Regulation in the United States: Law, Business and the Case of Health Care Robert I. Field, JD, MPH, PhD Professor of Law Professor of Health Management and Policy Drexel University Philadelphia, PA, USA Professor of Law Professor of Health Management and Policy Drexel University Philadelphia, PA, USA

The United States Constitution Basic Structure of GovernmentAmendments: Limits on Government Powers

Basic Structure of American Government: Three branches Executive: President Legislative: CongressJudicial: Courts

Constitutional Powers of Congress Article I Section 1 All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Enumerated Powers of Congress (partial list) Taxes, defense and general Welfare; To borrow; To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; Rules of naturalization and bankruptcies; To coin money; Post Offices and post Roads; Patents and copyrights; To constitute tribunals inferior to the Supreme Court; To declare war; To raise and support armies;

Constitutional Powers of the President Article II Section 1 The executive power shall be vested in a President of the United States of America.

Constitutional Powers of the Judiciary Article III Section 1 The judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish.

What is Regulation? Combination of functions of each of the three branches Promulgate Rules Administer government programs Adjudicate disputes and enforce rules

Hundreds of federal agencies report to the President

Constitutional authority of Congress to regulate business: enumerated powers Article II Section 8 The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States; To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

Constitutional limits on regulation: due process Amendment V No person shall … be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. Amendment XIV Section 1 … nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Due process Fair procedure in which affected parties can be heard – Adequate advance notice – Opportunity to present a case – Opportunity to be represented by counsel – Right of Appeal

Constitutional constraints on regulation: federalism (federal vs. state power) Amendment X The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.

Federalism State power – Plenary – Most aspects of business and commerce Federal power – Enumerated – Only those subjects listed in the Constitution

Perennial issues in federal regulation Definition of interstate commerce Limits of executive authority Scope of federal vs. state authority

Regulatory Responsibility Congress enacts a regulatory law Administration of the law is delegated to the executive branch The law authorizes creation of a regulatory agency The agency hires a staff of workers The president appoints the agency’s top officials

Regulatory agencies: political appointees vs. career staff

Balancing regulation with Constitutional constraints: Administrative Procedures Act of 1946 A reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be – (A)arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (D) without observance of procedure required by law; (E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or (F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.

Administrative Procedures Act Requirements Substantial evidence to support regulatory actions Notice to affected parties of proposed regulatory actions Opportunity for comment on proposed actions in writing or at hearing Appeal of agency decisions

An Example of Health Care Regulation: Food and Drug Administration (FDA) Rules for New Drugs

Step 1: Congress Enacts an Enabling Statute Statute authorizes a regulatory agency to promulgate and enforce rules – Food, Drug and Cosmetic Act of 1938 Instructs the agency to interpret a statutory standard – Drugs must be proven safe “by all methods reasonably applicable to show whether or not such drug is safe for use under the conditions of use prescribed, recommended, or suggested” in the labeling

Step 2: Agency staff performs background research

Step 3: Agency develops a proposed rule and publishes it in the Federal Register: days for responses

Step 4: Interested parties submit comments or appear at a hearing

Step 5: Agency promulgates a final rule and publishes it the Federal Register

Step 6: Affected parties can appeal to a board within the agency

Step 7: Final rule is published in the Code of Federal Regulations

Challenge to Regulations in Court (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (D) without observance of procedure required by law; (E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or (F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court. Grounds for Challenge To win, must convince a court that the regulation is -

Final Step: Enforcement

Growth of Proposed Regulations

Growth of Final Regulations

Burden of Regulation Timeframe – 6 months to 10 years before a regulation is final Cost – $ millions to develop, promulgate, defend in court, and enforce Effect on industry – Sometimes a burden – However, it enables industrial growth

Regulation of Health Care Regulatory authority – States – plenary powers Public health Medical practice Hospital quality Insurance ___________________________________ – Federal government – enumerated powers Interstate commerce, spending, taxing Medicare and Medicaid Foods and drugs Biomedical research Data privacy

The Largest Federal Health Care Agency: Department of Health and Human Services (HHS)

Key Programs Within HHS

Other Major Federal Health Programs

The Growth of Health Care Regulation A major area of American law and growing

Health Reform: The Affordable Care Act, 2010

Purpose of the Affordable Care Act: Increase Access to Health Insurance

Health insurance coverage in the United States before the Affordable Care Act: 16% left uninsured

Two Regulatory Approaches to Expanding Access in the Affordable Care Act Reform Private Insurance Market: Regulation of Interstate Commerce Expand Medicaid for the Poor: Spending Power

New Regulations for the Private Insurance Market for Individual Policies Insurance companies must issue policies to everyone who applies Mandate that everyone maintain coverage or pay a penalty Subsidies for low- income people

Medicaid: Federal funding to the states for programs for the poor

Expansion of Medicaid: New rules every state must accept Income eligibility raised to 138% of poverty level Federal government pay 90% of the cost Everyone with low incomes is eligible

Affordable Care Act: Success at Expanding Coverage

Constitutional Challenge: Violation of the Commerce Clause Challenge – Reforms to private insurance market exceeded Congress’ power to regulate interstate commerce Supreme Court ruling (NFIB v. Sebelius, 2012) – Congress may not mandate that individuals purchase insurance – However, the mandate can be upheld if seen as a tax on those who fail to maintain coverage

Constitutional Challenge: Violation of Federalism Challenge – Expansion of Medicaid exceeded Congress’ power to use spending to induce state cooperation Supreme Court ruling (NFIB v. Sebelius, 2012) – Federal government may not use spending to force states to accept new rules for the program – However, Congress can give states the option of expanding Medicaid

Medicaid Expansion: State Decisions on Accepting the Expansion

Historical expansion of health care regulation public health – infection control physician licensure, med. ed., first FDA health insurance, FDA, specialty cert. insurance tax subsidy, NIH, Hill-Burton Act, CDC Medicare and Medicaid ERISA, HMO Act, CON, antitrust Medicare PPS, referral restrictions, COBRA, generic drugs HIPAA, SCHIP, drug marketing, Bal. Budget Act HIPAA privacy, Part D, QIOs, Leapfrog 1880s s 1940s 1960s 1970s 1980s 1990s 2000s 2010s 2000s 1990s 1980s 1970s 1960s 1940s 1930s 1900s 1800s Health reform

The Effect of health care regulation in America: Industry is built on government regulatory support