The Affordable Care Act ("ACA," "the Act") has overwhelmed large swaths of the economy, and the Administration is poised to upend yet another, by overriding Congress's directives on how Medicare pays for the medicines that physicians prescribe under that program. Patients, healthcare providers, and drug manufacturers all stand to suffer from the Administration's disregard of a statutory mandate that controls over $20 billion in payments a year.
In the Medicare statute, Congress laid out a formula for Part B drugs (those you get at a doctor's office): Providers receive 106 percent of the average sales price—that is, the going rate plus a little to cover overhead costs. Enter the Centers for Medicare and Medicaid Innovation ("CMMI"), a bureaucracy within a bureaucracy, created to test "innovative payment and service delivery models."
CMMI recently proposed to "test" an approach to paying for Medicare Part B drugs that will change reimbursements for three-quarters of the country. In 25 percent of the country, providers will no longer receive the statutorily mandated 106 percent of the average sale price, but only 102.5 percent (plus a flat fee of $16.53 per drug). Separately, half of the country's providers will have to use what CMMI benignly calls "value-based purchasing" tools (and half of them will also see the reduction to 102.5 percent). One value-based tool is reference pricing, where the doctor is reimbursed only for the least costly medicine he could have prescribed, as determined by CMMI.
More than 1,000 bipartisan comments have set forth the harm that would result from artificially reducing reimbursement for needed medicines, and substituting the cost-saving judgments of bureaucrats for the medically based judgments of physicians who know their patients' needs. But, apart from its policy merits, the fatal problem with the proposed regulation is that it is contrary to law and thus the Constitution's most basic separation-of-powers principles. Needless to say, the Executive Branch of government cannot unilaterally revise or ignore express requirements for the amount of reimbursement that providers are entitled to under a law duly enacted by Congress and signed by the president. Federal agencies could not, for example, reduce the statutorily prescribed sums owed to Social Security recipients or the subsidies for health insurance policies mandated by the ACA.
How then does CMMI seek to justify its naked reduction and revision of the statute's explicit drug reimbursement formula in 75 percent of the country? It points to a minor provision in the Act permitting it to temporarily "waive" certain statutory requirements to help test models. CMMI was, indeed, given limited authority to temporarily waive certain rules related to Medicare, but "solely for the purposes" of having "models" test whether there are better or less expensive ways to address the problems of "defined population[s]" currently suffering "deficits in care." If these test models for a defined population prove successful in reducing spending without "reducing the quality of care," then the Health & Human Services secretary may "expand" the program "nationwide" by asking Congress to make the temporary "waiver" permanent through new "legislative action." But, as is its wont, the Administration does not wish to go through the "burdensome" process of having Congress amend governing statutes, so CMMI has decided to unilaterally revise the statutory reimbursement formulas virtually nationwide. Such executive usurpation of this core legislative power is plainly not authorized by the limited "test model" waiver authority and, just as plainly, is unconstitutional.
The rule seeks to grossly expand the narrow authorization—which carefully limits "waiver" authority to those situations where it is "necessary" to temporarily test small models—into a broad-based authority for CMMI to craft its own reimbursement formula in the face of contrary statutory commands. CMMI's so-called model "tests" nothing and is not limited to either a "defined population" or "deficits in care." Obviously, one need not "test" whether artificial reductions in statutorily prescribed reimbursement rates will reduce spending relative to those higher rates. Nor is the purported "test" limited to patient populations defined by anything, much less "deficits in care," nor to any subset of drugs, since it covers virtually all medicines reimbursed by Medicare Part B.
In any event, CMMI's rewriting of the statutory rate to create an entirely different reimbursement formula cannot be characterized, or justified, as a "waiver." If you "waive" a rule, that means it no longer applies. That doesn't give you the power to write a different rule. If the IRS had the power to waive capital gains taxes in certain situations, it could not lower the rate for everyone to 5 percent. That is not waiver; it's reduction. And CMMI is not only lowering the percentage, but also adding on a flat fee—an expenditure that is nowhere authorized in any statute. Simply put, the ACA's limited authorization to temporarily "waive" certain requirements for small, defined groups does not remotely empower the agency to rewrite statutory compensation formulas by imposing fixed fees and "value-based" reimbursement on the vast majority of healthcare providers.
CMMI's unprecedented action not only exceeds its statutory authority but violates the most basic separation of powers, limits on the Executive. First, it is a frontal assault on the power of the purse. Congress alone controls the federal fisc. The Executive can neither spend funds Congress hasn't appropriated nor withhold funds Congress has appropriated. Nor is the Executive free to rewrite statutes. As the Supreme Court explained in the Line Item Veto case, "There is no provision in the Constitution that authorizes the president to enact, to amend, or to repeal statutes."In short, CMMI's revision of congressionally mandated reimbursement standards is a naked attempt to grab core legislative authority by vesting the power of the purse and the law-making power in the Executive Branch. As James Madison famously noted, "[t]he accumulation of all powers … in the same hands may justly be pronounced the very definition of tyranny." If CMMI goes forward with its radical exercise of this tyrannical power, the courts will be obliged to remind the agency that it is Congress, not unelected bureaucrats, that determines if and how "money shall be drawn from the Treasury."
This article appeared on forbes.com on August 11, 2016.