Courts Uphold Labs’ Challenges on CMS’ Rules

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SINCE MARCH 31, THE FEDERAL CENTERS FOR MEDICARE & MEDICAID SERVICES (CMS) has lost two decisions in two different U.S. district courts. Though each case addressed fundamentally different issues, the rulings were remarkably similar. In both cases, the courts questioned CMS’ failure to properly use federal procedures. We provide analysis on both cases in this issue.

Each case has been widely reported. One involves the three San Diego-area laboratories which went to federal district court and filed suit to prevent CMS from moving forward with the Medicare Laboratory Competitive Bidding Demonstration Project in the San Diego-Carlsbad-San Marcos metropolitan statistical area (MSA). (See pages 3-7.) The second case was filed in the U.S. District Court in Washington, DC, by anatomic pathology condo/pod lab company UroPath, LLC, and its affiliates, seeking to delay and overturn implementation of the anti-markup rule that became effective on January 1, 2008. (See pages 8-9.) Since March 31, judges in both federal court cases have ruled in favor of the plaintiff laboratory organizations.

This is instructive on several points. For one, every time labs seek redress through CMS’ administrative procedures, invariably the administrative judge rules against the laboratory and in favor of CMS. Thus, it is significant that two federal district court judges, in courts 3,000 miles apart, both slapped the government on the hand and granted the request for injunctions by the plaintiff labs.

Next, each judge’s ruling has a common theme: In the San Diego case, the judge ruled that CMS was required to follow the notice and comment requirements of the Administrative Procedure Act (APA) of 1946 as it developed the Medicare Laboratory Competitive Bidding Demonstration Project. In the Washington, DC, case, the federal judge ruled that CMS was required to follow the notice and comment requirements of the APA when it proposed regulatory changes using the 2008 Medicare Physician Fee Update process.

These two federal judges have delivered justifiable setbacks to the bureaucrats at CMS. It is a message to CMS that it is not above the law! Further, as you will read elsewhere in this issue, these two federal court cases may establish a welcome precedent that CMS must follow APA requirements on every competitive bidding demonstration that it wants to implement. Be forewarned, however: neither of these federal court cases is concluded and government attorneys have yet to respond to the injunctions in both cases.

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