This post was also written by Tillman J. Breckenridge. As has been widely reported, today the U.S. Supreme Court ruled that the Affordable Care Act’s (ACA) individual health insurance mandate does not violate the Constitution because it may be viewed as a permissible tax on individuals who do not obtain health insurance.  The only provision of the law that the Court invalidated is a Medicaid provision that threatened states with the loss of existing Medicaid funding if they decline to comply with the ACA’s Medicaid coverage extension. By preserving the vast majority of the landmark health reform law, the Court avoided the policy chaos that would have resulted from striking down the ACA in its entirety. There is now legal certainty for state and federal governments, health care providers and suppliers, drug and device manufacturers, employers and individuals.  As discussed below, the focus in Washington will return to continuing implementation of the law. Nevertheless, although the legal battle is over, the political fight will continue and likely reverberate through the coming Presidential and Congressional election campaigns. Ruling Recap In National Federation of Independent Business v. Sebelius, No. 11–393 (2012), Chief Justice Roberts, joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor, crafted a direct and precedent-based decision that evokes the Chief Justice’s statement at his confirmation hearing that his “job is to call balls and strikes, and not to pitch or bat.” Notably, at the end of Part III-C of the Court’s majority decision, the Chief Justice stated that upholding the individual mandate under the taxing power rather than the Commerce Clause eliminates regulatory options available to the federal government with respect to enforcing the mandate. Justice Kennedy, along with Justices Thomas and Alito, joined the dissent written by Justice Scalia, who would have invalidated the law in its entirety. The ACA also sought to expand state Medicaid coverage by tying all federal Medicaid funding to that expansion. In other words, states would have lost all Medicaid funding if they did not implement an expansion of Medicaid. While the Court upheld the expansion of Medicaid, it declared that it must be the choice of the state to expand, and that the federal government may not threaten the loss of all Medicaid funding if a state opts not to expand. Initial Impressions The Supreme Court’s decision brings some legal certainty to the health care industry. The ACA contains a laundry-list of provisions unrelated to insurance reform, and repeal would have wrought havoc on several years of rulemaking and other activities – along with private-sector efforts to gear up for these policies. Examples include accountable care organizations (ACOs), new reimbursement policies on readmissions, provider/supplier screening, the Elder Justice Act, the Physician Payment Sunshine Act, and onerous fraud and abuse provisions. Now that the primary ACA legal challenge is resolved, one likely outcome is that the number of transactions in the provider space will accelerate as hospitals, health systems, and other participants look to consolidate market power and create economies of scale in the face of anticipated rate pressure from payors. For drug and device manufacturers, the decision similarly establishes some certitude in the face of numerous federal taxes, price cuts, fees, and rebates. By way of background, pharmaceutical manufacturers bargained hard during the legislative process to avoid numerous potentially harmful proposed provisions such as the ability of Medicare to negotiate drug prices; in contrast, the ostensible rationale for the rebates on which the parties generally agreed was the greater number of covered consumers as a result of the legislation. Some estimates have put these mandated rebates and fees at between $80 billion to $105 billion over ten years. While these fees are seen as negatives by some analysts, the obvious counterpoint is that a new reform bill could have imposed even higher fees. Of course, device makers still are subject to the excise tax on certain FDA-approved devices, which will be imposed January 1, 2013. The industry is focused on repealing the tax, a task that poses a significant challenge given the loss of revenues that would result from a repeal. Separately, the political rhetoric (and potential new legislation) are sure to continue. The predominantly Republican House has already scheduled for the week of July 9 an ACA repeal vote – which in turn Democratic Senator Harry Reid has already described as a “show vote.”  Expect Republicans to continue efforts to selectively defund or repeal ACA provisions. Now that the ACA mandate – and accompanying politically-popular insurance reforms — are settled (at least in law), Congress can now turn to the other looming issue for the health industry: avoiding the sequestration (across-the-board cuts to defense and domestic spending — including Medicare provider payments) that will be triggered in January 2013 under the Budget Control Act in the absence of Congressional action. Reed Smith’s ACA Reporting Reed Smith has been closely covering ACA developments, including enactment of the legislation and ongoing Administration implementation efforts. For instance, in April 2010, we provided an extensive analysis of the ACA, providing an overview of the provisions that expand access to insurance coverage, reduce health care spending (particularly in the Medicare program), expand federal fraud and abuse authorities and transparency requirements, and impose new taxes and fees on health industry sectors, among many other provisions. Reed Smith also released a series of in-depth analyses of the law, including alerts focusing on the law’s fraud and abuse/program integrity provisions, along with issues specifically impacting drug, device and biotech manufacturers and medical equipment suppliers and manufacturers. We continue to issue alerts on major implementing regulations, such as the Physician Payment Sunshine Act proposed rule, the Medicare Shared Savings Program/accountable care organization final rule, and a proposed rule to implement a 10-year “look back” period for the identification and return of Medicare overpayments. We also report on ongoing regulatory and subregulatory ACA developments on our Health Industry Washington Watch blogReed Smith’s benefits group also has been monitoring and providing guidance on the ACA. We would be pleased to answer any questions you have on the implications of today’s ruling or any of the other ACA implementation developments.