The legal question presented was whether the payments Perez received are tax-exempt “damages” under Section 104 of the Internal Revenue Code. The court held they did not, and thus could be taxed. Judge Holmes observed that the contracts had characterized those payments as consideration for pain and suffering rather than the eggs themselves. He explained that “the injury here, as painful as it was to Perez, was exactly within the scope of the medical procedures to which she contractually consented.” Accordingly, “the payments were made not to compensate her for some unwanted invasion against her bodily integrity but to compensate her for services rendered.” Despite the pain and danger Perez incurred through the process of egg retrieval, Judge Holmes affirmed that “the money she received was not ‘damages’” because “she voluntarily signed a contract to be paid to endure” those risks. I’d be interested to learn whether readers find persuasive the Court’s provocative analogies to egg “donation”: Continue reading →
Today, the Washington Post ran an interview with Laurence Tribe about the King v. Burwell subsidy litigation (recall that oral arguments are scheduled for March 4). Tribe speculated that Chief Justice Roberts will once again be the swing vote, as he was in Nat’l Fed. of Independent Bus. v. Sebelius. Tribe seems to predict another pragmatic Roberts opinion (and one that might bring Justice Kennedy along), finding the subsidy provisions are at worse ambiguous and that the executive is owed deference as argued by the eminently reasonable Nick Bagley.
Even though Tribe wouldn’t label Roberts as a consequentialist, he does believe that the pragmatic Roberts would be influenced by the impact on the States, the disruption of insurance markets, and the consequences for the newly insured. If the Chief wants more data on those issues he could do no better than to consult two excellent reports from the Urban Institute. The first estimates that a declaration that the subsidies are invalid “would increase the number of uninsured in 34 states by 8.2 million people… and eliminate $28.8 billion in tax credits and cost-sharing reductions in 2016 ($340 billion over 10 years) for 9.3 million people.” Perhaps as important, the Urban Institute’s model also predicts general turmoil in private, non-group insurance markets as the young and healthy would disproportionately drop coverage, causing a predicted 35% increases in premiums.
The second and most recent brief from the Urban Institute begins to put faces on those who will suffer: “Over 60 percent of those who would become uninsured are white, non-Hispanic and over 60 percent would reside in the South. More than half of adults have a high school education or less, and 80 percent are working.”
The executive shouldn’t need such help given the ACA’s clear intent as to how the federal and state exchanges were meant to function. But, if a dose of pragmatism is required to secure a majority of the Court, the stakes couldn’t be any clearer.
In a prior post, I discussed the Seventh Circuit’s decision in United States v. Nayak, one of the first major “honest services” mail and wire fraud cases to arise since the Supreme Court decidedSkilling v. United States in 2010. In Skilling, the Court found clear Congressional intent to limit honest services prosecutions to “offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.” (Skilling at 407, emphasis added) As I warned in a 2012 article, the Court’s focus on bribery and kickback activity within the context of a fiduciary duty might have wide-ranging consequences in the health care field given the nature of the physician-patient relationship.
The structure of honest services cases differs from that of more traditional forms of mail and wire fraud, which usually involve perpetrators who defraud victims of money or property. In contrast, these “intangible rights” cases eliminate the requirement that the victim suffer a financial loss to the perpetrator. Nonetheless, such fraud is actionable only when the perpetrator in fact owes a heightened duty to provide “honest services” to the victim. While Skilling grounded that duty in a fiduciary relationship, the majority offered little guidance as to which aspects of the relationship were most important. As Justice Scalia noted in his concurrence: “None of the ‘honest services’ cases . . . defined the nature and content of the fiduciary duty central to the ‘fraud’ offense. There was not even universal agreement concerning the source of the fiduciary obligation – whether it must be positive state or federal law . . . or merely general principles, such as the ‘obligations of loyalty and fidelity’ that inhere in the ‘employment relationship.’” (Skillingat 416-17)
The indeterminacy of the fiduciary requirement has particular relevance in the medical context. While the physician-patient relationship is commonly described as a fiduciary one, the characterization is far more complex than may first appear. The disparities in medical knowledge, as well as the inability of patients to access many services (such as prescription drugs) without physician involvement, give physicians a great deal of power over their patients – a characteristic fiduciary responsibility. Yet the relationship lacks other fiduciary hallmarks; the physician, for example, lacks the fiduciary’s traditional control over the beneficiary-patient’s money. Skilling offered little guidance as to which of these characteristics is most relevant to the honest services duty. Continue reading →
Since the early 1900’s, the federal mail and wire fraud statutes have been applied to schemes to defraud victims not just of money or property, but also of “intangible rights” such as the right to the “honest services” of an employee or public servant. 18 U.S.C. §§ 1341, 1343, 1346. This expansive theory of honest services fraud has been applied to public officials and private businessmen, although only rarely to physicians or others in the health care system. In 2010, the Supreme Court used the case of former Enron CEO Jeffrey Skilling to impose significant limits on the reach of the honest services fraud theory. Skilling v. United States, 561 U.S. 258 (2010).Skilling itself had nothing to do with health care, arising instead from a prosecution for conspiracy, securities fraud, wire fraud, false representations to auditors, and insider trading in connection with Enron’s massive financial meltdown. Yet in rejecting Skilling’s vagueness challenge to the honest services wire fraud theory underlying his conspiracy conviction, the Court read the statute to limit honest services prosecutions to cases involving bribery and kickbacks – activities with particular salience in the health care context. In a 2012 article, I predicted that while Skilling generally was viewed as narrowing the scope of honest services fraud, the decision might have the paradoxical effect of inviting additional prosecutions in the health care industry.
While intangible rights cases date back to the early 1900’s, modern prosecutions were derailed in 1987 when the Supreme Court ruled that the mail and wire fraud statutes applied only to the deprivation of property rights. McNally v. United States, 483 U.S. 350 (1987). In response, Congress quickly enacted 18 U.S.C. § 1346 to clarify that the statutes did indeed prohibit “a scheme or artifice to deprive another of the intangible right of honest services.” The amendment did not include a definition of honest services, nor offer any other indication as to when the prohibition might apply. In his appeal, Skilling asserted that the provision was unconstitutionally vague because it failed to adequately define the prohibited behavior and granted nearly unfettered prosecutorial and judicial discretion. The Court, however, declined to overturn the statute, finding clear Congressional intent to return to the state of the law prior to McNally: a “solid core . . . involv[ing] offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.” (Skilling at 407)
Given the prominence of kickback concerns in health care, I warned that the Court’s focus on kickbacks and bribery might well have the effect of reinvigorating the prosecution of health care intangible rights violations. And indeed on October 20, 2014, the Seventh Circuit decided one of the first major post-Skilling honest services fraud cases involving health care providers, United States v. Nayak. Continue reading →
Commentators have been weighing in since the Supreme Court decided it would hear King v. Burwell, the case challenging the ability of millions of Americans to receive subsidies to purchase health insurance on federally operated Exchanges under the ACA. Debate swirls over whether a decision striking down these subsidies will gut the ACA or not, but at the very least a ruling in favor of the petitioners would have grave consequences for ACA the and the millions that currently receive these subsidies.
There is, however, more at stake in the King case than the ACA. If the Court takes this opportunity to cut down the ACA, it does so at the cost of the principle of separation of powers and the Supreme Court’s institutional legitimacy and credibility.
The question in King will be resolved under the Chevron framework, which provides that if a statutory provision is ambiguous, then the court must defer to the agency’s interpretation, so long as it is permissible. Reasonable, learned minds have been disagreeing on the meaning of the statutory provision. As Adrian Vermeule has pointed out, of the 9 federal judges that have reviewed this question, 6 have agreed with the government’s interpretation or concluded the statute is ambiguous, and 3 have concluded that the statute unambiguously precludes subsidies. This type of judicial disagreement is evidence itself of statutory ambiguity. Continue reading →
Who has standing to challenge a patent’s validity? And under what circumstances can Congress define an injury for the purpose of creating Article III standing? Those questions underlie a new petition for certiorari filed by Consumer Watchdog, who is asking the Supreme Court to reverse a Federal Circuit opinion holding that Consumer Watchdog lacked Article III standing to challenge a patent on embryonic stem cells.
Consumer Watchdog, a non-profit consumer organization, requested an inter partes reexamination of a patent on embryonic stem cells held by the Wisconsin Alumni Research Foundation (WARF), alleging that the patent should be invalidated on several grounds. After a lengthy administrative process, the Patent Trial and Appeal Board (PTAB) upheld the patent as valid. Consumer Watchdog subsequently appealed, under sections of the Patent Act that expressly permit third-party requesters (like Consumer Watchdog) in inter partes reexamination proceedings to appeal to the Federal Circuit if they are “dissatisfied” with the PTAB’s decision or if any “final decision [is] favorable to the patentability” of the claims in question. The Federal Circuit held that Article III’s case or controversy requirement imposes a separate, irreducible constitutional minimum requirement on standing — and that Consumer Watchdog hadn’t met that requirement. Continue reading →
For all those who have been following the ongoing fight between pharmaceutical companies and HHS over the 340B Program’s coverage of orphan drugs (I know you’re out there), last week PhRMA filed a new complaint challenging HRSA’s interpretive rule on the subject under the APA. For all those who are not (but should be) paying attention to this battle, here’s what’s happening.
The 340B Program allows certain health care organizations (such as disproportionate share hospitals) to purchase drugs for their patients at significant discounts. The Affordable Care Act expanded the number and kind of organizations that can participate in the 340B Program, but it also added an exception stating that most of the covered organizations could not obtain 340B discounts for orphan drugs — or, as the statute puts it, for “a drug designated … for a rare disease or condition.” 42 U.S.C. § 256b(e).
The battle between PhRMA and HHS is over is whether this statutory exclusion applies to orphan drugs or orphan indications. There are many drugs which have received an orphan designation for certain indications but are also FDA-approved and prescribed more generally for non-orphan indications. In such a case, can a 340B facility purchase the drug at a discount if it is being prescribed for a non-orphan indication? Continue reading →
Last week’s decision by the U.S. Court of Appeals for the Third Circuit in King v. Governor of the State of New Jersey,provides an insightful addition to the growing body of case law examining the clash between the state’s power to regulate clinical practice andfree speech.
Although the common law of informed consent arguably implicates the First Amendment rights of physicians and other health professionals, the conflict between the state’s power to regulate health care and free speech has become more apparent in recent years as state legislatures have increasingly enacted laws prescribing what physicians and other clinicians can and cannot say. Such laws are especially common with respect to abortion, but state legislatures have also required physicians to provide specific information about breast cancer treatments, or refrain from asking patients about gun ownership.
Not surprisingly, these laws are frequently challenged on First Amendment grounds. Some courts, relying on the Supreme Court’s cursory treatment of a First Amendment claim in Planned Parenthood v. Casey, have held that laws pertaining to what is said in the course of treatment regulate clinical practice rather than speech, and are, therefore, not subject to heightened review under the First Amendment. That was essentially the approach followed by the Ninth Circuit in Pickup v. Brown, which upheld a California law banning sexual orientation change efforts (SOCE) for minors, and the Eleventh Circuit in Wollschlaeger v. Governor of the State of Florida, which upheld a Florida law limiting physicians’ ability to inquire about their patients’ gun ownership. As a result of these decisions, it became easier for states to regulate the speech of physicians than the speech of commercial purveyors of deadly products. Continue reading →
Malpractice suits filed in connection with reproductive-choice procedures often present unique problems. The suit filed by Jami Conner against her former gynecologist, Dr. Bryan Hodges, is a case in point. The plaintiff, a mother of two children, decided that she did not want to have more children. To avoid future pregnancy, she asked the defendant to perform bilateral ligation of her tubes and the defendant granted her wish. Two and a half years later, however, the plaintiff discovered that she was pregnant again. Her suit against the defendant promptly followed that discovery. Continue reading →
In the wake of the Hobby Lobby decision, the US Department of Health and Human Services announced on Friday proposed rules regarding exemptions for those objecting to the contraceptive mandate. Whenever I read about conscientious objections to health care services made by providers, patients, or indeed, employers, I am reminded that all objections are not equal.
As Mark Wicclair, and others, have written, studies show that medical professionals may object to services based on clinically false information. For instance, certain pharmacists reported that they objected to emergency contraception on the mistaken belief that Plan B was the same thing as RU-486 (mifepristone, or the “abortion pill”). Similarly, a prominent general practitioner admitted to making decisions regarding the prescription of oral contraception without fully understanding the mechanisms of operation that prevent pregnancy. If medical professionals make decisions based on ignorance, one can suspect that lay employers and patients do as well.
This suggests that individuals often lack the information necessary to truly assess their stance on morally controversial services. While the law does (and should) play a role in protecting conscience, it seems unsatisfying when such protection is granted to those holding underdeveloped views, and at the expense of (and detriment to) those seeking legal medical services.
Much attention has been paid recently to the contradicting decisions issued on the Halbig and King cases, which challenged the Obamacare subsidies offered to individuals purchasing insurance on federal exchanges. In a piece for Politico Magazine, Abbe R. Gluck finds a weakness in the Halbig plaintiffs’ arguments, in their own words. As Gluck writes:
What’s less known, however, is that in the 2012 constitutional case, these same challengers filed briefs describing Obamacare to the court in precisely the way they now say the statute cannot possibly be read. Namely, they assumed that the subsidies were available on the federal exchanges and went so far as to argue that the entire statute could not function as written without the subsidies. That’s a far cry from their argument now that the statute makes crystal clear that Congress intended to deny subsidies on the federal exchanges.
I am not a fan of the “gotcha” flavor that some aspects of this case have taken on, but the challengers’ 2012 statements are relevant as a legal matter because what the government has to prove to win—as a matter of black-letter law under the Chevron doctrine—is that the statute is ambiguous. (Chevron says that federal courts defer to the relevant agency’s reading of the statute when a federal statute is unclear—here, that agency is the IRS.)
The challengers have spent more than a year arguing that no reasonable reader of text could construe the statute in any way other than denying federal subsidies to insurance purchasers on exchanges operated by the federal government. But what about their statements from 2012—statements then echoed by Justices Scalia, Kennedy, Thomas and Alito in their joint dissent to the Supreme Court’s ruling in the constituitional challenge, NFIB v. Sebelius?
You can read more, including the relevant passages from the NFIB v. Sebelius briefs, here.
Today, U.S. District Judge Myron Thompson issued a decision – following a 10-day bench trial – declaring unconstitutional Alabama’s admitting privileges requirement for abortion providers. The decision is remarkable in at least two respects. First, Judge Thompson employs a brilliant interpretation of Planned Parenthood v. Casey that is different from any lower court opinion I have seen and yet that is well-grounded in the decision. (He had already laid out this framework in an earlier ruling on summary judgment.) It resolves a longstanding puzzle about the undue burden standard, namely whether and how a court should factor in the state’s burden of justification for an abortion restriction when it conducts an undue burden analysis. Judge Thompson focuses in on a little-noticed aspect of Casey, namely its reliance on ballot-access case law. The Casey joint opinion analogizes to the states’ “substantial flexibility in establishing the framework within which voters choose the candidates for whom they wish to vote,” in order to explain why “not every law which makes a right more difficult to exercise is, ipso facto, an infringement of that right.” Yet, in describing the state’s power to regulate elections as “similar” to its power to regulate abortion, the Court suggests that its analysis in the ballot access cases is instructive in the abortion context.
Judge Thompson takes up this suggestion. He points out that, in the specific cases that the Casey joint opinion cites, the Court looked at whether the state’s interest in the election regulation was “sufficiently weighty” to justify the restriction it imposed. In Anderson v. Celebrezze, for example, the Court explained that, when analyzing constitutional challenges to specific provisions of a state’s election laws, the Court
must first consider the character and magnitude of the asserted injury to the rights . . . that the plaintiff seeks to vindicate. It then must identify and evaluate the precise interests put forward by the State as justifications for the burden imposed by its rule. In passing judgment, the Court must not only determine the legitimacy and strength of each of those interests, it also must consider the extent to which those interests make it necessary to burden the plaintiff’s rights. Only after weighing all these factors is the reviewing court in a position to decide whether the challenged provision is unconstitutional.
Judge Thompson applies this framework, first analyzing the burden that Alabama’s admitting privileges requirement would impose on abortion access in the state. Finding that the burden would be substantial, he then closely examines the state’s purported justifications for the law and concludes that they are “exceedingly weak.”
Like the recent Supreme Court decision in Hobby Lobby, the D.C. Circuit’s ruling earlier this week in Halbig v. Burwell is being hailed by conservatives and bemoaned by liberals as a death knell for Obamacare. Unlike the decision in Hobby Lobby, however the D.C. Circuit’s ruling is not the end of the matter, and many liberals are finding hope in the ruling of the 4th Circuit the same day, the probability of an en banc hearing in the D.C. Circuit, and the ultimate possibility of a favorable Supreme Court decision. In an earlier post in HealthLawProf, I decided to take seriously the possibility of damage control from a limited reading of Hobby Lobby. It is pretty much universally agreed—and I believe correctly—that it is not possible to do similar damage control by giving a limited reading to Halbig v. Burwell. If the ruling stands, that tax subsidies are not available to people purchasing coverage through the exchanges in the states that are letting the federal government do the work, many important other provisions of the ACA will be untenable, including the penalties for large employers not offering insurance whose employees receive subsidies and likely the individual mandate itself. But I think it is possible to undermine Halbig in a way not generally recognized by the liberal critics who argue (correctly) that the statutory provision at issue is ambiguous: argue that the jurisprudence of the majority opinion in Halbig is internally inconsistent. Here’s how. Continue reading →
Legal commentators have spent a lot of time this week sparring over statutory interpretation and the contrasting readings of the ACA by the Halbig and King courts. The potential consequences of these cases demonstrate just how high the stakes of this enterprise can be.
With less fanfare, the Second Circuit decided a case yesterday that may too have large consequences for the health and welfare of the public. In NRDC v. EPA, the court reversed a district court’s decision to require FDA to hold hearings on the withdrawal of approval for the use of two antibiotics—penicillin and tetracyclines—in animal feed. This issue has enormous public health consequences, but the consequences of this case extend beyond antibiotic use, to agency practice in general. The opinion sanctions egregious agency delay and a tremendous lacuna in decision making.
It was as if lightning had struck twice in the same place.
On Tuesday two pivotal federal circuit court opinions that could dramatically impact the future of Obamacare were unexpectedly issued within hours of each other. And what’s more, the two opinions reached opposite conclusions on the same question, setting the stage for further appeals and possible Supreme Court review, potentially bringing the Affordable Care Act (ACA) before the high court for the third time since its passage.
At issue in both circuit court cases was the legality of providing subsidies in the form of Internal Revenue Service tax credits for the purchase of health insurance on the federal exchange (Healthcare.gov).
In a decision that stunned Obamacare supporters–but elated opponents–a three-judge panel of the Federal Appeals Court for the DC Circuit ruled in Halbig v. Burwell that the purchase of health insurance on the federal exchange may not be subsidized by IRS tax exemptions. This judgment would leave millions of Americans with earnings between 133% and 400% of the federal poverty level without affordable health insurance, and it would also threaten the viability of the employer mandate.
In contrast, in a unanimous (3-0) opinion in a nearly identical case, King v. Burwell, the Federal Appeals Court for the Fourth Circuit in Richmond, VA, came to the opposite conclusion.
I had hope to take a day off blogging about Halbig and King (the ObamaCare Subsidies cases), but I cannot allow another new, and inaccurate, narrative about ObamaCare to take hold. Over at Volokh, Ilya Somin argues that the holding in Halbig is not absurd because Congress uses statutory schemes all the time that try to incentivize states to administer federal law (and penalize them if they don’t). It is true we see schemes like that all the time–Medicaid is a prime example–but the insurance exchange design at issue in these cases is NOT one of them. This federalism argument was made before the D.C. Circuit and even Judge Griffith didn’t buy it in his ruling for the challengers. I tried to dispel this myth back in March, when I wrote the following on Balkanization. As I said there, this isn’t Medicaid—it’s the Clean Air Act.
As most readers know by now, two federal appeals courts on Tuesday reached the opposite conclusions about the validity of the critical financial subsidies on the ACA’s federal health insurance exchanges. The Fourth Circuit in Virginia upheld the subsidies—indicating the government had the better argument, but regardless applying the longstanding rule that when a statute is not clear, courts defer to the agency administering the statute (in this case, the IRS). The D.C. Circuit, however, ruled the other way, reading one provision of this massive and complex federal law out of context. That opinion not only misinterprets the statute—with enormous practical consequences—but also does a deep disservice to conservative jurists and lawyers who have spent the last 30 years arguing that text-based interpretation is sophisticated, not literalistic, and serves democracy.
The stakes are enormous: If the D.C. Circuit’s opinion ultimately carries the day, more than $36 billion dollars in financial relief will be denied to the approximately 7 million people expected to be insured with the help of this financial assistance. It also places Republicans in a real dilemma, especially as the election cycle heats up: The result, if the ruling stands, would be massive red-state/blue-state disparity, as millions of middle-class Americans are deprived in red states of access to medical care, because it is mostly the red states whose subsidies are now at issue.
As I wrote yesterday on Balkinzation, the opinion is terribly disappointing from a statutory interpretation perspective. It relies in part on irrelevant legislative history (from the HELP committee, whose bill wasn’t even the basis for these provisions–the Finance committee’s was) and gets it wrong anyway (as I argued here); it bends over backwards to come up with reasons why Congress might have intended this result (which we all know it certainly did not); and it attaches far too much significance to a line in the statute that expressly deems exchanges in the territories to be state exchanges and does not replicate the special deeming language for the federal exchanges. The territories language is boilerplate language used by Congress when talking about territories in statutes even beyond the ACA, and should have been attached no significance here.