By Marcus C. Hewitt
and Natalma “Tami” McKnew

In the wake of the 2016 presidential election, the healthcare industry is coping with the uncertainty of a new administration, especially in light of the President’s repeated pledges to repeal and replace the Patient Protection and Affordable Care Act (“PPACA” or “Obamacare”). A repeal could affect every corner of healthcare in the United States, and those implications will become clearer in the coming months. This article anticipates what form a repeal might take, and some implications for ACOs and Medicaid providers in particular.

Partial vs. Full Repeal

Regardless of campaign rhetoric, a sudden, outright repeal of PPACA is unlikely. Without a 60-vote supermajority in the Senate, a full repeal bill could be blocked by filibuster.1 Moreover, simply repealing the law midway through the 2017 coverage period without a transition period or provision for a delayed effective date would create chaos and potentially strip millions of ACA plan members of coverage overnight, while reviving insurers’ ability to decline to insure those with pre-existing conditions or other risk factors. It would also potentially deny Medicaid coverage to millions in states where Medicaid was expanded since 2014. In fact, President  Trump said in his first post-election interview that, while he prioritized moving quickly on Obamacare, he would consider leaving some parts of the law intact and that he liked certain provisions of the law.2

However, a partial repeal with provisions to “fix” problems with Obamacare (including the exodus of commercial insurers from ACA exchanges and surges in exchange plan premiums) may be practically impossible. PPACA is an enormously complex statute built on numerous interrelated provisions, such as tax penalties on uninsured individuals, the employer mandate and premium subsidies to help increase the healthy insured population and thereby support the guaranteed issue requirements and rating rules that prohibit insurers from discriminating based on enrollees’ health status. An attempt to overhaul PPACA to address these issues would take many months and would likely be seen as a failure to live up to campaign promises.

As a result, the new administration will likely seek to repeal PPACA in its entirety, with a delayed effective date, to buy time to design a politically acceptable substitute that salvages some of the more popular provisions.

Implications for ACOs

PPACA encourages health care providers to form Accountable Care Organizations or ACOs. By linking physician groups, hospitals, and other health care providers that share risk, the PPACA theorizes, better and less costly care could be delivered to patient populations. With the possible death of or significant changes to Obamacare anticipated under the new administration, is it time to put the brakes on ACOs? To the contrary—the gas pedal should be deployed!

Before Obamacare, combinations of health care providers raised the collective skepticism of the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”), which feared that such combinations reduced competition. The DOJ and FTC thus issued Health Care Antitrust Guidelines in the last decade of the 20th century, defining standards under which the anticompetitive impacts of mergers, combinations, and information exchanges in the health care industry would be measured. The method of evaluation required close examination of the metrics of competition within a geographic area and included tests of efficiency that only an economist could appreciate. Merely having to contemplate escaping this hurdle discouraged health care mergers, networks, and combinations.

Enter Obamacare. The drafters no doubt realized that to encourage ACO formation, the legislation needed to avoid the DOJ/FTC’s Guidelines, and appropriate language in the Act provided relief. Consistent with the PPACA, on Oct. 11, 2011, the DOJ and the FTC jointly issued a policy statement regarding antitrust enforcement under Obamacare. Included in the policy statement was a “safe harbor” policy, shielding ACOs from antitrust scrutiny under described circumstances. Essentially, the DOJ/FTC policy established a truncated competitive impacts analysis for ACOs based on governmentally-reported Medicare data. If ACO formation falls within the safe harbor, the typical DOJ/FTC analysis is no longer a hurdle.

In 2015, the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) enhanced the opportunity for bonus payments and higher incentives for ACO participation in Medicare, increasing the value of ACOs to health care providers, in addition to the benefits to health care delivery expressed in the PPACA. This legislation continues to signal Congressional intent to pursue reimbursement and service delivery models designed to reduce the overall cost of health care spending.

Despite the specter of an Obamacare repeal (or extensive amendment), it seems premature at best, and foolish at worst, to abandon ACOs at this stage. It appears likely that any changes will be accompanied by some grandfathering provision for existing ACOs to allow more time to evaluate their effectiveness in controlling costs, enhancing quality, and improving population health. The possible  demise of the ACO “safe harbor” against antitrust enforcement  argues for  taking full advantage of the PPACA while it remains in effect. Forming multi-provider groups after Obamacare is repealed or revised could become more difficult and expensive.

Implications for North Carolina Medicaid

Although North Carolina’s newly elected governor Roy Cooper has very recently submitted a proposal to CMS to expand Medicaid to hundreds of thousands in North Carolina who are not currently covered, existing state law and the prospect of a partial or full repeal of Obamacare makes it highly uncertain that Medicaid will be expanded here as it has been in other states. Further, a repeal would probably not affect the ongoing transition to Medicaid managed care.

As background, PPACA included an expansion of Medicaid to a broad range of adults under age 65 with incomes at or below 133 percent of the federal poverty level, and provided for increased federal funding to the states, including 100 percent of most states’ Medicaid costs for 2014-2016, and at lesser amount thereafter. However, in June 2012, the U.S. Supreme Court’s decision in NFIB v. Sebelius,3 held that PPACA’s Medicaid expansion provisions were unconstitutionally coercive of the states, in part because states stood to lose all federal Medicaid funding if they did not comply. As a result, the Medicaid expansion provisions and increased federal funding remain in the law, but the states’ decisions whether to expand Medicaid effectively became optional since the federal government cannot withhold existing Federal matching funds to enforce the expansion.

Since then, our General Assembly passed legislation forbidding the administrative agencies from attempting to expand Medicaid under PPACAand the McCrory administration declined any attempt to expand Medicaid in North Carolina, which Gov. Cooper has long criticized. Despite Cooper’s victory in the governor’s race, Republicans have strengthened their control of both chambers of the General Assembly, likely preventing the passage of any bill to expand Medicaid during 2017, and a repeal of Obamacare would likely cut off the option for states to expand Medicaid in the future.

Despite these obstacles, the N.C. Department of Health and Human Services announced within days of Gov. Cooper’s inauguration that a Medicaid State Plan Amendment would be submitted expanding Medicaid, and taking the position that the prior legislation to block an expansion was beyond the authority of the General Assembly. As of this writing, a 10-day public notice of the proposed expansion has been posted on N.C. DHHS’ web site,after which the proposed amendment will be submitted for CMS review and potential approval. In response to the governor’s move, the Republican leadership in the General Assembly wrote to CMS on Jan. 5 urging it to deny the proposed amendment as illegal.

The  change in the federal  administration may well slow down the review of the proposed expansion, and a partial or full repeal of PPACA in the meantime could eliminate the option of an expansion. Moreover, even if CMS ultimately approves the expansion (proposed to take effect Jan. 1, 2018), litigation to block the expansion is almost certain, including requests for an injunction to preserve the status quo until the courts can fully decide the issues. The General Assembly could also refuse to fund the state expenditures needed to expand Medicaid in North Carolina and add to the stalemate. Therefore, a Medicaid expansion could be defeated by a court decision that the Governor lacks the authority to override the General Assembly, lack of state funds, or by a PPACA repeal that eliminates that option. Therefore, any expansion of Medicaid in North Carolina is very uncertain, and that uncertainty may not be resolved for months at least.

UPDATE – January 27, 2017. A temporary restraining order was entered by a U.S. District Court Judge on Jan. 14, 2017 in favor of Senate Majority Leader Berger and House Speaker Moore, blocking submission of a proposed Medicaid State Plan Amendment for 14 days. Further motions have been filed by multiple parties, either to dissolve the TRO or to prevent the submission of a state plan amendment indefinitely via preliminary or permanent injunction. As of this writing the Court has not acted on these motions, and the fate of the proposed state plan amendment is unresolved. 

On the other hand, a repeal of any kind would probably have little effect on our state’s ongoing transition to Medicaid Managed Care, which was mandated by the General Assembly in September 2015.North Carolina’s Medicaid reform legislation is independent of Obamacare, and in fact, a primary purpose of transferring Medicaid to a capitated system administered by private contractors was to ensure budget predictability, which has long been a priority of the General Assembly.

Details of the program could be affected by a PPACA repeal. For example, PPACA included new regulatory requirements for Medicaid managed care that were incorporated in CMS’s recent Medicaid Managed Care final rule.Further, North Carolina’s implementation of Medicaid Managed Care may be delayed somewhat, since CMS consideration of North Carolina’s pending Section 1115 Waiver application (submitted June 1, 2016) will likely be delayed pending the confirmation of the incoming administration’s appointees to lead HHS and CMS. Consequently, an Obamacare repeal is unlikely to change North Carolina’s direction toward a full managed care Medicaid program, and the proposed Medicaid expansion will not take effect before January 2018, if at all.

Marc Hewitt is a partner in Smith Moore Leatherwood’s Raleigh office, concentrating in healthcare litigation and managed care.

Tami McKnew is a partner in Smith Moore Leatherwood’s Greenville, S.C. office, concentrating in antitrust and trade regulation litigation in the healthcare industry and others.


[1]   As a result, Congress has already initiated budget reconciliation measures designed to ultimately repeal certain parts of PPACA while avoiding a filibuster. See https://www.brookings.edu/blog/fixgov/2017/01/04/first-step-toward-aca-repeal/.

[2]   The Wall Street Journal, Sunday, November 13, 2016.

[3]  National Federation of Independent Business, et al. v. Sebelius, et al., 567 U.S. _____, 132 S.Ct. 2566 (2012).

[4]  See FN 2, above; see also Kaiser Family Foundation, A Guide to the Supreme Court’s Decision on the ACA’s Medicaid Expansion (https://kaiserfamilyfoundation.files.wordpress.com/2013/01/8347.pdf).

[5]  See N.C. Session Law 2013-5, section 3.

[6]  See http://www.roycooper.com/issues/.

[7]  See https://dma.ncdhhs.gov/2017-state-plan-amendments.

[8]  See N.C. Session Law 2015-245 (http://ncleg.net/EnactedLegislation/SessionLaws/PDF/2015-2016/SL2015-245.pdf).

[9]  See 81 Fed. Reg. pp. 27498-27901.