Strategic Move Exempts Health Law From Broader U.S. Statute

Doug Mills/The New York Times

President Obama discussed the Affordable Care Act at a dinner in Washington. The administration has ruled that the law is not subject to a specific anti-fraud statute.

By ROBERT PEAR

WASHINGTON — The Affordable Care Act is the biggest new health care program in decades, but the Obama administration has ruled that neither the federal insurance exchange nor the federal subsidies paid to insurance companies on behalf of low-income people are “federal health care programs.”

The surprise decision, disclosed last week, exempts subsidized health insurance from a law that bans rebates, kickbacks, bribes and certain other financial arrangements in federal health programs, stripping law enforcement of a powerful tool used to fight fraud in other health care programs, like Medicare.

The main purpose of the anti-kickback law, as described by federal courts in scores of Medicare cases, is to protect patients and taxpayers against the undue influence of money on medical decisions.

Kathleen Sebelius, the secretary of health and human services, disclosed her interpretation of the law in a letter to Representative Jim McDermott, Democrat of Washington, who had asked her views. She did not explain the legal rationale for her decision, which followed a spirited debate within the administration.

Under the Affordable Care Act, millions of people will be able to buy insurance from “qualified health plans” offered on exchanges, or marketplaces, run by the federal government and by some states.

Most of the buyers are expected to be eligible for subsidies to make insurance more affordable. The subsidies, paid directly to insurers from the United States Treasury, start in January and are expected to total

more than $1 trillion over 10 years.

Ms. Sebelius said the Health and Human Services Department “does not consider” the subsidies to be federal health care programs. She reached the same conclusion with respect to federal and state exchanges, built with federal money, and with respect to “federally funded consumer assistance programs,” including the counselors, known as navigators, who help people shop for insurance and enroll in coverage through the exchanges.

The federal exchange has been plagued with problems since it opened on Oct. 1. The Obama administration said that the online enrollment system for the exchange was out of service again for 90 minutes on Monday afternoon in an “unscheduled outage.” That was in addition to the scheduled down time from 1 a.m. to 5 a.m. each day.

President Obama, speaking at a political event on Monday night, said he was determined to fix the problems that have frustrated millions of people trying to use the website for the federal exchange.

“When the unexpected happens, when the unanticipated happens, we’re just going to work on it,” Mr. Obama said. “We’re going to fix things that aren’t working the way they should be. We’re going to smooth this thing out, and we’re just going to keep on going.’ ”

Lawyers and law enforcement officials said Ms. Sebelius’s decision was unexpected because the insurance exchanges and subsidy payments appeared to fit the definition of federal health care programs in the anti-kickback statute.

Generally, the law makes it a crime to pay or receive anything of value in return for the referral of patients or as an inducement for people to buy goods and services reimbursed by federal health care programs. Such programs are defined broadly as “any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States government.”

“The secretary’s decision will have some very significant consequences,” said D. McCarty Thornton, former chief counsel to the inspector general at the Health and Human Services Department. “The federal anti-kickback statute will, in most cases, not apply to subsidized health plans or the items and services furnished by those plans.”

“Plans and providers are very happy to be relieved of that concern,” Mr. Thornton added.

Kevin G. McAnaney, a lawyer who specializes in health care fraud and abuse cases, said Ms. Sebelius’s decision would allow drug companies to give coupons to people who buy insurance through the exchanges.

Such coupons subsidize co-payments and reduce out-of-pocket costs for consumers, encouraging them to use certain brand-name prescription drugs when lower-cost alternatives are available, Mr. McAnaney said.

The federal government has forbidden the use of drug coupons in Medicare and other federal health programs, saying they amount to a classic kickback scheme, with drug companies paying consumers to use their products.

Mark Merritt, the president of the Pharmaceutical Care Management Association, which represents benefit managers like Express Scripts and CVS Caremark, expressed a similar concern. “The coupons steer consumers away from lower-cost alternatives to more expensive drugs, increasing costs to insurers and to the government,” he said.

Coupons may drive down the co-payment for an expensive brand-name drug, but often, the insurer must pay much more than it would for a generic version of the medication.

Some drug companies and their lawyers had assumed that federal insurance subsidies were part of a federal health care program.

Drug coupons offered by Merck, for example, say that they are not valid for patients covered by Medicare, Medicaid or “any qualified health plan purchased through a health insurance exchange established by a state government or the federal government.”

In a vivid demonstration of how the anti-kickback law can be applied, the Justice Department announced on Monday that Johnson & Johnson would pay more than $2.2 billion to resolve criminal and civil investigations. The government said the company had, among other things, paid kickbacks to doctors and nursing home pharmacies to promote the use of certain drugs. The company said the payments were “lawful rebates.”

The National Health Council, which represents patients and drug companies, praised Ms. Sebelius’s decision. “People with chronic diseases and disabilities will be able to continue using co-payment assistance programs,” said Myrl Weinberg, the chief executive of the council.

Ms. Sebelius may not have the last word, lawyers said. A whistle-blower could file suit under the False Claims Act, charging that health care providers, health plans or drug makers had defrauded the government, and a federal court might then decide whether the federal exchange or subsidy payments were federal health care programs.

Addressing a rally of supporters on Monday, Mr. Obama responded to critics who say he has broken his promise that people could keep their health insurance if they liked it.

Mr. Obama provided some additional explanation: “Now if you have or had one of these plans before the Affordable Care Act came into law and you really liked that plan, what we said was you could keep it if it hasn’t changed since the law was passed.”

In recent weeks, hundreds of thousands of people have received notices discontinuing individual insurance policies because they did not meet minimum coverage standards under the health care law.

Jackie Calmes contributed reporting.