The Final Ruling

Assessing the Impact of the Supreme Court Decision on Health Care Providers

Executive Summary

Supreme Court (mostly) upholds the Affordable Care Act

On June 28, 2012, the Supreme Court of the United States upheld the vast majority of the Patient Protection and Affordable Care Act (ACA) by a vote of 5 to 4. In the narrowly crafted ruling, the court resolved three constitutional questions:

  • Individual mandate: The Court upheld the ACA's most controversial provision, the individual mandate. Although the decision rejected the government's initial two arguments supporting the mandate—the Commerce Clause and the Necessary and Proper Clause—the court agreed that the mandate's penalty functions as a tax.


  • Medicaid expansion: The court ruled that the Medicaid expansion plan was overly coercive and would violate states' rights if implemented as designed. The court determined that Medicaid expansion could continue, but that the federal government could not withhold all federal Medicaid funding from states that do not participate in expansion. In essence, the court excised the Medicaid mandate, making the Medicaid expansion voluntary for states.


  • Severability: The court evaluated whether the remainder of the law could stand if a portion were deemed unconstitutional. The court determined that the invalidated Medicaid mandate was severable, in turn upholding the rest of the ACA.

Providers face three key implications following the ruling

Implication #1: Constitutional challenge resolved, political uncertainty remains

The court was clear in its intention to relegate policy judgments to the political arena. As a result, health care reform will continue to play a prominent role in the 2012 elections and the post-election budget debates. To remain in full effect, the ACA must ultimately survive both of these upcoming political tests.

Implication #2: ACA mostly intact, delivery system reforms continue apace

Now that the constitutionality is affirmed, delivery system reforms continue full steam ahead. Contingent payment is rapidly becoming the "new normal" for Medicare fee-for-service reimbursement. Further, providers are weighing opportunities to evolve beyond fee-for-service reimbursement.

Implication #3: Forgoing Medicaid expansion exacerbates margin challenge

In the wake of the court's ruling on Medicaid expansion, providers are questioning whether their state governments will voluntarily engage in Medicaid expansion. If states opt out of the expansion, local providers would face all of the consequences of the ACA, namely the cuts to Medicare reimbursement rate growth, while only partially realizing the anticipated benefits of coverage expansion. Forgoing Medicaid expansion only amplifies the underlying margin sustainability challenge created by looming demographic shifts.

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