As part of the Affordable Care Act, Congress created the Center for Medicare and Medicaid Innovation. The idea was to establish a start-up within CMS to advance creative ideas about how to reduce health-care spending.
The Innovation Center was given an astonishing amount of power. The agency has a free hand to waive any and all parts of the Medicare statute in order to “test innovative payment and service delivery models.” At the same time, the ACA totally bars judicial review of the selection of models or their scope.
Startlingly, the Secretary of HHS is authorized to expand the implementation of any successful model, “including implementation on a nationwide basis,” so long as the model is shown to save money without sacrificing quality. As I explained back in 2013:
On its face, the delegation is jaw dropping: in taking a successful model and applying it nationwide, the Secretary could essentially reconstitute the Medicare program without regard to preexisting Medicare rules and without congressional involvement [or judicial review]. Yet … the Innovation Center’s sweeping authority has passed almost unnoticed.
Until, perhaps, now.
In May, President Trump signed an executive order telling pharmaceutical companies stop charging more for drugs sold in the United States than they charge for drugs sold in Europe and other developed countries. “As the largest purchaser of pharmaceuticals, Americans should get the best deal.”
The companies haven’t fallen into line, though a couple, including Pfizer and AstraZeneca, have announced showy deals with the administration. (Those deals will provide only modest relief to American patients and taxpayers.) A few weeks ago, the Trump administration sent a proposed rule to OIRA that would force the drug companies to cut their prices. As expected, the rule looks like it will leverage the powers of the Innovation Center.
Would an attempt to adopt most-favored-nation pricing for drugs purchased by Medicare pass legal muster? Ben Ippolito, Craig Garthwaite, and I consider that question in a new piece at JAMA Health Forum:
In the inevitable litigation, courts will need to decide what qualifies as a test and thus will determine not only the fate of the [most-favored-nation] policy but also whether future administrations have the power to implement sweeping health reform via executive action. In making that determination, courts are unlikely to insist on the exacting standards of medical or economics journals, with double-blinded control groups or unimpeachable identification strategies. Still, they will require the Trump administration to show that the model is designed to evaluate the effects of an intervention. That is what it means to be a test.
This need for a model to be a genuine test likely rules out a model that applies nationwide to all or even a subset of drugs that Medicare purchases. Courts are unlikely to be moved by the claim that a nationwide payment model is comparing Medicare spending before the rule and Medicare spending after. That is not really a test; it is a programmatic change. Congress did give HHS authority to expand a model on a nationwide basis but only if the model is shown to reduce spending without compromising quality (or to improve quality without increasing spending). If [the Innovation Center] already had the authority to adopt a nationwide model, Congress would have had no need to adopt strict conditions on a model’s nationwide expansion.
Moreover, a nationwide model may not benefit from protections afforded to other [Innovation Center] models. … Federal courts have embraced a “strong presumption that Congress intends judicial review of administrative action” and routinely draw on that presumption to narrowly read laws that attempt to limit judicial review. A plaintiff might argue, for example, that it is not challenging the selection of a model or its scope. Rather, it is challenging whether the [most-favored nation] rule is a model at all. If it is not, the bar on judicial review may not apply, allowing courts to weigh in on the case. Indeed, the courts may be tempted to stretch a point to prevent the Trump administration from wildly exceeding its powers.
Apart from fights over the word “test” and the preclusion of judicial review, the concerns about the nondelegation doctrine that I flagged in 2013 are up for grabs—more so today, in fact, than they were back then. At a minimum, those concerns cut in favor of the application of the major questions doctrine to restrict the adoption of nationwide payments models. At a maximum, the case could put the constitutionality of the original delegation into play.
We’ll have a while to wait. Even if the proposed rule drops within the next few weeks, working through notice and comment will take many months (at least). I will be very curious to see whether the Trump administration chooses to go big and dare the federal courts to push back.