ACLA Lawyer Says Judge’s PAMA Ruling Is Narrow

Several Important questions were not answered, ACLA needs to decide whether it will file an appeal

CEO SUMMARY: Many lab professionals were disappointed at the news that a federal judge dismissed the American Clinical Laboratory Association’s arguments in its lawsuit against the federal Department of Health and Human Services (HHS). In an interview, the ACLA’s lead lawyer on the case discussed the key issues and explained ACLA’s claims about how HHS failed to follow the intent of Congress when it implemented the Protecting Access to Medicare Act. Now ACLA is considering whether it will appeal and what other legal options it may have in this case.

FOR CLINICAL LABS, IMPORTANT QUESTIONS WERE LEFT UNRESOLVED on Sept. 21, when a U.S. District Court judge dismissed the arguments the American Clinical Laboratory Association (ACLA) made in its case against the federal Department of Health and Human Services (HSS).

In a lawsuit ACLA led last year, the ACLA made a compelling case that under the Protecting Access to Medicare Act of 2014 (PAMA), HHS set clinical laboratory rates for 2018 based on a flawed data-collection process. The process was flawed because HHS did not follow Congress’ intent. Instead, it collected data on what private health insurers pay labs from only 1% of the nation’s clinical laboratories, ACLA charged in its lawsuit led Dec. 11, 2017, in U.S. District Court for the District of Columbia.

When the Centers for Medicare and Medicaid Services used that limited amount of payment data to set the rates for this year’s Clinical Laboratory Fee Schedule, the resulting rates were 10% lower than the rates HHS paid clinical labs in 2016.

In a Memorandum Opinion issued Sept. 21, U.S. District Judge Amy Berman Jackson dismissed the ACLA’s arguments in the case, saying the court lacked “subject matter jurisdiction.”

In the Protecting Access to Medicare Act of 2014 (PAMA), Congress said clinical labs were precluded from challenging the rates set under the law. In her opinion, Berman cited the preclusion provision as being a significant reason for rejecting the ACLA’s arguments.

Important Questions Raised

But in the opinion, Berman also acknowledged that the court was not addressing the important questions ACLA raised about how HHS implemented PAMA. For insight into those questions, THE DARK REPORT interviewed Mark D. Polston, the ACLA’s lead lawyer on the case and a partner with the firm King & Spalding in Washington, D.C.

The unanswered questions include:

  • How the HHS misinterpreted the data-reporting requirements in the PAMA statute;
  • How HHS collected data from only 1% of the nation’s labs; and,
  • How HHS excluded a large number of labs by requiring only labs that have a National Provider Identifier (NPI) number to report data to HHS.

Reporting Requirements

The requirement that labs with an NPI must report resulted in excluding all but a few hospital labs, thus causing HHS to fail to collect payment rate data from those labs that private health insurers pay the most, Polston said. By excluding labs that get paid the most, the resulting rates were skewed much lower than they would have been otherwise, ACLA argued in its lawsuit.

“At the beginning of the opinion, Judge Jackson says that the case does in fact raise important issues, which is an acknowledgment that the fundamental merits of what we’re arguing here are significant,” Polston explained. “And one of those issues is that the secretary misinterpreted the data reporting provisions of the statute.

“It’s clear that the court recognized the primary issue, which is whether the agency appropriately interpreted the definition of ‘applicable lab,’” he said. PAMA uses the term “applicable lab” to define which clinical laboratories need to report data to HHS.

In ACLA’s Lawsuit Against HHS, NILA Attorney Finds Recent Federal Court Decision ‘Disturbing’

ANOTHER ATTORNEY WHO FOLLOWED THE ACLA’S CASE CLOSELY also offered an opinion on the court’s decision to dismiss the clinical lab industry’s arguments. That attorney is Jeffrey J. Sherrin, President of the firm of O’Connell & Aronowitz, in Albany, N.Y. Sherrin often represents the interests of the National Independent Laboratory Association (NILA).

“The decision of the federal District Court is disturbing in its reach and implications,” stated Sherrin. “While the court recognized that limitations on the jurisdiction of a federal court to review administrative actions must be narrowly construed, the court goes on to extend the prohibition against judicial review of the establishment of rates well beyond the reach that Congress imposed in the PAMA statute.” PAMA is the Protecting Access to Medicare Act of 2014.

“The court essentially held that since all aspects of the regulations are part and parcel of the process of establishing rates, the prohibition against judicial challenges effectively extends to any challenge to any aspect of HHS’ implementing regulations,” commented Sherrin. “Thus, no challenge whatsoever may be brought to anything HHS did or does in implementing the PAMA statute.

“Aside from overextending the reach of the bar to judicial review, the logical extension of the decision is that anything HHS does in implementing, or defeating, the statute and Congressional intent would be beyond challenge,” he argued. “If HHS purposely falsified data, or completely ignored a statutory definition or direction, that action would be immune from challenge by logical extension of the court’s decision.

“Now, what if HHS decided to just rely upon one or two labs’ rates in setting the new PAMA rates?” he asked. “Then this decision would likely preclude a challenge to that blatant disregard of Congress’ directions.

“The result is that the court is giving HHS free reign over how to set PAMA rates, regardless of any specific instructions to Congress,” he added. “We know this because the challenge by ACLA and the associations that led ‘friend of court’ briefs in this case contended that HHS did just that: It ignored a statutory definition of ‘applicable laboratory’ and defeated the Congressional overriding purpose of setting new rates based upon the full market, holding that the court did not even have jurisdiction to review those questions.”

‘Underpay for Lab Tests’

“The HHS interpreted the term ‘applicable lab’ in a certain way, knowing that it would grossly underpay for diagnostic lab tests,” Polston said.

“That’s why the agency identified the term ‘applicable lab’ in the way that it did,” he argued. “But, the HHS doesn’t have the authority to do that when Congress told it very explicitly how it de ned the term ‘applicable lab.’ That’s the important merits question here and that’s the question that we ultimately wanted the court to address on the merits.”

Lab administrators and pathologists following the implementation of the PAMA statute know that one way HHS excluded labs from reporting payment data was to require that only a lab with an NPI needed to report.

“We think that, with both the provisions of the preclusion part of the statute and the question about the merits of our arguments, there is a question of what is an ‘applicable lab,’” Polston explained. “On this issue, the language of the statute is abundantly clear. By that I mean the text of the wording of the statute is clear, and so is the context in which the statute is passed.

Relevant Legislative History

“In our pleadings, we pointed to some legislative history, of course,” he added. “Regardless of that, we believe that the statute is clear that the secretary’s insertion of the requirement that labs needed to bill under their own NPI numbers in the provisions of its regulation does not follow the clear language of the statute regarding what is an applicable lab.

“But in another section of PAMA, Congress gave a very direct requirement to the agency when it laid out a specific directive to engage in notice and comment rulemaking in order to require applicable laboratories to report their commercial rate data, and to set up the mechanisms for which to do that,” Polston explained. “That provision is not precluded from judicial review. So, the issue ACLA was asking to be reviewed is not the establishment of rates, but instead the issue is how the reporting of data was done.

“We recognize that there is a connection between the rules that the secretary set forth as to who reports data, and ultimately what those rates are going to be,” he continued. “But that doesn’t mean they are necessarily inexplicably intertwined together,” he argued. “And that’s where we were most disappointed.

Notice/Comment Required

“We think Congress required rule making for a specific reason,” Polston explained. “That was so that the affected parties— meaning the clinical laboratories that had to report—could comment on those rules. In every situation in which Congress directs agencies to engage in notice and comment rulemaking, Congress typically does so because it wants to have that notice and comment rulemaking subject to administrative and judicial review.

“The fact that Congress directed the agency to engage in notice and comment rulemaking creates the presumption that Congress wanted the agency’s decisions on those comments and rulemaking to be subject to administrative and judicial review.”

Will There Be an Appeal?

After outlining the specific questions that went unaddressed, Polson then turned to the options that ACLA has as it considers whether to appeal the decision or not.

“Right now, a number of options are under consideration but nothing has been decided yet,” he said. “One issue under consideration is whether to continue to pursue this case in an expedited fashion.”

Regardless of the steps ACLA takes, Polston acknowledged that labs continue to struggle with low payment rates. “We recognize that this is an urgent matter,” he said. “That’s why, when we led our complaint in December, we actually worked with the Department of Justice that represents HHS in this matter, to expedite the briefing in the case.

“Also, we asked the court to take the case under consideration and to rule in an expedited fashion,” he added. “All of that was done in response to the various issues related to the fact that this case has some urgency, given that there is harm being done.

“By that I mean the harm that potentially befalls Medicare beneficiaries who cannot get access to some of these services that they were getting before the rates went into effect in January,” he said. “There also is harm to clinical laboratories that can no longer provide services at these low rates and that may have to go out of business. This leaves more Medicare beneficiaries trying to find access to these lab services in different places.

“In our complaint, we were very detailed about what that harm is, and that’s why we asked the court to move quickly,” concluded Polston.

CMS Used Private Payer Lab Payment Data from Just 0.7% of the Nation’s Clinical Labs

IN JANUARY, LAWYERS for clinical laboratories were confident that the legal questions the American Clinical Laboratory

Association raised in its lawsuit against Alex M. Azar, the Secretary of the federal Department of Health and Human Services (HHS), had merit.

In a complaint led Dec. 11, ACLA charged that the agency failed to comply with the requirements of the Protecting Access to Medicare Act of 2014 (PAMA). After failing to comply with those requirements, it set the 2018 Clinical Laboratory Fee Schedule (CLFS) much lower than it would have otherwise, ACLA explained. (See “ACLA Suit Challenges HHS’ Data-Collection Efforts,” TDR, Jan. 2, 2018.)

Filed in the U.S. District Court for the District of Columbia, the lawsuit charged that HHS disregarded the requirement in PAMA that all applicable laboratories report relevant market-rate data. The issue of how HHS and the federal Centers for Medicare and Medicaid Services de ned the term “all applicable laboratories” was the critical issue in the lawsuit, the lawyers said.

Under PAMA, CMS was instructed to analyze what commercial health insurers paid clinical labs and to use that private-payer data to set market-based rates for this year. But when setting the 2018 CLFS prices that went into effect Jan. 1, ACLA used a highly awed data reporting process by preventing more than 99.3% of clinical laboratories in the United States from reporting market-rate data on the prices health insurers paid for lab tests, the lawsuit said.

The small number of labs reporting payment data was the central issue in the lawsuit because, as ACLA charged, Medicare paid more than 261,500 entities for laboratory services in 2015, but collected payment data from only 1,942 laboratories in 2016 under the PAMA final rule. That is just 0.7% of the total number of labs serving Medicare beneficiaries.

Contact Mark Polston at 202-626-5540 or mpolston@kslaw.com; Jeffrey Serrín at 518-462-5601 or jsherrin@oalaw.com.

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