What’s in the cards for ACLA’s PAMA-CMS lawsuit?

And how long will the industry have to wait for a resolution to the PAMA-CMS lab price cuts crisis?

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This is an excerpt from a 2,580-word article in the January 2, 2018, issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

How will the ACLS PAMA-CMS lawsuit play out?CEO SUMMARY: This expert analysis shows that laboratories may face an uphill fight in the ACLA’s PAMA-CMS lawsuit because the PAMA law specifically bars legal challenge to rates. Lawyers familiar with the case say the critical issue will be the way in which the phrase “all applicable labs” from the law should be interpreted.

Are you preparing your lab to face the fallout from the CLFS price cuts even as the ACLA’s PAMA-CMS lawsuit moves forward? Please share your thoughts with us in the comments below.

CLINICAL LABORATORIES enter the new year seeking an answer to a critical question: Will a lawsuit succeed against the federal Department of Health and Human Services?

On Dec. 11, the American Clinical Laboratory Association sued HHS, charging that the agency failed to comply with the requirements of the Protecting Access to Medicare Act of 2014 (PAMA) which it was to follow to set the 2018 Clinical Laboratory Fee Schedule (CLFS).

In a 32-page filing in the U.S. District Court for the District of Columbia, ACLA‘s PAMA-CMS lawsuit charged that HHS disregarded the requirement in PAMA that all applicable laboratories report relevant market-rate data. How HHS and the federal Centers for Medicare and Medicaid Services defined “all applicable laboratories” is the critical issue in this lawsuit, said lawyers familiar with the filing. The defendant in the case is Acting HHS Secretary Eric D. Hargan.

Language in the PAMA (Protecting Access to Medicare Act) statute instructed CMS to analyze what commercial health insurers paid clinical labs and to use that private-payer data to set market-based Medicare lab fee schedule rates for 2018.

When setting the 2018 CLFS prices that went into effect Jan. 1, ACLA charged that HHS instituted a highly flawed data reporting process. More than 99.3% of clinical laboratories in the United States were prohibited from reporting market-rate data on the prices health insurers paid for lab tests, the lawsuit said.

In 2015, the PAMA-CMS lawsuit alleged, Medicare paid more than 261,500 entities for laboratory services, but only 1,942 laboratories reported market-rate information in 2016 under the PAMA-CMS final rule. Those 1,942 labs that reported market-rate data are about 0.7% of the total number of laboratories serving Medicare beneficiaries.

In addition, the lawsuit alleged, the labs that reported market-rate data did not represent the lab market as a whole. In 2015, 7,000 hospital laboratories billed Medicare for lab testing, accounting for 24% of Medicare payments made under the CLFS, the lawsuit charged. Yet, no more than 21 hospital laboratories (and probably fewer) reported market-rate payments to HHS, leaving hospital labs grossly under-represented, it said.

For many patients, hospital labs are the only ones available in certain areas of the country, the lawsuit said. And, the commercial insurance rates these labs are paid often are much higher than what other labs get, due to differences in competitive markets, service volume, and other factors, it charged.

Given the fact that fewer than 1% of all labs, and only 21 hospital labs, participated in the PAMA-CMS data-collection effort, the legal arguments are clear: the ACLA will charge that the data-collection effort was flawed.

This argument is important because PAMA prohibits legal challenges to the rates that result from the law. In legal terms, this prohibition is called a review preclusion. Therefore, challenging the data-collection methods may be the strongest legal attack ACLA can bring against the law, said David W. Gee and Jordan B. Keville, partners with the law firm Davis Wright Tremaine.

The Strength of ACLA’s Case

For nearly 30 years, Gee has represented clinical and molecular diagnostic laboratories, pathology groups, hospital lab outreach management companies, hospitals, physicians, and other providers on legal issues, including Medicare and Medicaid compliance. Keville focuses on reimbursement and regulatory issues for healthcare.

In an interview with THE DARK REPORT, Keville said, “I agree with the way that ACLA framed the complaint. The lawsuit recognizes that there are two parts to PAMA, one of which addresses the information-gathering mandate from all labs for rate-setting. And the second part is the rate-setting based on the data gathered.

“In the law, the review preclusion applies only to the rate-setting,” commented Keville. “ACLA is not challenging the rates. Instead, ACLA is challenging the data CMS gathered and the way it went about collecting that data. That’s a valid argument.

“In response, CMS is likely to say that this argument is a de facto attack on the rates and, therefore, the review preclusion in the statute should apply,” emphasized Keville.

“But the data-gathering and the rate-setting are separate provisions in PAMA, and the statute says specifically that—as far as the data collection CMS did—the agency had to go through a notice-and-comment process under the Administrative Procedure Act,” he added.

“That’s important because notice-and-comment is subject to judicial review. By requiring CMS to go through the comment and rule-making processes, the law separates these processes from the rate-setting part of the law,” noted Keville. “That helps the ACLA side.

“There’s always a chance that a judge could find the review preclusion bars the whole suit, but I believe the case will at least get over that hurdle,” said Keville.

The Importance of the PAMA-CMS Lawsuit

When the ACLA filed a lawsuit Dec. 11 against the Department of Health and Human Services, ACLA President Julie Khani explained why the case is important to clinical labs.

ACLA “repeatedly advised CMS that there are significant, substantive deficiencies in the final rule, which fails to follow the specific commands of the PAMA statute,” she said in a prepared statement.

“Contrary to Congress’ intent, instead of reforming Medicare reimbursement rates to reflect the broad scope of the laboratory market, the Secretary’s final rule will disrupt the market and prevent beneficiaries from having access to the essential laboratory services they need,” she added.

Under the rules Congress wrote to comply with PAMA, CMS issued the 2018 Clinical Laboratory Fee Schedule, which calls for a cut in what CMS pays of 10% starting Jan. 1.

ACLA, the American Hospital Association, the American Medical Association, and more than 20 other organizations urged CMS not to implement the new CLFS rates, saying the rates would cause clinical laboratories to struggle financially and possibly close, affecting Medicare beneficiaries’ access to clinical lab testing, ACLA said.

Why No Temporary Restraining Order?

One question that clinical labs may have about the lawsuit is why ACLA did not seek an injunction to stop the implementation of the 2018 CLFS. “ACLA’s legal team may have reasoned that seeking an injunction was not the strongest strategy,” observed Keville. “ACLA would need a temporary restraining order, and, in court, the burden is much higher to prove that a temporary restraining order (or any injunctive relief) is needed.

“To get such a TRO, ACLA would likely need to show that a certain percentage of labs would go out of business imminently—meaning within a matter of weeks,” he explained. “It’s not clear at this point that any labs will go out of business in such a short time.”

The ACLA’s case in the PAMA-CMS lawsuit is led by a lawyer with deep experience in the workings of the federal Medicare program.


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