Source: https://www.communityoncology.org/the-legal-and-constitutional-case-why-cms-did-not-have-the-authority-to-apply-the-sequester-cut-to-medicare-part-b-drug-reimbursement/
Timestamp: 2019-04-26 16:53:18+00:00

Document:
For years, the budget of the Obama Administration included a reimbursement payment cut to Medicare Part B drugs, which are generally infusible drugs to treat cancer and other complex, potentially life-threating diseases administered in a clinical setting. However, Congress has fixed Medicare Part B drug reimbursement in statute with the Medicare Modernization Act of 2003 (the “MMA”) – and the Obama budget cut to the reimbursement of these drugs was never acted upon legislatively by Congress.
In 2013, the Obama Administration made an end-run around Congress to cut reimbursement for cancer drugs and other Part B therapies by applying the sequester cut, even though the payment rate for these drugs is legislatively fixed in statute by Congress in the MMA. This was done in much the same way that the Centers for Medicare & Medicaid Services (“CMS”) innovation center (“CMMI”) attempted to cut Part B drug reimbursement in 2016 under the guise of a national, mandatory payment “model.” That attempt failed as the outgoing Obama Administration decided to not proceed with the proposal.
During the Community Oncology Alliance’s (COA) work to stop the Obama Administration from using CMMI to end-run Congress to cut Part B drug reimbursement, it is now clear CMS did not have the legal or constitutional authority to cut Part B drug reimbursement using the sequester. As we elaborate in this paper, COA believes that applying the sequester to cut Part B drug reimbursement is not legal or constitutional and must be stopped.
The MMA establishes, by statute, a formula for the payment of Medicare Part B In the case of most Medicare Part B drugs, the rate is the average sales price (ASP) of the drug plus six (6) percent.
The Budget Control Act of 2011 (the “Budget Control Act”), which amended the Balanced Budget and Emergency Deficit Control Act of 1985, establishes a mechanism for making payment reductions through a sequestration order issued by the President and prepared by the Office of Management and Budget (“OMB”). While the Budget Control Act lists specific spending programs and activities that are exempt from sequestration and provides special rules for applying sequestration to other specified programs, including federally-funded student loans and certain Medicare programs, the exemptions do not expressly apply to the Part B drug payment provisions of the MMA.
The US Supreme Court, in Clinton v. City of New York (524 U.S. 417, the line item veto case), found the President’s exercise of the legislative function in amending line items in budgets and another law, unconstitutional as a violation of the Presentment Clause (of Article I of the US Constitution).
Essentially, the “amount determined” for use in the formula for such drugs, subject to special rules, is the average sales price; thus, the MMA generally sets the payment rate for such Part B drugs as the average sales price of the drug plus six (6) percent.
The Secretary of HHS has the statutory authority to adjust the method of calculating the payment rate in certain situations, such as when the Inspector General finds that the average sales price of a drug exceeds a widely available market price or average manufacturer price for the drug (42 U.S.C. § 1395w-3a (d)(3)(c)) or during public health emergencies (42 U.S.C. § 1395w-3a (e)). However, these situations apply only in limited circumstances, not generally to the statutory formula for payment.
Thus, despite the fact that the MMA sets the payment rate for specified Part B drugs and does not give CMS authority to alter it, it appears that the Budget Control Act could be read to give OMB discretion to set a percentage reduction in Medicare spending.
Despite the statute’s explicit list of exemptions, OMB changed its mind at least once, as to whether sequestration applies to the ACA’s cost-sharing. In the Sequestration Preview Report, OMB initially included the ACA cost-sharing subsidies in its list of programs to be affected by the sequester, with a line in the Report showing the planned reduction in those subsidies. However, in a later Report to Congress for Fiscal Year 2015, it appears that OMB ultimately excluded the cost-sharing subsidies from the effects of the sequester, as the Report does not list the line for the applicable cost-sharing subsidies.
COA has not found any express statutory support for these exemptions or a clear rationale given by the agencies for the deferrals or exemptions. Thus, these reports show that there is, in fact, a precedent established administratively for the discretionary exclusion of certain programs from the sequesters effects.
Like the payment rates for Part B drugs in the MMA, these student loan fees are set by statutory formulas.12 In this case, Congress provides specific guidance to agencies for applying sequestration to payment schemes set by statute.
The special rules under Section 256 of the Balanced Budget and Emergency Deficit Control Act, also contain a provision relating to Medicare Part B. Specifically, Section 256(d)(5) of the Balanced Budget and Emergency Deficit Control Act, provides that a physician’s acceptance of a reduced payment amount calculated pursuant to a sequestration order will qualify as acceptance of payment in full in cases of payment by assignment under Medicare Part B.13 This section further shows that Congress contemplated the sequestration of funds for Medicare Part B services. However, these special rules refer only to Part B’s coverage of “services” – they are silent on sequestration of payments for Part B drugs.
These provisions create conflicting issues as to possible Congressional intent. The special student loan provisions exhibit Congress’ willingness to provide specific procedures to be used in applying sequestration to a statutorily-defined payment scheme. The student loan rules’ specific alternative procedures could support the argument that Congress, by not creating a similar alternative procedure for the Medicare Part B formula, intended the standard sequestration procedures to apply to other statutory formula.
However, even if this argument can be made, the further issue is whether the Executive Branch has the Constitutional authority to apply sequestration to amend the drug payment provisions of the MMA, even if Congress intended to give the Executive Branch the authority.
There are two constitutional challenges presented by the sequestration statute: (i) impermissible delegation of legislative authority; and (ii) improper exercise of legislative authority – line item veto analysis.
Congress failed to provide to CMS and OMB a sufficiently specific intelligible principle to guide its decision making with regard to the application of sequestration, specifically to the Medicare Part B statute, and consequently, the application of the Balanced Budget Act to the Part B drug payment provisions of the MMA as interpreted by CMS would be unconstitutional.
The Supreme Court held that this “repeal” violated the Presentment Clause of Article I of the Constitution. Under the Presentment Clause, a bill that passes both houses of Congress must be presented to the President, who may either sign it or “return” it, usually described as a “veto.”22 23 However, the cancellation permitted by the Line Item Veto Act differed significantly from the President’s constitutional veto power. The Constitution grants authority to the President to exercise the veto before a bill becomes law, not after the law becomes effective. The Line Item Veto Act failed constitutional muster because the statutory cancellation power of the President was exercised after the bill became law.
The fact that Congress itself authorized the Line Item Veto Act did not move the Supreme Court, which noted that, absent a constitutional amendment, Congress may not give the President the power to amend statutes, even by passing a statute giving him that power.
Applying the Line Item Veto Act analysis, the sequestration law, as being applied by OMB through the President’s order, effectively amends the Part B payment provisions of the MMA by reducing the payment formula for Part B drugs. Payment for most Part B drugs is set forth in a formula under the MMA. Amounts paid inconsistent with the formula, determined by application of sequester, are arguably an impermissible amendment to the law made after the effective date of the law. Also, as we reviewed above, OMB has elected, with regard to ACA subsidies, to exclude these from sequestration, further evidencing Executive action under the sequestration law.
The Obama Administration did not have the authority to apply the sequester payment cut to Medicare Part B drug reimbursement. We note that the authority exists to apply the sequester cut to Medicare services, which are not specifically set in statute but are determined annually in Medicare fee schedules. The arguments we provide are based on both legal and constitutional findings. The sequester cut must be stopped from being applied to Medicare Part B drug reimbursement based on these legal and constitutional reasons.
1 42 U.S.C. § 1395u (o). (West 2016). Emphasis added.
2 Paragraph 3 defines the methodology for determining average sales prices for multiple source drugs.
3 42 U.S.C. § 1395w-3a (West 2016).
4 2 U.S.C. § 901a (West 2016).
5 2 U.S.C. § 906 (West 2016). Emphasis added.
(6) …When implementing the sequestration of direct spending pursuant to this paragraph, OMB shall follow the procedures specified in section 6 of the Statutory Pay-As-You-Go Act of 2010, the exemptions specified in section 255, and the special rules specified in section 256, except that the percentage reduction for the Medicare programs specified in section 256(d) shall not be more than 2 percent for a fiscal year. (emphasis added).
7 2 U.S.C. § 905. (West 2016).
8 2 U.S.C. § 906. (West 2016).
9 2 U.S.C. § 905. (West 2016).
10 Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond, 79 Fed. Reg. 30,240, 30,257 (May 27, 2014) (“[F]unds that are sequestered in fiscal year 2015 from the reinsurance and risk adjustment programs will become available for payment to issuers in fiscal year 2016 without further Congressional action.”).
11 2 U.S.C. § 906. (West 2016).
12 The provisions of the Higher Education Act of 1965 limit origination fees charged by lenders to three (3) percent of the loan principal. See 20 U.S.C.A. § 1087-1(c) (2) (A) (“each eligible lender under this part is authorized to charge the borrower an origination fee in an amount not to exceed 3.0 percent of the principal amount of the loan”); 20 U.S.C.A. § 1087-1(c) (6) (for SLS and PLUS loans, “each eligible lender under this part charge (sic) the borrower an origination fee of 3.0 percent”). The statute sets origination fees charged by the Secretary of Education at four percent of the principal amount of the loan. 20 U.S.C. § 1087e(c)(1). The Higher Education Act sets the special allowance payment paid by the Secretary of Education to guaranty agencies to reduce student interest costs at 0.40 percent of the total principal insured for loans originated on or after October 1, 2003 and first disbursed before July 1, 2010. 20 U.S.C. § 1078(f)(1)(A)(ii).
U.S.C.A § 1395gg(f)(1)], of such Act, the person furnishing the services shall be considered to have accepted payment of the reasonable charge for the services, less any reduction in payment amount made pursuant to a sequestration order, as payment in full.
14 See Whitman v. Am. Trucking Associations, 531 U.S. 457, 472 (2001).
15 Id. at 472, 475. (West 2016).
16 Id. at 475. (West 2016).
17 Line Item Veto Act of 1996, Pub. L. 104–13, formerly codified at 2 U.S.C. § 691 et seq.
18 524 U.S. 417 (1998).
19 Id. at 436. (West 2016).
20 Id. at 421. (West 2016).
21 Id. at 437-38. (West 2016).
22 Id. at 438-39. (West 2016).
24 Id. at 442. (West 2016).
25 Id. at 448-49. (West 2016).
26 “Cost Drivers of Cancer Care: A Retrospective Analysis of Medicare and Commercially Insured Population Claim Data 2004- 2014.” Milliman. April, 2016.

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