Ruling Against UroPath Signals More Fed Action

Expect CMS to develop new anti-markup regs, based on federal court ruling in UroPath case

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CEO SUMMARY: It was a signal win for federal healthcare officials when a federal district court judge in Washington, DC, dismissed a case brought by UroPath, LLC. UroPath had sued HHS Secretary Michael Leavitt seeking to challenge the physician fee schedule final order and the anti-markup rule. The judge’s decision provides Medicare officials with useful guidance on how to craft new regulations to possibly further limit the way anatomic pathology condominium (pod) labs operate. Two lab industry attorneys offer insights about what may happen next in this case.

WHAT’S NEXT FOR ANATOMIC PATHOLOGY CONDOMINIUM (POD) LABORATORIES? The recent federal court case decision that went against UroPath, LLC, and its co-plaintiffs opens the door for federal officials to further regulate this anatomic pathology (AP) business model.

It is likely that federal healthcare officials are reading the judge’s decision closely while they consider new rules for regulating anatomic pathology condo (pod) labs, according to lawyers who have read the decision. In fact, the decision is likely to bolster the efforts of the federal Centers for Medicare & Medicaid Services (CMS) to limit the activities of AP condo (pod) labs.

Anti-Markup Rule Changes

“I suspect that this decision will give CMS more confidence to prepare new regulations, but, from a rulemaking standpoint, it will also make CMS more careful about dotting every ‘i’ and crossing every ‘t’,” observed Jane Pine Wood, a health law attorney with McDonald Hopkins, a national law firm with its largest office in Cleveland. “In addition, I would expect CMS is carefully anticipating legal challenges, and trying to preemptively address those challenges.”

Rick L. Hindmand, Wood’s colleague in McDonald Hopkins’ Chicago office, agreed with her assessment. “CMS faces substantial challenges in its quest to revise and clarify the anti-markup rule,” he said. “CMS must address the core concerns without leaving too many loopholes for abusive arrangements and without casting the net so broadly as to discourage arrangements that promote better and more efficient care.

“Last December, CMS acknowledged that it was discovering unintended consequences of the rule as published in November,” continued Hindmand. “In light of public comments CMS received late last year, and in considering the decision handed down in the UroPath case, CMS should be in a better position to consider the likely consequences of the vari- ous alternative approaches and to develop a rule that is more finely tuned.”

The court decision against UroPath was made by U.S. District Court Judge Rosemary M. Collyer in Washington, DC, last month. Collyer’s decision was significant for two reasons. First, she effectively tossed the case out of court, telling the plaintiffs to pursue their grievances through CMS’ administrative procedures. (See TDR, April 14, 2008.)

Judge Rules On Standing

In her decision, Collyer ruled that UroPath and its affiliated physicians and pathology groups did not have standing to challenge Medicare on its Final Order. Earlier this year, plaintiff UroPath, along with its affiliated labs and physician groups, had sued Leavitt in the U.S. District Court for the District of Columbia, challenging HHS’ final rule, issued January 3, 2008 (known as the “Final Order”), and the anti-markup rule, issued November 27, 2007. UroPath and its affiliates had said the Final Order and the anti-markup rule would essentially put them out of business.

Another reason Collyer’s ruling could prove to be significant is because, in her 21- page decision, she suggests that AP condo (pod) laboratory arrangements between pathologists and referring physicians are designed not so much to improve patient care but to increase profit.

In her ruling, Collyer wrote: “The Centers for Medicare & Medicaid Services have been publicly concerned since at least 2004 about a growing tendency of physician groups to utilize so-called ‘pod’ [condo] laboratories for pathology and lab work, miles from the physicians’ offices, and then to claim that doctors in both locations are ‘sharing a practice’ for purposes of billing Medicare. From the perspective of CMS, these arrangements violate the spirit, if not the exact language, of the anti self-referral provisions of the law and regulations. The administrative record indicates that many physicians also believe that ‘pod’ [condo] laboratories are inappropriate ways for doctors to refer lab work to a business they own and from which they profit.”

Collyer explained the development of AP condo (pod) labs, writing, “Never say the American entrepreneurial spirit is dead. Faced with this exception to the anti-referral provisions of the Stark act, certain physician groups that order a significant number of patient biopsies—typically dermatology, gastroenterology, and urology groups—began to develop what are called ‘pod’ [condo] laboratories. Plaintiff physician groups are urology practice groups that regularly order prostate biopsies. They formed plaintiff UroPath to manage pod [condo] laboratories for them and other practice groups. UroPath operates pod [condo] laboratories in Arlington, Texas; Leesburg, Florida; San Antonio, Texas; Sarasota, Florida; and Philadelphia, Pennsylvania. UroPath has ‘15 labs, three pathologists, and a full and part time staff totaling 30 employees. Its customers represent nine states and 162 urologists.’”

Lack of Jurisdiction

In addition, Hindmand noted that Collyer pointed out that since UroPath (as a management company) does not participate in Medicare, it has no standing to challenge the anti-markup rule. Further, the judge held that any objections to the anti- markup rule must first go through CMS’ administrative process. The physicians could submit their reimbursement claims, note any disagreement with the application of the anti-markup rule, and then pursue an administrative challenge. “Therefore, the judge ruled that the plaintiffs’ claims challenging the anti-markup rule must be dismissed for lack of jurisdiction,” Hindmand said.

THE DARK REPORT observes that the next round of federal rulemaking on anti-markup issues is likely to further restrict the way AP condo (pod) labs may bill the Medicare program.

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