Legal Update

In PAMA Appeal, ACLA Says Federal District Court Erred

LAST MONTH the American Clinical Laboratory Association (ACLA) filed an appeal in its case against the federal Department of Health and Human Services (HHS). In its court filing, the ACLA said that a federal district court judge erred in her ruling against the lab association.

The district court misinterpreted the Protecting Access to Medicare Act of 2014 (PAMA), the ACLA said in an appeal it filed Dec. 4 with the U.S. Court of Appeals for the District of Columbia Circuit. As a result of the district court’s misinterpretation of section 216 of PAMA, the appeals court should reverse the district court decision and send the case back to the court for further proceedings, said ACLA.

In September, U.S. District Judge Amy Berman Jackson dismissed ACLA’s lawsuit against HHS Secretary Alex M. Azar, saying her court lacked “subject matter jurisdiction.” (See Court Dismisses ACLA Claims in PAMA Case,” TDR, Oct. 1, 2018.) In dismissing the case, Jackson opined that some of the ACLA’s arguments had merit and thus were worth pursuing in an appeal.

One month later, the ACLA’s attorney, Mark D. Polston, of the law firm King and Spalding in Washington, D.C., filed a notice of appeal with the U.S. Court of Appeals.

Jackson erred when she misinterpreted the PAMA statute and failed to recognize that there is a presumption in such cases that allow courts to review statutes such as PAMA that call for significant regulation, including fines for failing to comply, wrote Polston and associates Ashley C. Parrish, Elizabeth N. Swayne, and Amelia G. Yowell.

Pollston and colleagues argued that Jackson’s decision was incorrect because the text of PAMA shows the Congress did not intend to prevent a legal review, among other reasons.

In fact, section 216 of PAMA prohibits clinical labs from challenging in court the law’s “establishment of payment amounts.” This fact has concerned pathologists and clinical lab directors since Congress passed the law in 2014. (See “Labs Ask: Does PAMA Statute Prevent Legal Challenges?” TDR, March 13, 2017.)

Challenge to PAMA Statute

While PAMA prevents labs from bringing a legal challenge over payment amounts, it does not prevent labs from challenging other aspects of the law, Polston and colleagues argued.

In their appeal, Polston and associates asked the appeals court to determine the proper scope of PAMA’s jurisdictional bar. Also, they asked the court, “…to reaffirm the principle that Congress must speak clearly if it intends to overcome the strong presumption in favor of judicial review of final agency action.”

The presumption that aggrieved parties have a right to sue is important in this case because under section 216 of PAMA, HHS was “…not exercising its normal administrative function falling within the agency’s discretion (such as a rule of agency procedure or a calculation of payment rates),” the ACLA argued.

Instead, HHS issued a rule that included a threat of substantial civil penalties and imposed substantively new obligations on labs to collect data on what private insurers paid them for clinical tests and requiring those labs to report that payment data to the federal Centers for Medicare and Medicaid Services.

“Congress enacted PAMA to ensure that Medicare payments that laboratories receive for providing clinical diagnostic services more closely reflect the full range of payments they receive in the commercial market,” the ACLA argued in its 97-page appeal. Under PAMA, Azar’s predecessor, Tom Price, had to complete two separate regulatory functions.

The first regulatory function was to mandate that all “applicable” laboratories collect payment data. Congress specified which of the various types of laboratories had to report payment data as “any laboratory that receives a majority of its Medicare revenues from certain specified fee schedules.” This issue of how to define “applicable” labs is the crux of the ACLA’s appeal.

“Considering the different types of laboratories that exist—including the thousands of laboratories located in hospitals, physician offices, independent facilities, and other settings—Congress specified which of these laboratories would be required to report their confidential data,” Polston and associates wrote. “Congress designed the statute to ensure that the collected data would be representative of the market as a whole.”

Data-Collection Process

In writing the PAMA statute, however, Congress provided few details about how Azar or Price should collect payment data from laboratories. “Instead, it directed the secretary to undertake through notice- and-comment rulemaking to establish the ‘parameters’ of the data-collection process, and authorized the Secretary to impose substantial civil penalties for non-compliance,” they wrote.

Problems developed when the Secretary went beyond his lawful authority and failed to collect data from any laboratory that gets a majority of its Medicare revenue from the relevant fee schedules, the ACLA argues.

“Instead, the Secretary’s rule rewrites the statute’s majority-of-revenues test to take into account non-laboratory revenue and, through this rewrite, exempts virtually all hospital laboratories from the data-reporting requirements,” Polston and associates wrote.

“Because hospital laboratories are significant participants in Medicare and compete with independent laboratories and physician office laboratories in the private market, the Secretary’s rule guarantees that the data collected does not reliably represent the private market as Congress intended.”

The result is that the rules HHS put in place under the law imposed “significant competitive disadvantages on the laboratories required to shoulder the financial and operational burdens of reporting confidential data, while impermissibly exempting their competitors from the statutory requirements,” they added.

PAMA’s Jurisdictional Bar

The second regulatory function the Secretary needed to complete was to establish the amounts that Medicare program would pay for diagnostic tests.

In this section of the law, the statute barred judicial review of “the establishment of payment amounts.” But the law does not specially prohibit review “of the Secretary’s final rule establishing the ‘parameters’ of laboratories’ data-reporting obligations,” Polston and colleagues wrote. Nevertheless, the district court held that PAMA’s jurisdictional bar should be interpreted broadly to preclude review of the Secretary’s final rule, they wrote.

It should be noted that when Jackson dismissed the ACLA’s case, she acknowledged that the ACLA was making legitimate legal arguments that a court should hear. She simply concluded that the district court was not the one to hear such a plea. Now, the appeals court will consider these issues and decide if the ACLA’s case against Azar should be reheard.

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