Health Reform WK-EDGE HIPF is a ‘fee’ under the APA, DJA but a ‘tax’ for purposes of the AIA
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Tuesday, September 4, 2018

HIPF is a ‘fee’ under the APA, DJA but a ‘tax’ for purposes of the AIA

By Jeffrey H. Brochin, J.D.

The Health Insurance Provider Fee (HIPF) imposed on medical providers pursuant to the Patient Protection and Affordable Care Act (ACA) (P. L. 111-148), although described as a "fee" by Congress, was correctly treated as a "tax" for the purposes of the Anti-Injunction Act (AIA), according to a federal district court in Texas. The court further found that the APA and the ACA entitled the states to disgorgement of the assessed HIPF because the APA waives immunity for a suit seeking to enforce a statutory mandate, and disgorgement in this case enforced the government’s compliance with the ACA’s mandate specifically exempting the states from paying the HIPF (Texas v. United StatesAugust 21, 2018, O’Connor, R.).

HIPF exemption for states. The ACA imposed the HIPF on medical providers but exempted the states from paying it. Notwithstanding Congress’s exemption of the states in the ACA, HHS enacted a regulation (Certification Rule) that required states to account for the HIPF in payments to their respective managed care organizations (MCOs). Several states filed suit claiming that: (1) the HIPF violates Article I’s Spending Clause and the Tenth Amendment, thereby entitling them to declaratory and injunctive relief; (2) the Certification Rule violates Article I’s Vesting Clause, the APA, and the ACA, thereby entitling them to declaratory relief; and (3) that they are entitled to a tax refund of their HIPF payments under 28 U.S.C. § 7422.

Previously the court dismissed the Tax Refund claim, and found that the states were not entitled to an HIPF refund under 28 U.S.C. § 7422 because they were neither directly subject to the HIPF, nor actually paid the relevant tax on behalf of the taxpayer assessed. Although admittedly the states were required to pay the HIPF indirectly, they were not "taxpayers" under the Internal Revenue Code. The states filed a motion for reconsideration.

Tax versus Fee. The states asked the court to reconsider: (1) its finding that the HIPF is a tax for purposes of the AIA; (2) its Order granting only declaratory relief under the Declaratory Judgment Act (DJA), and not disgorgement of the unlawful HIPF payments under the APA; and (3) its dismissal of the Tax Refund claim. They also asked the court to enter a final judgment permanently enjoining the government from imposing liability for the HIPF upon the states and their agencies.

The states argued that although the HIPF may be a tax for constitutional purposes, the court incorrectly found that the HIPF is a tax for purposes of the AIA, DJA, and APA; therefore they sought to have the HIPF a fee instead.

Both a tax and a fee. To determine whether Congress intended the HIPF to be a "tax" or a "fee," the court began with the text of the ACA, ascertaining its plain meaning by considering its language and design as a whole, and found that the ACA makes clear that Congress designed the HIPF as a "fee" merely to be treated like a "tax" for purposes of the IRC. Accordingly, the court held that Congress’s decision to describe the HIPF as a "fee" that is merely "treated" like a "tax" for purposes of the IRC evinces Congress’s clear intention to make the HIPF a "fee" for all purposes other than its tax treatment under the IRC. With respect to the AIA, however, the court held that the HIPF is a "tax" for purposes of the AIA, and they denied the states’ motion to reconsider that finding.

Disgorgement ruling. The states requested disgorgement of their HIPF funds as a means of enforcing the ACA’s statutory mandate exempting states from paying the HIPF. The court found that the APA and the ACA entitled the states to disgorgement because the APA waives immunity for a suit seeking to enforce a statutory mandate, and disgorgement in this case enforced the government’s compliance with the ACA’s mandate specifically exempting the states from paying the HIPF.

The case is No. 7:15-cv-00151-O.

Attorneys: Thomas A. Albright, Office of the Attorney General, for State of Texas, State of Kansas and State of Louisiana. Deepthy Kishore, U.S. Department of Justice, for the United States, U.S. Department of Health & Human Services and U.S. Internal Revenue Service.

Companies: State of Texas; State of Kansas; State of Louisiana; U.S. Department of Health & Human Services; U.S. Internal Revenue Service

Cases: CaseDecisions NewsFeed AgencyNews GeneralNews ManagedCareNews TaxExemptionNews TexasNews

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