Court Dismisses ACLA Claims in PAMA Case

In major setback for labs, judge says court lacks jurisdiction in case against HHS on lab payment rates

CEO SUMMARY: While acknowledging that the American Clinical Laboratory Association raises important questions in its case against the federal Department of Health and Human Services, a district court judge ruled that the court cannot resolve the dispute and dismissed the ACLA’s claims for lack of “subject matter jurisdiction.” While not dismissing it outright, the judge effectively ended the case. A lawyer for the ACLA expected a dismissal within days. ACLA has not yet decided to appeal.

Clinical labs suffered a big setback last week when a U.S. District Court judge dismissed the arguments the American Clinical Laboratory Association (ACLA) made against the federal Department of Health and Human Services (HHS) in a lawsuit ACLA led last year.

In the lawsuit led December 11, in U.S. District Court for the District of Columbia, ACLA charged that under PAMA, HHS collected data from only a subset of the nation’s clinical laboratories and then used that limited amount of data to set clinical lab payment rates for this year that were estimated to be about 10% lower than the rates it paid clinical labs in 2016.

In her decision, U.S. District Judge Amy Berman Jackson acknowledged that the ACLA’s case raises important questions about how HHS implemented the Protecting Access to Medicare Act of 2014 (PAMA), but said the court cannot resolve the dispute and dismissed the ACLA’s claims for lack of “subject matter jurisdiction.”

Jackson did not dismiss the case, however, although she may do so in the coming days, the ACLA’s lawyer told The Dark Report.

The federal Centers for Medicare and Medicaid Services had predicted that under PAMA, it would cut what it pays laboratories by $390 million this year. However, because the methods HHS used to collect the market-rate data under PAMA were so awed, Medicare payments to clinical laboratories decreased by $670 million this year, stated clinical labs in filings supporting the ACLA’s case.

The federal Office of Inspector General reported that $670 million is about 10% of the $6.8 billion that Medicare paid under Part B for lab tests in 2016. (See “Legal Briefs Explain Problems With PAMA Implementation,” TDR, April 16, 2018.) Over 10 years, the reductions in what CMS pays labs under PAMA will equal $4 billion, Virgil Dickson reported for Modern Healthcare.

Such deep cuts in payment caused some labs to close and others to cut back on the services they provide to the nation’s seniors on Medicare, according to legal filings from the American Association of Bioanalysts (AAB), the Advanced Medical Technology Association, the College of American Pathologists, and the National Association for the Support of Long Term Care. Labs serving nursing homes and rural areas were affected most severely, ACLA and other lab organizations said.

‘Indefensible Assertion’

“HHS’ continued assertion that collecting data from less than 1% of clinical laboratories nationwide meets the standards for a market-based system is indefensible,” ACLA President Julie Khani said in a statement following the court decision. “By intentionally omitting data from more than 99% of laboratories, HHS is undermining Congress’ goal of protecting beneficiaries and supporting value-based care delivery.

“This is an extremely disappointing outcome for ACLA’s members and the millions of seniors they serve—including the most vulnerable Medicare beneficiaries— who rely on clinical laboratory tests for their most basic health needs,” she added.

In particular, Khani took issue with the decision that the court lacked jurisdiction in the case. “The court’s decision that it is powerless to require HHS to comply with the statutory requirements sets a harmful precedent that allows agencies to circumvent Congress’ express directions at the expense of patient care.”

In the first paragraph of a 13-page Memorandum Opinion, Judge Jackson explained the issues, writing that ACLA challenged a regulation that implements Section 216 of PAMA that required certain labs to report what private payers pay so that HHS could use that data to set Medicare rates.

Definition of ‘Applicable Lab’

“Plaintiff [ACLA] contends that the definition of the term ‘applicable laboratory’ in the regulation violates PAMA and the Administrative Procedure Act (APA),” Jackson wrote. “In response, defendant [HHS] asserts that in the statute, Congress expressly precluded judicial review of issues such as these, and the court has no jurisdiction to hear the case. While the Court acknowledges that plaintiff’s arguments on the merits raise important questions, it agrees with defendant that it cannot resolve this dispute, and it will dismiss this matter for lack of subject matter jurisdiction.”

Earlier this year, lawyers familiar with the case said the ACLA’s position was strong despite a provision in PAMA that precluded clinical labs or other aggrieved parties from challenging the law in court. (See TDR, Jan. 2, 2018.)

Challenge to Methods Used

Instead of challenging the rates HHS set for the 2018 Clinical Laboratory Fee Schedule, the lawsuit challenged the methods HHS used to gather the data it needed to estimate how much private health insurers paid clinical labs. In challenging those methods, the ACLA noted that HHS did not collect data from most hospital labs. Instead, it collected data from only a small number of hospitals, excluding almost all hospital labs which collect higher rates than most other labs operating in the United States, ACLA claimed in its lawsuit, ACLA v. Alex M. Azar, II, Secretary of HHS.

As of press time, the judge had not dismissed the case. ACLA is meeting with its members and lawyers to assess its options and determine a course of action. One big question will be whether ACLA should appeal this decision and what arguments it could assert as part of the appeal.

Meanwhile, various lab associations and groups are lobbying members of Congress. The goal is to educate legislators to how the actions by CMS in its interpretation of the PAMA statute are reducing the access of Medicare patients to quality laboratory testing services, particularly in small communities and rural areas. However, Congress is distracted by a host of issues during this budget cycle and election year. That makes fixing PAMA a tough challenge.

Following Federal Judge’s Ruling, Lab Industry Hopes Congress Might Act to Fix PAMA

AS IT REVIEWS ITS OPTIONS, the American Clinical Laboratory Association (ACLA) will ask Congress to reform the Protecting Access to Medicare Act of 2014, said ACLA President Julie Khani. Other options include asking the court to reconsider, filing an appeal, and asking Congress to revise PAMA.

“Congress must reform and modernize the clinical lab fee schedule to ensure that beneficiaries can continue to access the lab services and diagnostics they need,” Khani said.

In a statement to THE DARK REPORT, Quest Diagnostics Inc. agreed with Khani, saying it supported the ACLA’s efforts and called on Congress to reform and modernize the CLFS, “to ensure that all patients can continue to access the lab services they need.”

David P. King, Chairman and CEO of Laboratory Corporation of America, acknowledged that because the court recognized the important questions ACLA raised in its lawsuit about how CMS gathered the data, Congress needed to respond.

“The court’s refusal to reach the merits of these important questions makes it critical for Congress to act quickly to force CMS to comply with the law as written,” King added.

Other lab organizations and lab companies also were concerned about the ruling. Mark S. Birenbaum, PhD, Administrator of AAB and the National Independent Laboratory Association, said both organizations were concerned that the federal judge dismissed these arguments, especially because the low payment rates established by HHS have had a significant negative financial effect on labs.

“While the lab community considers future legal options, the real work right now is persuading Congress to stop the next round of cuts to the Medicare Part B Clinical Laboratory Fee Schedule from going into effect on Jan.1, 2019,” he added.

Broken Payment System

R. Bruce Williams, MD, President of the College of American Pathologists, said members of CAP were “concerned over this broken payment system and the drastic Medicare cuts hitting clinical laboratories, especially those in healthcare shortage areas and rural communities, across the United States today and over the next several years.” CAP will continue to call on Congress to amend PAMA, he said. “Legislation is needed to ensure reimbursements are accurate and truly reflect costs for the clinical tests provided to patients,” he added.

Contact Julie Khani at jkhani@acla.com or 202-637-9466.

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