On Appeal, ACLA Gains PAMA Victory in Court

Ruling Criticizes HHS Over How the Agency Determined Whether PAMA Applied to Hospital Labs

CEO SUMMARY: Last month, a U.S. Court of Appeals issued a ruling that criticized how the Department of Health and Human Services originally implemented the Protecting Access to Medicare Act of 2014 (PAMA). This ruling was a win for the American Clinical Laboratory Association in its lawsuit against the Department of Health and Human Services. 

EVEN AS CONGRESS CONSIDERS LEGISLATION TO REFORM how Medicare officials reduce clinical laboratory test reimbursement under the Protecting Access to Medicare Act of 2014 (PAMA), the American Clinical Laboratory Association (ACLA) notched a victory in a long-standing lawsuit against the government over PAMA.

On July 15, the U.S. Court of Appeals for the District of Columbia Circuit issued a ruling that criticized the U.S. Department of Health and Human Services (HHS) in how the agency originally implemented PAMA, which the ACLA argued has subsequently skewed data reporting and corresponding test reimbursement payment cuts. The Court of Appeals also remanded the case back to U.S. District Court.

“[HHS], without adequate explanation, exempted a sizable portion of the laboratories covered by the statute from 13 data reporting requirements,” the Appeals Court wrote.

There are subtleties at work here. For example, after Congress passed PAMA, HHS implemented a rule to carry out the law in 2016 that exempted most hospital labs offering outreach services from PAMA’s reporting requirements. A subsequent 2018 rule from HHS changed the scope of laboratories that must report payment data under PAMA, which resulted in many hospital outreach labs being subject to the reporting requirements. The ACLA’s suit, filed in 2017, concerned the 2016 rule.

Firm Stand by Appeals Court

The Court of Appeals took a firm stand that the 2016 rule was flawed and that it negatively affected many labs’ reimbursement rates from Medicare. 

“The ruling hopefully will bolster the ACLA’s fight to make sure that PAMA is implemented fairly, but congressional action likely will be needed,” said attorney Karen Lovitch, Chair of Health Law and Healthcare Enforcement Defense Practices at law firm Mintz in Washington.

Attorney Karen Lovitch at Mintz
Karen Lovitch

A separate effort is underway to cap PAMA’s lab test reimbursement cuts through a proposed new bill, the Saving Access to Laboratory Services Act (SALSA). If passed by Congress, SALSA will permanently reduce the amount of payment cuts for tests under PAMA. The proposed bill also would overhaul how the government collects data about private payer rates for clinical laboratory tests. (See TDR, “PAMA Cuts Might Be Reduced to Zero for 2023,” Aug. 8, 2022.)

Clinical laboratory administrators and pathologists should note that the appeals court did not force changes upon HHS or the Centers for Medicare and Medicaid Services (CMS) regarding PAMA.

“The court technically didn’t order CMS to do anything differently, such as review payment rates established under PAMA,” Lovitch explained.

Under its language, PAMA prohibits judicial review of payment rates set by the law, so reimbursement cuts were not up for debate by the judges.

Lawsuit Filed in 2017

The ACLA initially filed suit against HHS in 2017, shortly after PAMA went into effect. PAMA requires clinical labs to report the lab test prices they are paid by private insurers. CMS then uses that data to set the prices for what Medicare will reimburse for the same tests. In practical terms, this process caused labs to collectively lose hundreds of millions of dollars in Medicare payments in recent years. 

Congress delayed some of the planned rate cuts due to the pandemic, but an upcoming cut of up to 15% for 800 lab tests is scheduled to occur on Jan. 1 unless other legislative action is taken. (See TDR, “PAMA Test Price Cuts Deferred: It’s a ‘Huge Win’ for Labs,” Dec. 20, 2021.)

An important aspect of the ACLA lawsuit concerned how PAMA determined if the law applied to an individual clinical laboratory. “The core argument that the ACLA made was that the 2016 rule crafted by CMS to define an ‘applicable lab’ that was required to report conflicted with PAMA’s statutory definition,” Lovitch explained. “An applicable lab is basically a lab that must report private payer payment rates under PAMA.”

PAMA generally defined an applicable lab as one that received most of its Medicare funding from the Physician Fee Schedule or the Clinical Laboratory Fee Schedule. However, HHS’ 2016 rule implementing PAMA’s mandates defined applicable labs as those with a unique National Provider Identifier (NPI). Healthcare providers use NPIs to bill Medicare.

Conflict arose because hospital laboratories, including those offering lab outreach services, don’t usually have their own NPIs. Independent labs are far more likely to have a unique NPI, thus they were more likely to report payment data to CMS under PAMA.

By comparison, “Almost every hospital laboratory uses the hospital’s NPI to bill Medicare, so many of those labs were not required to report payments rates for outreach lab testing under PAMA,” Lovitch said. That led to an under-represented sampling of hospital lab payment data compared to independent labs. 

“[HHS] admitted at oral argument that it did not even know how many outreach laboratories had NPIs, and it has never disputed ACLA’s argument that the number is low,” the appeals court ruling noted.

Clinical Lab Test Prices

CMS set reimbursement payments based on the information it received from clinical laboratories. However, commercial lab companies—because of the deeply-discounted lab test prices they have in their contracts with private insurers for high volume lab tests—often receive less reimbursement amounts than hospital labs. Over time, under the PAMA mandate, substantial Medicare price cuts hurt hospital lab outreach labs and smaller lab companies that primarily serve Medicare beneficiaries in smaller towns and rural areas. 

Laboratory leaders will note that should SALSA pass in Congress, the final disposition of the ACLA’s lawsuit becomes irrelevant. Until then, the legal pressure from the case will continue.

Contact Karen Lovitch at 202-434-7324 or KSLovitch@mintz.com.



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