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A Settled Law? Not So Fast

By John Gramlich, CQ Staff

June 18, 2012 -- With the health care overhaul in the hands of the Supreme Court, dozens of cases have been stayed in federal courts across the country pending its review. Many of them are likely to be set aside if the law is upheld because they turn on the same four constitutional questions the court is now weighing.

Others, however, raise far narrower constitutional objections about specific provisions in the 2010 health care overhaul. Lawyers and health care experts look to these cases to become the next front in a legal battle over the law that the Supreme Court could once again have to arbitrate.

One plaintiff sets its sights on the constitutionality of the Independent Payment Advisory Board, known as IPAB, which was created to curb the growth of Medicare spending. In other cases, distinct groups of people—physicians with financial stakes in hospitals and religiously affiliated groups chafing under an Obama administration rule that requires free contraceptive services as part of preventive-care coverage—are taking aim at specific requirements in the law or regulations it has spawned.

The cases turn on issues that lack the consequential sweep of a potential Supreme Court ruling striking down a law that touches nearly one-fifth of the nation's economy as well as the lives of most Americans.

But a successful outcome in any one of the lawsuits could set aside hard-fought policy prescriptions to rein in Medicare costs; curb the growth of physician-owned hospitals; and mandate that employees, even those at religiously affiliated organizations, get access to free contraceptive services.

"It's a very big law. It's got a lot of moving parts," says Hadley Heath, a senior policy analyst at the Independent Women's Forum, a conservative group that opposes the law. "It's rife with constitutional issues."

Multiple Constitutional Fights

The lawsuits most likely to remain viable should the Supreme Court uphold the law raise an array of constitutional questions. The conservative Goldwater Institute is pressing one that the U.S. District Court of Arizona stayed in January, pending the high court's ruling. It contends that the 15-member, presidentially appointed IPAB violates the separation of powers because the health care law gives the board broad powers to make crucial spending and policy decisions constitutionally delegated to Congress.

Another case, brought by Physicians Hospitals of America, an advocacy group for doctor-owned hospitals, is pending before 5th U.S. Circuit Court of Appeals in New Orleans. The case asserts that the law arbitrarily favors hospitals owned by those who are not physicians, stripping physician hospital owners of their constitutionally guaranteed due process and equal protection rights.

At the center of nearly two dozen constitutional challenges working through the federal district courts nationwide is the contention that the Obama administration's evolving policy requiring insurers of religiously affiliated organizations to provide their employees with contraception services violates the First Amendment rights of those forced to provide services that run counter to their religious values.

Targeting IPAB

The Arizona case, Coons v. Geithner, has the attention of the Obama administration because it is the only lawsuit that targets the constitutionality of the IPAB. The administration is counting on the board to "bend the cost curve" of Medicare.

The health care law empowers IPAB to make recommendations to Congress beginning in January 2014 about how to reduce Medicare spending if costs rise more than 1 percent faster than the economy at large grows. The panel's recommendations do not carry the force of law but will go into effect unless Congress acts to stop or amend the proposals.

Proponents of the independent board defend it as necessary because Congress has shown an inability to reduce Medicare spending, particularly when confronted with pressure from providers such as doctors, hospitals and drug companies.

"The whole idea of IPAB was to depoliticize decisions to reduce health care costs," said Ron Pollack, the Founding Executive Director of Families USA, a national consumer advocacy organization. "It's a useful mechanism. Is that the only mechanism? No, but it is helpful to try to depoliticize the decisions and make what cost savings are possible without getting into pitched battles with key interest groups."

Lawyers for the Goldwater Institute—representing Arizona Republican Reps. Jeff Flake and Trent Franks, among others—contend that the law makes it too difficult for Congress to change or stop the panel's recommendations. The law, for example, requires the House and Senate to adopt a joint resolution with a three-fifths supermajority vote to stop IPAB's proposals from being automatically implemented. Board proposals could be controversial, such as reducing benefits or provider reimbursement rates.

Diane Cohen, the lead attorney for the Goldwater Institute, describes the board as "an unaccountable, unelected board of bureaucrats." Among her specific concerns is that, while the law calls for 15 members on the panel, it does not actually require the president to appoint that many. "The president could appoint one person, and that one person could dictate Medicare policy for the entire country," she says. "Or he appoints no one, and the secretary of HHS would step in."

The Obama administration rebuts such claims and contends that the challenge to IPAB is premature because the panel will not be named for a year and a half, let alone make recommendations on Medicare spending. But the biggest legal hurdle Cohen and her clients have to overcome is that Congress itself created IPAB. The federal courts traditionally have been reluctant to find unconstitutional a delegation of power that Congress has authorized, Cohen concedes. "It's an uphill battle under the separation of powers," she says. "It's been a tough road, historically."

Doctor Hospitals

Another case to watch is one involving physician-owned hospitals, on appeal to the 5th U.S. Circuit Court of Appeals by the Texas Spine & Joint Hospital Ltd., a small specialty hospital in eastern Texas, and the Physician Hospitals of America, an advocacy group. The U.S. District Court for the Eastern District of Texas ruled in favor of the Obama administration.

The doctors groups argue that the law effectively stopped the expansion of physician-owned hospitals as well as the development of additional physician-owned facilities by cutting off Medicare reimbursements, a major source of their income.

The administration has countered that the provision was needed because physicians were essentially circumventing rules meant to stop them from referring patients to hospitals in which they have a financial stake, referrals that studies show result in higher health care costs.

Most of the nation's some 300 physician-owned hospitals provide care in specialized fields such as back and heart surgery, and while they often are highly ranked for the quality of the health care they provide, studies show that their patients undergo more tests and procedures than patients at other hospitals.

Lawyers arguing on behalf of doctors in Physician Hospitals of America v. Sebelius say their clients are being unfairly and unconstitutionally singled out as hospital owners for no rational public purpose and that restricting Medicare payments to them has prevented them from expanding or building new hospitals. The district court rejected the physicians' arguments that their due process rights were being violated, prompting the doctors to appeal the case.

Contraception Dispute

Lawsuits targeting the Obama administration's policy that employees should have access to free contraception services could have broad implications for many religiously affiliated institutions in the country. At least 23 cases representing 56 plaintiffs are currently in federal district courts nationwide, according to the Independent Women's Forum. Seven Republican-led states—Florida, Michigan, Ohio, Oklahoma, Nebraska, South Carolina and Texas—also are suing to overturn the policy.

Many of the cases raise First Amendment objections to a Health and Human Services Department rule that was finalized in March and later modified to address an outcry from Catholics and other groups that object to providing birth control. The rule requires employers to offer insurance that covers preventive services, including contraceptive services, free of charge. The administration's compromise shifted the burden of providing the coverage to insurance companies, directing them to offer the same access to services directly to employees of religiously affiliated institutions.

Lori Windham, senior counsel with the Becket Fund for Religious Liberty and a counsel on one of the cases, says many of the cases contesting the rule contend that it "forces employers to cover contraception, sterilization and abortion-causing drugs, even if that's something that violates their religious teachings."

The Obama administration's revision did not formally change the rule, leaving it vulnerable to legal challenges, she added. "A non-binding statement from [the government] can't trump an existing law," Windham says.

Waiting in the Wings

It is not knowable whether any of these cases will ultimately succeed. Many lawyers and health experts judged the three cases the Supreme Court is now considering long shots when the first one was filed seven minutes after Obama signed the overhaul into law March 23, 2010, and many are now more circumspect about handicapping the legal strengths of any leftover lawsuits.

"As a former law school dean and someone who has argued before the Supreme Court, I thought these were frivolous lawsuits," Pollack of Families USA said of the three cases the Supreme Court is now reviewing. "I am not sure I'm prepared to make other predictions about other lawsuits that this court may take seriously."

But the lawyers pressing the more targeted challenges share a common hope that the Supreme Court makes their arguments moot by invalidating the entire law.

"Once the decision comes down, I'm hoping that it will be over," says Cohen, the lawyer handling the IPAB case. "But if not, we will be moving within the next few weeks."

Ilya Shapiro, senior fellow in constitutional studies at the libertarian Cato Institute, said a high court ruling upholding the health care overhaul would shift the legal wrangling to specific aspects of the law.

The narrower challenges lack the size and scale to undermine the construct of the law, but they can shape how it is put into action. "These are really more of the garden-variety lawsuits that tend to shape implementation of a far-reaching law that lends coverage to 30 million uninsured people," says Dan Mendelson, a former Clinton administration health budget official and chief executive and founder of Avalere Health, a Washington, D.C., consulting firm.

Bradley W. Joondeph, a law professor at Santa Clara University in California, says while the cases "don't have the potential to bring down the act in its entirety," they still pose headaches for the Obama administration's signature legislative achievement.

"What is a viable constitutional argument?" Joondeph said. "It can change, and it can change very rapidly, depending on the political incentives of people who have the power to shape public opinion on these questions."

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