"Litigation Update"

Federal Judge to Look at CMS Rule-Making in Anti-Markup Case

THERE’S BEEN WIDESPREAD INTEREST across the lab industry to news that on March 31, Uropath, LLC, won a preliminary injunction in its case to prevent the federal Centers for Medicare & Medicaid Services (CMS) from implementing an anti-markup regulation for pathology services performed at anatomic pathology (AP) condo (or pod) laboratories.

However, the injunction was not issued as a result of a ruling based on a hearing of the evidence that both sides presented. Rather, U.S. District Court Judge Rosemary M. Collyer’s March 31 order for a preliminary injunction is specifically to allow the court more time to hear evidence and study the case. As the judge noted in the March 31 ruling about the origins of the case:

Plaintiffs move for a preliminary injunction; HHS [Health & Human Services] opposes and also moves to dismiss for lack of jurisdiction. In order to permit time for briefing and oral argument on the complex issues involved, the parties consented to an Interim Order, entered February 8, 2008. The Interim Order set a briefing schedule (with briefing completed on March 19, 2008) and a hearing on March 28, 2008. The Interim Order further provided that Secretary would not apply the Anti-Markup Rule…

Court Wanted More Time

It was at the March 28 hearing that Judge Collyer declared that the court would need more time to study evidence and conduct hearings before ruling on the HHS move for dismissal and on the merits of the plaintiff ’s claims. Collyer proposed that both parties extend the status quo. However federal attorneys wanted to reserve the right to recoup any Medicare payments in excess of the amounts that would be permissible under the anti-markup rule for any such claims submitted between April 2 and May 2. The proposed status quo extension and interim order was to expire on May 2.

Granting The Injunction

Judge Collyer saw through that stratagem. It was one reason why she issued the preliminary injunction, stating in her written memorandum “Because the Secretary insists on retaining the right to recoupment, the Court finds that, for the purpose of delaying a ruling on the Plaintiffs’ motion for preliminary injunction, the Secretary has not sufficiently waived its right to implement the Anti-Markup Rule. Accordingly, as explained below, the Court will grant Plaintiffs’ motion for a preliminary injunction.”

The immediate outcome of this preliminary injunction is that the plaintiff Uropath and its subsidiaries, Atlantic Urological Associates, PA; Urology Care, Inc.; Urology Center of Alabama, PC—as well as other laboratories that physician groups operate—can continue to file claims with the Medicare program for pathology services provided in these AP condo (pod) laboratories.

Three other issues bear watching. First, the judge’s opinion indicates that she will review comments from the public to CMS, as well as internal records bearing on CMS’ decision to delay implementing anti-markup rules for other clinical services, but not pathology. The judge’s opinion indicates that, to date, federal attorneys have not produced such records.

Second, Collyer noted in her opinion that she has yet to decide whether she has jurisdiction to hear the case. If she decides she does not have jurisdiction, then UroPath’s case may be dismissed and the temporary injunction would be lifted

Third, Collyer determined that the plaintiffs showed a likelihood of success by presenting evidence in support of their allegation that the final rule is arbitrary and capricious.

Public Notice And Comment

In particular, the judge noted that the notice and comment requirements of the federal Administrative Procedure Act (APA) do extend to the amendment and repeal of regulations, and that CMS issued the final rule without notice and comment. CMS also did not compile a record of the public comments that it received relating to its decision to change the rule.

In explaining her decision to grant the preliminary injunction to UroPath and the other plaintiffs, Judge Collyer addressed three distinct legal aspects:

[First factor] The court based its decision primarily on the issuance of the final rule (postponing the anti-markup rule except for anatomic pathology services performed in a centralized building and the technical component of purchased tests) without notice and comment as required in order to modify the regulation, as well as the failure of CMS to agree to delay enforcement of the rule for an additional month (until May 2, 2008) while the court reviews the case. On February 8, 2008, CMS and the plaintiffs had consented to an interim order providing that CMS would not apply the anti-markup rule for claims submitted between February 1 and April 1, 2008.

The Secretary issued the Final Rule without notice and comment. Further, while the Secretary admits that it issued the Final Rule pursuant to “informal” comment, no record indicating the nature and substance of such comments has been presented to the Court for review. The Court thus finds that this constitutes evidence in support of a finding of arbitrary and capricious rulemaking, evidence sufficient to support a preliminary injunction.

With regard to the second factor, Plaintiffs have demonstrated irreparable harm. Although the Secretary claims that this is merely a “benefits” case and that Plaintiffs can be made whole with a monetary damage award, such is not the case. Plaintiffs have shown that it is likely that Uropath and Dr. Michaels will lose their businesses if the Anti-Markup Rule goes into effect. The Physician Groups have shown that it is likely they will lose a substantial portion of their businesses and that they will be forced to close their laboratories. A preliminary injunction avoids such irreparable harm.

As for the third factor, there are no other interested parties who will be affected by the issuance of an injunction in this case. The Secretary will not be harmed as an injunction will merely maintain the status quo.

Finally, with regard to the public interest, public policy favors fair and open agency rule-making. Therefore, issuance of a preliminary injunction is in the public interest… In sum, Plaintiffs have shown a likelihood of success on the merits, and the Secretary will not suffer significant harm if the injunction is granted. The balance of harms favors the Plaintiffs, and public interest favors the issuance of an injunction. Accordingly, the Court will grant Plaintiffs’ motion for preliminary injunction.

Same Issue in Two Cases

THE DARK REPORT observes that Judge Collyer appears to be interested in whether CMS has properly followed the notice and comment requirements set out in the Administrative Procedure Act. If true, that would put this federal case on common ground with the federal case being heard in San Diego involving the Medicare Laboratory Competitive Bidding Demonstration Project.

Like Judge Collyer in Washington, DC, the federal judge in San Diego is reviewing whether CMS must follow APA notice and comment requirements as it designs and implements the Medicare laboratory competitive bidding demonstration project. That makes for interesting speculation. Were the plaintiff laboratories in both federal courts to win favorable rulings on this point, that might establish a very powerful legal precedent that CMS must follow.

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