Can Fee Cuts Be Delayed? Courts Are One Option

Lab industry has 12 weeks to achieve a “delay and fix” agreement with HHS, CMS

CEO SUMMARY: Some lab companies may be prepared to challenge in court the methodology CMS used in setting the requirements of the Protecting Access to Medicare Act of 2014 to conduct a study of private payer market prices for lab tests and use that data to propose new prices for the Part B Clinical Laboratory Fee Schedule. Although labs prevailed in an important court challenge in 2008 involving Medicare competitive bidding, in this matter, there are substantial legal obstacles to overcome.

AFTER MEDICARE ANNOUNCED plans to cut Medicare Part B clinical lab test fees on Jan. 1, clinical laboratories and their associations began discussing ways to challenge the proposal.

In the letter sent Friday Oct. 6 to Seema Verna, Administrator of the federal Centers for Medicare and Medicaid Services, officials from 22 healthcare associations signed the letter and requested that her agency suspend the private payer lab test market price study and the Part B lab test fee cuts. The suspension would allow time for Medicare and interested stakeholders to address the flaws in the final rule that CMS crafted.

Associations In Support

Some of healthcare’s most respected organizations signed the letter, including the American Medical Association and the American Hospital Association. Others included the American Academy of Family Physicians, the Association of American Medical Colleges, the Association of Public Health Laboratories, the Medical Group Management Association, and the National Association for the Support of Long Term Care.

These associations represent 5,000 hospitals, 700,000 physicians, and 17,000 nursing homes. They recognize the value of clinical lab testing and how the proposed fee cuts could cause Medicare patients to lose access to lab testing if CMS implements the Medicare Part B lab test fee cuts it published on Sept. 22.

An Unprecedented Coalition

Never before, to the knowledge of THE DARK REPORT, has a single issue involving clinical lab testing for Medicare patients spawned such a diverse and wide coalition of healthcare stakeholders. While clinical labs welcome the support, it is unknown whether federal officials will correct the inherent flaws in the methodology CMS used to gather data for its so-called market-based price setting initiative to avert the danger of setting prices so low on clinical lab tests that labs go bankrupt.

Clinical labs may know the answer in the coming weeks because there are only 83 days before the New Year. Since CMS has failed to respond to the industry’s calls for a delay to allow time to fix the flaws in its market study, there is a chance that some combination of plaintiffs representing the various stakeholders that want to suspend or postpone the fee cuts will challenge CMS in court.

Precedent For Using Courts

There is a precedent for court action winning some relief for the clinical lab industry. In 2008, CMS proposed a demonstration project for competitive bidding among clinical labs in the San Diego market. Several lab organizations filed a lawsuit in federal court in January 2008.

The labs won a temporary injunction that required CMS to stop the demonstration project and the federal Department of Health and Human Services chose not to appeal the ruling. By not appealing the ruling, there was no precedent at the appeals court level. Since that time, CMS has not attempted a competitive bidding project involving clinical lab tests.

As noted in this issue, on Sept. 22, the American Clinical Laboratory Association said it, “will advocate before all branches of government, including the courts if necessary, for a fair and effective market-based policy solution that encourages innovation and protects Medicare beneficiary access to lab services.”

In a similar statement, Quest Diagnostics confirmed its support of the possibility of using the court. Quest Chairman, President, and CEO Steve Rusckowski said, “These rates should not be finalized, and I fully support the American Clinical Lab oratory Association’s plan to explore all available options, including the courts if necessary, to ensure that patients have access to the services we provide.”

These statements indicate that ACLA and some of its members are prepared to use the courts in an effort to get an injunction to suspend the market price study and the proposed Medicare Part B lab test price cuts. For labs, however, both PAMA and the final rule on the lab market price study do not allow “judicial or administrative review of the payment amounts.”

Using Courts To Challenge

Nevertheless, there are ways to use the courts to challenge CMS’ actions in this case. “Yes, the PAMA statute’s prohibition applies to challenges in how the rates are set,” stated attorney Jeffrey J. Sherrin of O’Connell and Aronowitz, in Albany, N.Y.

“However, there can still be challenges to the methodology employed, such as the way data was collected and used,” he continued. “Labs can challenge definitions, such as how an ‘applicable laboratory’ is defined in CMS’ final rule and whether that definition is a reasonable interpretation and application of the statute, or whether it contravenes either the express language of the PAMA statute, or congressional intent.

Congressional Intent

“A successful challenge, therefore, will likely have to avoid simply attacking the inadequacy of the rates, but rather some other aspect of the implementation of the PAMA statute that is inconsistent with congressional intent,” Sherrin added. “Labs will have to show that their challenge is outside the bar to challenges to the rates that are written in the law and the final rule.

“Labs will likely want to seek a preliminary injunction to stop the rates from going into effect, on the ground that once the rates take effect, irreparable harm will be caused to many labs,” he noted. “But to succeed with this approach, plaintiff labs would need to show not only a likelihood of success on the merits of the lawsuit, but also that irreparable harm will be suffered.

“That might be difficult for ACLA labs to do, because financial losses do not usually suffice to establish irreparable harm,” explained Sherrin. “This problem might be overcome by including as plaintiffs in the lawsuit smaller labs that can show they will be put out of business, and patients and their medical professionals or their associations who can speak to irreparable harm resulting from quality laboratory services becoming unavailable and the resulting detrimental effects on patient care.

Court Hurdles for Labs

“One hurdle for labs wanting to use the courts is this,” he said. “While a challenge to methodology is not pre-empted by PAMA, there are cases—including from the U.S. Supreme Court—that say if the effect of the challenge to the methodology is to challenge the rates, the methodology challenge can also be preempted,” he explained. “So plaintiff labs will need to walk a fine line in laying out the nature of their challenge, and to stay as far away as they can from appearing to be actually challenging the rates.

“These examples demonstrate that there are multiple ways for clinical labs to challenge how CMS is complying with the PAMA law,” Sherrin observed. “But it is a difficult case when one considers the deference usually given by courts to CMS in its implementation of a complex statute, and the obstacle placed in the law that bars to challenges to the rates.

“On the other hand, litigation is always full of surprises and unexpected twists and turns,” he continued. “It is feasible for plaintiff labs to prevail. Or, if they can defeat a motion to dismiss, then they have leverage to negotiate a better methodology.

Protecting Patient Welfare

labs and any other groups or individuals that join in the lawsuit will want to convince the court that the challenge is not simply about protecting their financial position, but rather protecting patient welfare, good medical care, and not destroying patient access to necessary laboratory services.

“Since that is what these PAMA regulations will do, I am optimistic that the courts will reject hypertechnical defenses and critically analyze the way that CMS has chosen to implement a statute in the face of opposition and criticism from every sector of the healthcare industry,” he concluded.

Both PAMA Law, CMS Rule Forbid Admin, Judicial Review

BOTH THE PAMA LAW AND THE FINAL RULE state that no administrative or judicial review of the payment amounts will be allowed.

This is from the PAMA Statute:


‘‘(1) IMPLEMENTATION.—There shall be no administrative or judicial review under section 1869, section 1878, or otherwise, of the establishment of payment amounts under this section.

This is from the PAMA final rule as published by CMS in Federal Register in 2016:

Section 1834A(h)(1) of the Act states that there shall be no administrative or judicial review under sections 1869, 1878, or otherwise, of the establishment of payment amounts under section 1834A of the Act.

Questions To Be Answered

Did CMS follow the PAMA law in how it conducted the private payer lab test market price study? Did CMS meet the intent of Congress as it did so? It may take court action by labs and lab associations to get answers to these questions. Would clinical laboratories have a strong case? There is ample evidence to indicate that labs would bring a credible case to a judge.

Contact Jeffery J. Sherrin at 518-462-5601 or


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