Federal Judge Rules Against ACLA in Its PAMA Lawsuit

Dismissal of PAMA lawsuit raises questions about next steps for clinical laboratory industry

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CEO SUMMARY: Now that a federal judge has ruled that the American Clinical Laboratory Association’s lawsuit is moot and dismissed the case, it is unclear what next steps are open to ACLA and the clinical laboratory industry in their challenge to how the federal Centers for Medicare and Medicaid Services is implementing the Protecting Access to Medicare (PAMA) statute. Two experienced lab industry attorneys provide insights into what the lawsuit did accomplish and some possible next steps.

DISMISSAL ON MARCH 30 of the American Clinical Laboratory Association’s (ACLA) lawsuit against the federal Department of Health and Human Services (HHS) over the 2016 PAMA Medicare reimbursement rate regulation raises the question about what other avenues the clinical laboratory industry might pursue in seeking to remedy concerns with PAMA Medicare payment rates. 

“ACLA could appeal this decision by Judge Berman, as it did her previous decision in 2018,” says David Gee, a partner with Davis Wright Tremaine LLP. “The industry could also continue to advocate for Congress to recognize the great value of state-of-the-art laboratory innovation, based upon the industry’s front-line role throughout the COVID-19 public health emergency.”

Jeffrey Sherrin, Esq., an attorney with O’Connell Aronowitz, says one can never know what Congress or the Department of Health and Human Services has in store for statutory or regulatory changes. “With COVID-19 opening up so many challenges and opportunities for labs, the discussions right now are not as much about PAMA as they are adapting to the new COVID-19 era.”

ACLA filed the lawsuit in 2017 against HHS Secretary Alex Azar (who has since been replaced by Xavier Becerra). The lawsuit challenged a 2016 rule promulgated by HHS that defined “applicable laboratory” as one that “bills Medicare Part B under its own NPI.” ACLA contended that the rule’s definition of applicable labs was “arbitrary and capricious” because it “excluded significant numbers of hospital laboratories that provide outreach services from the Secretary’s data collection … because most hospital laboratories bill under their hospitals’ NPIs rather than their own,” the court said in its ruling.

Judge Amy Berman Jackson of the District of Columbia District Court initially dismissed the case for lack of subject matter jurisdiction, but ACLA appealed. On Nov. 23, 2018, HHS issued another rule that revised the “applicable laboratory” definition to include “hospital outreach laboratories” that use a billing method used by hospitals for non-patients. On July 30, 2019, the D.C. Circuit Court overturned the dismissal of the case, remanding the matter to the lower court “to address in the first instance the merits of petitioner’s arbitrary-and-capricious challenge.”

In her March 30 ruling, Judge Berman said that the challenge is now moot since HHS modified its definition of “applicable laboratory” in its 2018 rule. The only other available remedy would be back pay for any past reimbursements that were calculated using the 2016 rule’s definition, which would have changed the pay rate, the court noted.

“But PAMA provides that ‘payment amounts under this section shall not be subject to any adjustment (including any geographic adjustment, budget neutrality adjustment, annual update, or other adjustment),” Judge Berman wrote. “So, even if the Court were to rule in plaintiff’s favor on the merits, it could not order the agency to revise any payment amounts.”

Problematic Decision

Sherrin says the decision is problematic. “The Court could have gone either way on the mootness question. Other courts have held that a change in regulation—since it is an administrative and not a legislative act—does not moot the controversy. ACLA can appeal this decision, but whether it decides to do so, or perhaps feels that the chances of winning are not good enough, remains to be seen.”

Julie Khani, ACLA President, said the ruling is a disappointing outcome for ACLA member laboratories and the millions of patients they serve. “We are currently reviewing our legal options and we will continue to work with policy makers to establish a [Medicare] Clinical Laboratory Fee Schedule that is truly representative of the full market and supports continued innovation and access to vital laboratory services, as Congress originally intended. Now is the time to strengthen our laboratory infrastructure and support continued access to the high-quality lab services that our nation depends on.”

Could Ruling Be Favorable?

Gee says this ruling could actually be seen as a win for ACLA and the clinical laboratory industry as the original lawsuit ultimately led to CMS revising the definition of “applicable laboratory.”

“Generally speaking, the decision confirms that the ACLA lawsuit succeeded in achieving one of the lab industry’s primary objectives, albeit by prompting the 2018 regulatory changes broadening the regulatory definition of ‘applicable laboratory’ to ensure that the PAMA data reporting requirement includes pricing data from hospital labs, which comprise a very significant sector of the marketplace,” Gee said. 

“For this reason, the post-2018 PAMA rate-setting process must factor in higher reimbursement levels paid to hospital labs. The good news is that the rule change took effect well before it would have if compelled by judicial ruling,” said Gee. “The bad news is that Judge Berman did not agree with ACLA that the United States District Court for the District of Columbia has the authority to rule on the adequacy of the pre-2018 definition of ‘applicable laboratory’ or to compel the Centers for Medicare and Medicaid Services to undertake a corrected data gathering and reporting process.”

Contact David Gee, Esq., at 206-757-8059 or davidgee@dwt.com; Jeffrey Sherrin, Esq., at 518-462-5601 or jsherrin@oalaw.com.

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