that happens, the procedure through which it happens is not of constitutional significance.

Having said that, I wish the House would not take this approach. Using an arcane rule to pass the bill only adds fuel to the fire of the right-wing demagogues who are claiming that this bill, after a year of exhausting public debate, is somehow being rammed through. It is necessary to use the reconciliation process, which people already find confusing, to get this legislation done. Deem and pass is not obligatory. Moreover, the law will undoubtedly be challenged, and we, frankly, have a right-wing activist Supreme Court that has shown itself capable of reaching result-oriented political decisions and does not feel particularly bound by precedent. Why provoke them? It will be clear to absolutely everyone anyway that the House members have in fact voted to accept the Senate bill, as modified through reconciliation, of course. The House should just get it done.

This memorandum responds to the USCCB’s characterization of the Senate bill in both of these documents. I have the greatest respect for the Secretariat and for the Bishops whom it advises, their dedication to the sacredness of life, and the seriousness with which they have approached the task of reforming the American health care system in a manner that is consistently pro-life. Nevertheless, their characterization of the Senate bill contains several inaccuracies. The Senate bill is in fact far more pro-life than the Secretariat acknowledges, as has now been recognized by the Catholic Health Association and other pro-life organizations, leaders, and theologians. This memorandum addresses issues raised by the Senate bill relevant to the concerns of pro-life Americans, and in particular analyzes the Bishops’ characterization of the Senate bill. It concludes that the Senate bill is essentially as pro-life as the House bill, indeed more so on some issues. Pro-life members of Congress should, therefore, be supportive of the Senate bill.

To begin, pro-life members of Congress should support health reform because expanding access to health care, particularly to those who cannot now afford it, is fundamentally pro-life. The statement of the Secretariat does not mention the fact that studies have shown that as many as 45,000 Americans die prematurely each year because of lack of access to health insurance, but this conclusion was reached recently by a Harvard School of Public Health School study extrapolating from earlier work done by the Institute of Medicine. The Catholic Bishops as well as other Christian denominations and people of faith, have long recognized that the fact that many people, currently almost 50 million, lack access to health insurance in a country as rich as ours is not only a very serious problem, but also one that challenges our commitment to the sanctity of life. These bills do not address this problem perfectly, but would extend health insurance to 30 million Americans, and to that extent they are fundamentally pro-life.

Second, on many issues both bills address the concerns of pro-life Christians equally, as the Response in part recognizes:

• The Senate bill (1303(b)(2)(A), like the House bill (265(a)), explicitly prohibits the use of premium affordability tax credits or cost-sharing reduction payments to pay for abortions that are not covered by Medicaid (i.e. abortions in cases of rape and incest or in cases of physical threat to the life of the mother). (Whether the Senate bill does so equally effectively is a question addressed below).
• The Senate bill (1303(b)(4)), like the House bill (304(d)), prohibits qualified health plans from discriminating against providers or facilities because of their unwillingness to provide to pay, provide coverage, or refer for abortion. The Senate bill also requires the Office of Personnel Management to assure that at least one of the multi-state plans does not cover non-federally-covered abortions.
• The Senate bill (1303(c)(1)), like the House bill (258(a)), explicitly does not preempt any state laws regulating abortion.
• The Senate bill (1303(c)(2)(A)(i)), like the House bill (258(b)(1)(A)), explicitly does not change federal law regarding conscience protection or willingness to provide abortion.
• The Senate bill (1303(b)(1)(A)(i)), like the House bill (222(e)), provides that qualified health plans may not be required to provide abortion as an essential benefit.
• The Senate bill, like the House bill, leaves federal funding for other programs, such as the Medicaid and Medicare subject to the Hyde amendment, as they have been for decades. It provides no funding for new programs that cover abortions, and indeed, specifically provides that funds authorized for the new school-based health center program cannot be used to pay for abortions.
• Neither bill will in any way effect abortion coverage offered through employment-related plans not purchased through the exchange, which will continue to cover the vast majority of Americans, and in all likelihood continue to offer abortion coverage. These plans are, of course, subsidized by federal tax deductions and exclusions to the tune of over $200 billion a year, our largest federal subsidy for abortion. Neither bill touches this subsidy in any way, except insofar as the Senate bill imposes an excise tax on high cost plans, which may be those most likely to cover nonessential health services, like abortion.

Third, on some issues of concern to pro-life Christians, the Senate bill is stronger than the House bill. Pages 10 through 12 of the Issues of Life memo acknowledges that the Senate bill is stronger than the House bill on end-of-life issues and on clear opposition to assisted suicide and euthanasia and discrimination against providers that refuse to participate in it. Second, the memo at page 13 notes that the Senate bill, but not the House bill, includes $250 million for support for pregnant and parenting teens, provisions modeled on the Pregnant Women Support Act, which has been supported by the Bishops.

While the Secretariat Issues of Life memo does recognize these differences, it amazingly fails to mention the provision found in the Senate bill that one would have thought would have been most strongly supported by pro-life Christians. Section 1303(a) permits states to totally outlaw abortion coverage in policies issued through the exchange. No such provision is found in the House bill. Their response to my memo states that section 258(a) of the House bill, which provides that state abortion laws are not preempted, also allows states to prohibit abortion coverage. But the Stupak amendment itself explicitly authorizes qualified health benefit plans to offer supplemental abortion coverage. This could be read to guarantee health plans the right to offer supplemental abortion coverage through the exchange, regardless of state law. The CBO estimates that 6 million Americans will obtain their insurance through the exchange without receiving federal subsidies. The Senate provision would allow states that have strong anti-abortion policies to ban all abortion coverage for these people as well as for those who receive federal subsidies. The House bill does not explicitly permit this.

In what respects, then, is the House bill more pro-life than the Senate bill? First, the Issues of Life and the Response memo contend that, although the Senate bill, like the House bill, prohibits the federal government from requiring coverage of abortion as an “essential health benefit,” the Senate bill may otherwise require abortion coverage. There are several problems with this argument. First, under section 1302, the “essential health benefits” that cannot include abortion are precisely those benefits that a qualified health plan must provide under federal law. Saying that a plan cannot be required to cover abortion as an essential health benefit means that it cannot be required to cover abortion.

The memo contends, however, that a plan could be required to cover abortion as a preventive service for women under 2713(a)(4). This section refers to the comprehensive guidelines of the Health Resources and Services Administration, apparently the Women’s Health USA guidelines. These do not address abortion. But in any event, preventive services are one of the services covered by the “essential health benefits,” which cannot include abortion. Finally, and decisively, 1303(b)(1)(A)(ii) simply says a plan may decide whether or not to cover abortion, period. This cannot mean anything other than that plans cannot be required to cover abortion.

The Bishops’ memos also take issue with the way in which the Senate bill assures that public funds do not cover abortion as compared to the way the House bill does it. This seems to be the Bishops’ central objection to the Senate bill. Both bills provide that federal funds will not pay for abortions (other than those involving rape, incest, or physical life endangerment). The House bill does this explicitly, the Senate bill by subjecting the premium subsidies and cost sharing reductions to the Hyde Amendment, which has been adopted by the House and Senate every year since 1976. The House bill, as amended by the Stupak amendment, further provides that the abortion coverage will only be available to persons who receive federal subsidies by purchasing a supplemental policy that must be paid for with private or state funds. The Senate bill, by contrast, provides that plans that offer abortion coverage may not pay for that coverage with federal funds and must collect separately from the enrollee or the enrollee’s employer a separate premium to cover the full cost of abortion coverage, not considering any reductions in the cost of coverage attributable to not having to cover the cost of prenatal care, delivery, and post-natal care. The funds provided by this separate premium must be kept strictly segregated from the funds that cover other services, and these accounts must be audited by state insurance commissioners using GAAP, OMB, and GAO accounting standards to assure this strict separation. Under both bills, federal funds cannot pay for abortion; a separate privately-paid premium must fully cover the cost of abortion. Under the House bill, two pieces of paper must be issued. Under the Senate bill only one piece is needed (although in fact abortion coverage will be offered as a rider, so two pieces will in fact issue).

Several objections are raised to the way in which the Senate handles the separate funding, none of which really hold water. It is objected that everyone who is a member of a plan that includes abortion coverage will have to pay for abortion coverage whether they want it or not, and that every plan member will have to pay at least a dollar for this coverage. Under 1312(a), consumers who purchase coverage as individuals can choose any plan, with or without abortion coverage, available through the exchange. If they are covered by their employer through the exchange, they may choose any plan within the tier covered by their employer, including, of course, a plan that does not cover abortions.

Under 1334(a)(6), the OMB is responsible for assuring that there will be at least one plan available through every exchange that does not cover abortions (other than those allowed under the Hyde amendment). The Response memo claims that this is a change from current policy, because none of the plans that currently contract with OMB for the Federal Employees Health Benefits Program may cover abortion. But as is very clear from section 1334, the OMB program created by the Senate bill is different from and entirely distinct from the FEHBP program. The 1334 OMB program is intended to broaden the options that are available to enrollees through the exchanges, making local insurance markets more competitive. In effect it builds on the exchanges themselves to assure that individuals in the small and non-group market have a variety of tax-subsidized options available. If there is any change here, it is a change that will make abortion less available. While employee-benefit plans (including small employer plans), currently subsidized by tax deductions and exclusions, often provide abortion coverage, the Senate bill, like the House bill, assures that federal tax credit will never pay for abortions, whether coverage is purchase through an OMB plan or otherwise through the exchange.

In fact many plans that do not cover abortion will be available through the exchange. No federal law currently requires bakeries to sell bread. But of course they all do. Similarly, markets will assure that there will be many plans available to people who do not want to pay for abortion coverage. In states where abortion coverage through the exchange is outlawed under 1303(a), no plans will offer abortion coverage. In states where coverage is legal, couples beyond child-bearing age, single men, and many women and couples of child-bearing age who have moral objections to abortion will insist on not having to write two checks and not having to pay for coverage they do not want. Even women and couples who have no moral objection to abortion are unlikely to purchase coverage. Almost 90 percent of abortions are now privately financed, and few women expect that they will want an abortion and thus plan ahead by purchasing coverage. It is likely that few women or couples of child-bearing age will go through the trouble of selecting a plan that covers abortion and paying two checks for it. This is particularly likely to be true for women with employer coverage, who may be embarrassed to let their employer know that they are choosing abortion coverage.

Indeed, it is likely that few plans will offer abortion coverage at all. Those that do will invariably offer an identical plan without coverage for the majority of their market, which does not want to choose abortion coverage. Many plans currently offer abortion coverage, often without their enrollees knowing it, as one would assume was true with the Republican National Committee’s plan, because the insurers believe it will save them the costs of childbirths. But once abortion becomes a separate service that must be fully paid for by a separate premium, coverage for it will likely become rare.

It is argued that the Senate bill makes enrollees pay for other enrollees’ abortions. Of course, by definition, a person who buys health insurance pays for someone else’s health care. That is the nature of insurance pooling. But only those who choose to purchase abortion coverage will pay for other enrollees’ abortions, expecting that the others will pay for their own if they choose to have one.

It is also argued that the Senate approach allows federal money to be used to pay for plans that cover abortions. The essential point is that the Senate bill does not allow federal money to be used to pay for abortions. Federal Medicare and Medicaid funds currently help to pay for hospitals that pay for abortion, but they do not pay for abortions. This is directly analogous to the Senate approach.

Finally, much has been made of the odd “not less … than $1 dollar per enrollee per month” provision of the Senate bill. This charge is a minimum, as plans must charge a premium that covers the full actuarial cost of abortion services, without any consideration of costs the insurer may save by not having to pay for prenatal care, postnatal care, or childbirth through the underlying plan. The cost of abortion services for the limited population that will choose this benefit will certainly be more than a dollar. This provision simply requires that something must be charged for abortion coverage; it cannot be offered for free. Similar “at least $1” provisions are sprinkled throughout the United States Code when Congress has intended to say that the cost of something that must be covered by a user and cannot be provided for free.

Several other arguments are raised against the Senate bill. Both memos claim that the appropriations for community health centers and the National Health Services Corps are not made subject to the Hyde amendment, and thus will be used to pay for abortions. Community Health Centers provide pre- and post-natal care to one in eight child-bearing women in the United States, and have made it possible for many women to bear children who might otherwise have decided not too. With 15 million more poor Americans being added to the Medicaid roles under the Senate bill community health centers will become even more important.

Community health centers have never provided abortions and have no intention of providing abortions. Indeed, they cannot legally provide abortions. The Federal Regulations, 42 C.F.R. 50.301, 50.303, which date back to the 1970s, prohibit “any programs or projects supported in whole or in part by federal financial assistance, whether by grant or contract, appropriated to the Department of Health and Human Services and administered by the Public Health Services,” from the performance of abortions except for cases of rape, incest, or physical life endangerment of the mother. This includes community health center and the National Health Services Corps, which are both supported by funds appropriated to the Department of Health and Human Services and administered by Public Health Service.

Moreover, funds appropriated for community health centers and the National Health Services Corps under the Senate bill are not segregated funds, they are explicitly enhanced funding that will flow into a pool of funding for these programs that is otherwise subject to the Hyde amendment. Any community health center that attempted to use its funding to provide abortions would be in violation not just of the federal regulations, which have the force of law, but also of the Hyde amendment, as they would have no way to segregate the Hyde-appropriated funds from the funds appropriated by this Act. The failure to explicitly apply Hyde to this funding was likely an oversight in the rush to settle on the wording of the manager’s amendment, as earlier in the bill, funding for school-based health centers and for Indian health services was explicitly made subject to the Hyde amendment. But the fact that these funds will not be allowed to be used for abortion is clear. The cases cited by the Bishops, which interpret earlier law and different regulations under the Medicaid program, have no relevance here.

It is contended that the Senate bill does not explicitly prohibit discrimination by the federal government or federal programs or state or local governments receiving federal funding against providers that refuse to provide abortions, as does the House bill (259). Indeed, the Response memo asserts that my claim that it does, is “based on a confusion.” But section 1303(c)(2) of the Senate bill explicitly states that the bill is not intended to have any effect on federal laws prohibiting discrimination against providers who refuse to provide, pay for, cover, refer for abortion or (going beyond the House bill) “to provide or participate in training to provide abortion.” The federal law to which it clearly refers is the Hyde amendment, which, like the House bill, prohibits discrimination in federal and federally-assisted state and local programs against individual or institutional providers that are unwilling to provide abortions (as well as to other federal statutes prohibiting discrimination, such as 42 USC 238n, which forbids discrimination in physician training). Hyde is the only federal law that comprehensively covers these issues, so it is certainly the legislation the Senate bill refers to. Both the House and Senate bills, therefore, offer equal protection of providers and professionals against discrimination or violation of their conscience.

Finally, the Bishops express a concern that with respect to this issue of discrimination against providers in public programs and with respect to prohibiting federal funding, the Senate bill relies on the Hyde amendment while the House bill explicitly adds the Hyde amendment language to the bill itself. Hyde has been adopted every year since 1976. It is an indelible part of American law. There may come a time when Congress rejects the Hyde amendment, thus opening up the Medicaid and Medicare programs to fund abortion. Any Congress that was so determined to fund abortion would no doubt also amend the health reform legislation to provide that premium subsidies could also be used to purchase abortion. Realistically then, the Senate bill’s reference to the Hyde amendment and the House bill’s explicit inclusion of it, is a distinction without a difference. By preserving the Hyde Amendment’s restrictions in every respect, the Senate bill also preserves the status quo on abortion.

In sum, if one examines the abortion provisions of the House and Senate bills carefully, in their totality, they are equivalent. Each has its strengths and weaknesses with respect to pro-life concerns. At this point in time, however, we do not have the choice between the House and Senate language. The Democrats no longer have a filibuster-proof majority in the Senate, and therefore the Senate bill must be the platform for the health reform bill. Changes in the legislation can only be made through a reconciliation bill, which requires only a 51 vote majority in the Senate. But reconciliation can only deal with revenues and outlays of the federal government, which does not include the abortion issue, since by definition federal money cannot under either bill be spent for abortion. The Republicans have made it clear that they will block any changes from being made to the Senate language through reconciliation. The Bishops statement that the House should simply substitute the House language for the Senate language in the reconciliation process simply demonstrates a misunderstanding of the Senate procedures that constrain action at this time.

The choice we face, in sum, is the Senate bill or our current health care system. The Senate bill will undoubtedly save many lives through extending insurance coverage to people who cannot afford insurance. It will also in all likelihood make abortion coverage less common than it is now, since people will have to explicitly choose and pay extra for it.

Last week, Rep. Peter Welch (D-VT) introduced a bill (H.R. 4752) to overturn the 2003 ban on government-led price negotiations for Medicare Part D drug plans.  The bill has 73 co-sponsors so far.  While perhaps well intentioned, this bill will do little to reduce Part D drug prices.

Giving the government the power to negotiate drug prices can work only if we have credible alternatives to the drug on the table.  Plans need: (1) generics or similar drugs in the therapeutic class; and (2) formulary flexibility to drive market share in exchange for price concessions.

First, many complex specialty drugs are biological and don’t have generic equivalents.  Proposals debated in this Congress would establish a regulatory pathway for bio-similars, but the current language mandates a long exclusivity period, twelve years after patent expiration.  Market competition can’t work without competing products.  Billions of dollars are at stake here.

Second, Congress has tied the hands of Part D drug plans by mandating a highly inclusive formulary – at least 2 drugs from every class, and every drug from 6 protected classes.  Part D plans are required to include these drugs, which destroys any ability to negotiate price.  As Aaron Kesselheim and I said recently in Health Affairs: “Successful negotiations would require a credible threat of formulary exclusion, which is difficult in a national public plan with a safety-net role.”

Both of these problems were mentioned in a recent GAO report:  “Plan sponsors reported having little leverage to negotiate price concessions from manufacturers for most specialty tier–eligible drugs” – negotiation doesn’t work without competitive drugs on the market and the ability to exclude some of them from the formulary.

How exactly will CMS do a better job in this reality?  No wonder CBO generally scores these types of bills as not saving significant money.  The most important changes will come from expanding the availability and use of generics (including bio-similars) and permitting Part D plans to tailor their formularies.

The Welch bill discusses formularies, but in an irrelevant way.  The bill opposes a national Part D formulary.  No one really wants a uniform national Part D formulary, so this is not a controversial stance.  But if Part D plans are to negotiate lower prices, with or without government help, they need the ability to experiment with different formularies.  In short, formulary diversity is necessary if this price negotiation strategy will work.  (Formulary diversity also introduces problems if Part D plans design them more for adverse selection purposes, to discourage the sick from joining their plan).

In addition to these two key proposals, Kesselheim and I outlined several other suggestions for reducing Part D drug prices, including expanded forms of generic and therapeutic substitution; limited anti-trust waivers to allow Part D plans to voluntarily band together to negotiate with drug companies; importation; and value-based pricing.  If readers are interested, I can take these topics up in future posts about Part D.

The rationale for regulatory reform rests on three basic principles. First, the current system is unmanageable and duplicative, and is not serving any of the objectives it was designed to achieve. Second, health reform will founder without an adequate regulatory structure. Implementing the proposed reforms would no doubt require substantial adjustments to the current regulatory regime. Imposing yet another set of regulations on the current system will only exacerbate the existing problems. Third, health care is a rapidly changing market that requires a dynamic regulatory capability. Whatever one thinks about the current regulatory system, it is anything but dynamic.

At best, the current health care regulatory system is a fragmented, ad hoc arrangement with little structural or thematic coherence. It consists of regulations designed first for fee-for-service medicine, then managed care, and now consumer-directed health care (CDHC). The result is a muddle of confusing and inconsistent regulations that provide minimal useful guidance to health care administrators and physicians.

Not surprisingly, regulatory barriers impede health care delivery system innovations, serving neither patients nor providers. To complicate matters, most health care regulations are written in dense, impenetrable language that is susceptible to myriad interpretations and are difficult and costly to implement. The separate layers of state and federal regulations, plus the involvement of private accreditation entities and their voluntary standards, certainly add to the confusion..

As a consequence, health care providers, already under considerable pressure to reduce costs while continuing to deliver high quality care, are forced to operate in a regulatory environment that defies comprehension. Most health care regulations are written in dense, impenetrable language that is susceptible to myriad interpretations as well as difficult and costly to implement. And the reluctance of the regulatory agencies to provide consistent opinions interpreting the regulations makes it difficult to reconcile the inconsistencies within and across regulatory areas and jurisdictions.

The paradigmatic example of why health care regulation has gone awry is the fraud and abuse regime (i.e., the combined self-referral restrictions, anti-kickback laws, and the Federal False Claims Act). As one example, public policy has strongly favored cost containment strategies in recent years. But when the market responded with gainsharing (where physicians and health systems share in cost saving efficiencies), the Office of the Inspector General (OIG) initially ruled that gainsharing violated the fraud and abuse laws. This interpretation directly conflicts with the stated goals of the Internal Revenue Service (regarding tax exemption) and the Department of Justice/Federal Trade Commission (regarding antitrust enforcement) to encourage integration and risk-sharing in arrangements between physicians and health systems.

Although OIG has since relaxed its objections, the example demonstrates the conundrum facing physicians and their health care partners. As desirable as the goal of reducing fraud and abuse is, the current regulatory approach may have the unintended consequence of impeding market arrangements that might advance public policy goals of reducing costs and improving quality of care. Indeed, the Obama administration has announced a major crackdown on fraud and abuse in Medicare and Medicaid reimbursement. As desirable as the crackdown may be, it will not be effective without identifying and focusing on the dominant sources of fraud and abuse.

This problem is not unique to fraud and abuse concerns, but permeates the way health care is now regulated and could easily compromise the reforms contained in the health insurance reform legislation. Take just one of the proposed initiatives, accountable health care systems (ACS) as an example. In all likelihood, any ACS model will require some type of physician-health system cooperative relationship. Can this reform co-exist with a regulatory structure designed for a different era? There are reasons to be skeptical. For example, antitrust considerations and fraud and abuse restrictions alone suggest that the implementation of ACSs will be subject to significant regulatory constraints. Regulatory barriers for other initiatives, such as health insurance exchanges, are likely to impeded implementation.

Even though the country’s policy focus on reforming the health care insurance system is appropriate and necessary, transforming the regulatory system should be an integral component of the broader health reform debate. In fact, the rigidity of the current regulatory system often freezes in time current market arrangements and obstructs opportunities to improve quality of care and reduce costs. Regulatory barriers that impede legitimate business initiatives serve neither physicians nor their patients.