"Legal Update"

Medicare Competitive Bid Lawsuit Heads toward a Judge’s Ruling

LOOK TO APRIL 7 FOR THE NEXT DEVELOPMENT in the federal court case filed by three San Diego-area laboratories challenging the Medicare Laboratory Competitive Bidding Demonstration Project. That’s when the judge is expected to rule on the case.

The latest development was on March 14, when federal lawyers made a court filing. They argued that the position of the Centers for Medicare & Medicaid Services (CMS) is simple: laboratories should file any appeal of the Medicare Clinical Laboratory Competitive Bidding Demonstration Program through CMS’ administrative review procedures.

Ruling Expected

Attorney Patric Hooper of Hooper, Lundy & Bookman in Los Angeles said last week that he expects the court to rule on the case by April 7. Hooper filed a challenge to CMS’ claims, and the filing March 14 from CMS is a response to Hooper’s challenge. Hooper represents Sharp HealthCare, Scripps Health, and Internist Laboratory which are in the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area) where CMS is conducting the demonstration project. (See TDRs, March 3, 2008 and December 31, 2007.)

On February 14, Federal District Court Judge Thomas J. Whelan issued an order denying the three labs’ request for a temporary restraining order (TRO) to stop the demonstration project from going forward. In requesting the TRO, the labs challenged the procedural steps Health and Human Services (HHS) Secretary Michael Leavitt used to implement the project.

In its most recent court filing, lawyers for HHS argued that the labs failed to successfully challenge the procedural steps CMS used to establish the demonstration project. Therefore, the labs failed to show why the case should not be dismissed. In the March 14 court papers, CMS lawyers described three independent jurisdictional bars to the labs’ challenge.

Three Bars To Lab Challenge

The first bar is the Medicare Act itself, which precludes all legal claims arising under the act and requires that such claims be presented to CMS. The act says the labs should exhaust all administrative remedies before filing a judicial review. Laboratories suing the government have said this administrative channeling requirement means they get no review of their claims, since CMS can pick winning labs and simply stop paying losing labs for lab services provided to Medicare patients.

Federal attorneys argued that the second jurisdictional bar is that, contrary to the labs’ claims, federal law does apply to such challenges. The third jurisdictional bar on plaintiffs’ claims derives from the speculative nature of the lab’s alleged injury, CMS lawyers said. The labs could not claim injury, since CMS has yet to name the winning or losing bidders for the project.

When the judge ruled against the three labs on February 14, the Medicare lab competitive demonstration pilot went forward as announced. The next day, February 15, was the deadline for labs to submit bids if they were eligible labs under CMS’ criteria and wanted to participate in the Medicare demonstration pilot.

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