What SCOTUS Oral Arguments in ACA Case Mean for Hospitals

The case, which could decide the fate of the Affordable Care Act, will likely have repercussions for hospitals and health systems.

The Supreme Court heard oral arguments in California v. Texas Tuesday morning, an ongoing case that could decide the fate of the Affordable Care Act (ACA) and have repercussions for hospitals and health systems.

Tuesday's hearing was the two-year culmination of the latest legal challenge to the landmark healthcare legislation passed in March 2010.

In December 2018, U.S. District Judge Reed O'Connor in Fort Worth ruled that the entire ACA was unconstitutional because the individual mandate is invalid, citing the elimination of its financial penalty as part of the Tax Cuts and Jobs Act of 2017 (TCJA).

The Fifth Circuit Court of Appeals ruled in a split decision in December 2019 that the individual mandate is unconstitutional but did not strike down the law.

Listen: Audio of the Supreme Court ACA Hearing Oral Arguments

Advocates for the ACA have said that if the law is overturned, millions of Americans, including those with preexisting conditions, could lose access to health insurance in the absence of a comprehensive replacement plan. This development could also affect the payer mix for hospitals and health systems across the country if there is a substantial rise in uninsured patients.

Below are key takeaways for provider executives from this week's hearings and where the case could be headed in the coming weeks and months.

Susan Feigin Harris, a partner at Morgan, Lewis & Bockius LLP, advises numerous healthcare clients, and she tells HealthLeaders that while listening to the oral arguments, she gathered a sense among the justices that there was not an inclination to undo the entire law.

"Overall, the hospital industry may breathe a sigh of relief for a period of time," Harris says. "Of course, in the middle of a pandemic, that's a nice thing not to have to also worry about: the entirety of the ACA and coverage for everybody being completely thrown out."

Harris says the "sensibility for concern" is now likely less among provider executives after Tuesday's hearing but she adds that the future fate of the ACA is still uncertain.

Harris also echoes her sentiments she relayed to HealthLeaders in March about why hospital and health system leaders should focus on the strategic visions for their organizations in the interim period between arguments and a ruling.

"I would tell CEOs of hospitals that I think we can step back a little bit and that [the ACA] shouldn't be your biggest worry," Harris says. "We're in the middle of a pandemic, and there are [other] issues that you're confronting, with probably the largest of them [being] the loss in revenues associated with [patients] not accessing services the way they should."

Brenda Pawlak, managing director at Manatt Health, tells HealthLeaders that while it is important to not read too much into oral arguments, she says there seemed to be skepticism among the justices about the case's standing and the issue of severability. She adds that there is a "real possibility" that the case could be dismissed.

As it relates to issues faced by provider executives, Pawlak says the possibility of the law being overturned could lead to serious ramifications not only for patients but for hospitals as well.

"Just to think about 21 to 23 million people losing coverage pretty much overnight or kids not being able to [stay] on their parents' health insurance, there are so many other provisions to consider. For hospitals, it is frightening because somebody's going to have to pick up that cost and states are in such a crisis everywhere, so it's going to fall on hospitals," Pawlak says. 

Related: What to Know as ACA Heads to Supreme Court — Again

Ed Leeds is counsel in the employee benefits/executive compensation, health law, and privacy and data security practice groups at Ballard Spahr LLP, a law firm with more than a dozen offices across the country.

Leeds tells HealthLeaders that Tuesday's hearing centered on "very orderly arguments" around three key issues: standing in the case, the constitutionality of the individual mandate, and the provision's severability from the overall law.

Leeds says another challenge that could arise from the law being scuttled is the act of replacing some of the law's more popular elements, such as allowing young enrollees to stay on their parents' plan until they are 26 years old, protections for patients with preexisting conditions, and the structure of public insurance exchanges. 

"The design of the ACA, which is sort of the argument that people will make that provisions can't be severed from one another, was this bargain that insurers would cover all of these [provisions] in exchange for the pool being bigger and everybody having insurance," Leeds says. "Insurers would be more inclined to accept the fact that they can't impose these kinds of restrictions on individuals. There are these popular elements, so if you have separate legislation that has these mandates within them, and you don't have this bigger pool of individuals, you wind up having potential for increased costs for those who have health coverage [as well as] a different class of individuals who don't have any coverage and may have trouble affording it."

Looking forward, Leeds says that this case, like most major Supreme Court cases, is likely to be decided at the end of the term, which is in June.

Related: Stakeholders Back ACA as SCOTUS Weighs Its Future

Vivian Riefberg, professor of practice at the Darden School of Business at the University of Virginia, tells HealthLeaders that one of the key unanswered questions related to the case is what the healthcare industry would look like in a world that reverts to a pre-ACA landscape.

Riefberg notes that the ACA is a "massive piece of legislation" that affects several different aspects of healthcare policy, including insurance coverage, Medicare payments, Medicaid expansion, safety net providers, and how critical access hospitals pay for prescription drugs.

In the absence of the ACA, Riefberg questions what would happen to ACO payment models established under the law.

"From a provider standpoint, if I had a headline, it would be 'Substantial Uncertainty and Massive Impact From the Medicare and Medicaid Program,' Riefberg says. "To the best of my understanding, there is nobody prepared for it at the provider, state, or federal level."

A McKinsey & Company alumnus, Riefberg says she would advise hospital leaders to plan out a range of scenarios related to the fate of the ACA and discuss strategies with fellow providers and state lawmakers in order to mitigate the potential damage.

Kelly Hall, director of health policy and partnerships at The Fairness Project, a 501(c) charitable organization, tells HealthLeaders that another aspect of the ACA to pay attention to is Medicaid expansion and the effects on rural hospitals.

The Fairness Project was involved in Medicaid expansion ballot measures this year in Oklahoma and Missouri, and a key part of the argument centered around "keeping rural hospitals open." Both initiatives passed.

"That was a big message in both of those races: yes, this is a good thing to do because your neighbors and community members need health coverage, [but also] this is a good financial deal for the state," Hall says. "We were running campaign ads about rural hospital closures and what happens in rural communities and small towns when hospitals, which are major employers as well as essential sites of care, are no longer able to keep their doors open because they have high rates of uncompensated care."

Forward-looking, Hall says that other states that have not already expanded Medicaid through the ACA might feel prompted by the ongoing legal challenge and the advocacy work of hospital associations, nurses, and doctors to consider changing course.

Editor's note: This story was updated on November 12 to include additional commentary.