Should Labs File Court Challenge To PAMA Price Report Rule?

In 2008, several labs sued HHS and obtained an injunction that stopped competitive bidding

CEO SUMMARY: Just four weeks remain before CMS begins collecting private payer clinical laboratory test price data. Many lab industry executives have charged that Medicare officials are not following the language of the PAMA statute or the intent of Congress. At stake are $5.4 billion in Part B fee cuts that CMS plans to introduce. Has the time come for the clinical laboratory industry to act together by challenging the rule-making in federal court?

OVER THE PAST THREE DECADES, the clinical laboratory industry and the house of laboratory medicine have seldom spoken with a unified voice about critical issues.

That situation exists because the clinical and business objectives of each sector of the lab industry will often diverge. For instance, public lab companies often have different business interests than private clinical labs.

Another large segment of the lab industry are hospital labs. But they are part of the hospital industry, which has its own agenda. As clinical professionals, pathologists need to protect their professional interests, which often diverge from the interests of clinical labs. And labs specializing in molecular diagnostics and genetic testing have separate business interests.

Today, however, the clinical laboratory industry and the house of laboratory medicine face a common threat: the looming, substantial cuts to the Medicare Part B clinical laboratory fee schedule that the federal Centers for Medicare & Medicaid Services will implement in January 2018.

For this reason, leaders from all sectors of the clinical laboratory industry and the pathology profession should come together, without delay, to act as necessary to ensure that the PAMA statute is executed in a way that is consistent with the language of the law and the intent of Congress. There are several actions that labs can take, ranging from administrative appeals and reviews to court action.

Lawsuit In Federal Court

Filing suit in federal court against the Department of Health and Human Services (HHS) is the most direct way to obtain a restraining order that would at least temporarily stop CMS from moving forward with implementation of the PAMA market price reporting rule. That would then give both parties to the lawsuit time to put their arguments before a judge.

If such an injunction were to be obtained before January 1, 2017, that would mean labs would not submit private payer market price data to CMS until a ruling by the federal judge overseeing the case. Such a ruling would prevent CMS from reviewing that market price data, pending a decision in this court case.

Who should be the plaintiffs in this court case? It would be smart to include several community labs that serve nursing homes primarily. Medicare patients make up as much as 50% to 70% of the patient mix for community labs, which typically provide the only lab testing services in the towns and rural areas they serve. In front of a federal judge, these labs could make a compelling case about the financial harm and loss of access Medicare beneficiaries would suffer if CMS implemented the PAMA price reporting rule as written.

It would also be beneficial to include as plaintiffs some small hospitals and rural hospitals. Associations such as the Texas Organization of Rural & Community Hospitals (TORCH) can identify small hospitals that have the greatest financial risk that would result from these cuts in Part B lab test fees. These hospitals also provide important access to Medicare beneficiaries that Congress would want to continue.

hospital Labs With No NpIs

A third group of plaintiffs would be hospitals and health systems that have significant clinical laboratory outreach programs, but do not have NPI numbers. Private health insurers typically pay these labs more than these labs get under Medicare Part B (a fact that CMS officials know), but these labs have been excluded from reporting under the final rule. Lab test revenues are important to the budgets of these hospitals and, as plaintiffs, they would provide strong evidence that their exclusion from market price reporting under the final rule violates the language of the statute and the intent of Congress.

In our most recent issue, we published an analysis of the actual lab test data to be reported for four classes of laboratories.

That data came from XIFIN, Inc., of San Diego, which based its analysis on hundreds of millions of private payer lab test payments.

The analysis showed, for example, that hospitals with NPIs are paid substantially more than Medicare fees—25.6% more! Yet CMS officials are effectively excluding almost all hospital laboratories from reporting price data.

Do Labs have Strong Case?

A careful study of the comments, concerns, and objections to the PAMA market price reporting rule that lab industry leaders and experts made at CMS public hearings and in various news stories indicates that the lab industry may have a strong case against CMS.

Use of a lawsuit in a federal court against HHS on a lab-related issue has a precedent. In 2008, several plaintiff labs sued HHS in federal court in San Diego. The labs challenged the manner in which the federal agency was implementing a federal law authorizing a competitive bidding demonstration project for Part B clinical laboratory testing.

A federal judge ruled in favor of the plaintiff labs on several key points and issued a preliminary injunction to stop the bidding demonstration project. HSS chose not to appeal the judge’s decision and didn’t proceed with the project. (See TDR, March 3, March 24, and April 14, 2008.)

New Congress and president

Facing CMS’ estimate that it will cut $5.4 billion from lab testing fees—an amount that is more than double what the PAMA law was scored to save at the time Congress passed it—and using a method that multiple lab experts say does not fulfill the language of the PAMA statute, it would seem to be a smart move to use the federal courts to slow or stop this program, at least until the new Congress and administration reviews the concerns of the clinical laboratory industry.


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