Judge Rules Against Labs In Medicare Lab Bid Case

Three San Diego Labs lose round one and come out swinging at the start of round two

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CEO SUMMARY: On February 14, Federal District Judge Thomas J. Whelan denied the request for a temporary restraining order (TRO) by three San Diego labs that would have stopped the Medicare Laboratory Competitive Bidding Demonstration pilot project until several legal challenges were adjudicated. It is believed that CMS received bid applications from an unknown number of laboratories by the February 15 deadline. Now round two in this federal lawsuit is about to get under way.

SCORE ROUND ONE for the federal government in the federal lawsuit filed by three San Diego laboratories seeking an injunction to prevent the Medicare Laboratory Competitive Bidding Demonstration pilot project from going forward.

On February 14, Federal District Court Judge Thomas J. Whelan issued an order denying the request by Sharp HealthCare, Scripps Health, and Internist Laboratory for a temporary restraining order (TRO) to stop the the Medicare Lab bidding demonstration from going forward until certain legal issues are resolved. In requesting the TRO last month, the three labs challenged the procedural steps used to implement the bidding demo project by Department of Health and Human Services (HHS) Secretary Michael Leavitt.

Because the judge ruled against the three laboratories, the Medicare lab competitive demonstration pilot went forward as announced. The next day, February 15, was the deadline for the submission of bids by those laboratories meeting the criteria of “eligible bidders” and wanting to participate in the demonstration pilot.

Since February 15, officials at the Centers for Medicare & Medicaid Services (CMS) have made no statement about the number of laboratories that submitted bids, nor the names of laboratories which submitted bids. Next on the bidding timetable is for CMS to engage bidding laboratories in a “Stage Two” round of negotiations it will use to select which laboratories will be eligible to provide lab testing and what price level will be paid to participating labs over the three year period of the demonstration pilot in the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area). If CMS sticks to its timetable, it will announce the labs selected to participate in the bidding demonstration pilot on April 11, 2008. Implementation of the competitive bidding demonstration pilot is scheduled to commence on July 1, 2008.

Labs’ Request Denied

In his February 14 ruling, Judge Whelan denied the request for a TRO and said the plaintiff labs should explain why the case should not be dismissed. Essentially, Whelan upheld CMS’ arguments in its challenge to the TRO request. In its response to the lawsuit, CMS said the three labs had no legal standing because they could file an administrative appeal if they were not named winning bidders in the demonstration project. (See next column on this point.)

That sets up round two in this lawsuit. Last Thursday, February 28, Attorney Patric Hooper of Hooper Lundy & Bookman, in Los Angeles, the law firm representing the three San Diego laboratories, filed papers in response to Judge Whelan’s ruling. In this filing, Hooper Lundy argues that federal officials misrepresented legal principles and misled the court when they argued against a request for a temporary restraining order (TRO).

Pathologists and laboratory executives have watched the high-handed actions of CMS officials in recent years as they shaped the form and structure of the Medicare Laboratory Competitive Bidding Demonstration project with little meaningful input from the laboratory profession. That attitude shows in the filings by government lawyers in this case. There are legal contradictions in their arguments.

A couple of extracts from the Hooper Lundy filing hint at the government’s flawed legal arguments.  For example, to answer the right of the three labs to challenge aspects of the bidding demo, Hooper Lundy wrote “The Secretary well knows that ‘losers’ under the Demonstration Project will have no appeal rights to challenge the project’s very policies that caused them and their patients to become losers. Under the Secretary’s own rules, losers are prohibited from submitting claims to Medicare altogether and have no appeal rights. [TDR emphasis.] Moreover, there are also no appeal processes for “winners” to present the challenges presented here. Thus, the Secretary’s discussion of jurisdiction is based on an entirely contrived premise.”

The CMS “Catch 22” on non-winning labs being required to provide services to Medicare patients, knowing that they will not be reimbursed, was addressed by Hooper Lundy as follows: “As the Secretary concedes in his Opposition brief, required bidders who lose under the Demonstration Project ‘may not bill Medicare directly for any of the laboratory tests involved in the project’…Nonrequired bidders who chose to bid and lose also are ‘precluded from billing Medicare directly…’ …Indeed, in a February 1, 2008 release to providers, the Secretary expressly states that ‘non-winner laboratories… have no appeal rights’…In fact, by telling this Court in his opposition papers that losers may simply file claims and then pursue administrative remedies, the Secretary was not only misleading the Court but was also inviting plaintiffs and others to file claims for which they know they are not entitled to any Medicare reimbursement. The Secretary and the Department of Justice typically regard such claims as fraudulent.” [TDR emphasis.]

Citizens Fighting Back

THE DARK REPORT observes that, regardless of the power, clarity, and reason in the arguments provided by the three laboratories in this case, its outcome lies in the hands of a federal judge. It is a reminder that government power is often wielded arbitrarily and in ways that are tough for average citizens to restrain.

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