CEO SUMMARY: Last Tuesday, a federal judge handed a big court victory to the three plaintiffs in their lawsuit seeking to delay or stop implementation of the Medicare Laboratory Competitive Bidding Demonstration pilot in the San Diego area. In his written opinion, the judge ruled in favor of the plaintiffs on three key points and issued a preliminary injunction. It is now up to federal attorneys to respond to the judge’s decision.
IT WAS BIG NEWS LAST TUESDAY when a federal judge issued a preliminary injunction that effectively stops the Medicare Competitive Bidding Demonstration from proceeding in the San Diego-Carlsbad-San Marcos metropolitan statistical area (MSA). Now comes the question: what does this decision mean for the laboratory industry?
The injunction ordered by U.S. District Court Judge Thomas J. Whelan of the Southern District of California on April 8 enjoins the federal Centers for Medicare & Medicaid Services (CMS) from:
1. Announcing winners in the Medicare Clinical Laboratory Services Competitive Bidding Demonstration Project for the San Diego-Carlsbad-San Marcos Metropolitan Area;
2. Otherwise implementing and carrying out the Medicare Clinical Laboratory Services Competitive Bidding Demonstration Project for the San Diego-Carlsbad-San Marcos Metropolitan Area; and,
3. Further disclosing any information included in the bid applications submitted in connection with the Medicare Clinical Laboratory Services Competitive Bidding Demonstration Project for the San Diego-Carlsbad- San Marcos Metropolitan Area.
“The judge agreed on a lot of points we made in this case,” commented attorney Patric Hooper of Hooper Lundy & Bookman in Los Angeles. Hooper represents the three San Diego laboratory organizations that sued CMS: Sharp Healthcare, Scripps Health, and Internist Laboratory.
“The single most important element is that the judge decided there was no per se exception for Medicare demonstration projects from the rule-making requirements of the Administrative Procedure Act (APA) of 1946,” Hooper explained. “That is significant, and not just for the laboratory industry. The judge’s decision may have major implications. That’s because, at an earlier phase in this case, the U.S. attorney argued in court that CMS has developed many demonstration projects and never goes through rule making. At that time, the judge didn’t say a word in response to the U.S. attorney’s statements.
“Clearly, CMS got themselves into a fix on this issue,” Hooper added. “We believe that, if we are successful on this issue of rule-making, it could create a precedent because there should be rule-making as prescribed under the APA.” The APA describes how federal agencies propose and establish regulations and establishes a process for federal courts to review agency decisions.
“For example, accept this precedent and it means that CMS must now follow APA rules,” he said. “In the case of the laboratory competitive bidding demonstration project, CMS would now be required to inform the public in the San Diego MSA and hold hearings there as well.
“That’s how it should be,” he went on, “since, if Medicare officials want to experiment on Medicare beneficiaries, the entire process should be opened up so that doctors, Medicare beneficiaries, and other members of the public can have input. That’s the rule-making process. CMS decided it wasn’t going to do so, but the judge said he didn’t see any reason why CMS shouldn’t follow the rules.”
It is likely that federal attorneys are reviewing the judge’s decision. “This is a preliminary injunction, which means the government can abide by the ruling and go through rule-making,” Hooper commented. “Or, CMS could abide by it but file an appeal with the Ninth Circuit Court of Appeals in San Francisco.
“A preliminary injunction can be appealed immediately. But, unless the government seeks a stay order, the appeal would have no effect on Whelan’s decision, and an appeal could take months to resolve,” he added. “Practically speaking, it will take them a while to analyze the decision. If they decide to appeal to the Ninth Circuit Court, they will need the approval of the U.S. Solicitor General.
“Among the hurdles the government faces is that Whelan is not some wild-eyed judge,” Hooper said. “He’s a conservative federal judge, who issued a decision that might be very difficult to overturn on appeal.”
Alan Mertz, President of the American Clinical Laboratory Association (ACLA) agreed that CMS has significant hurdles to overcome. “We’re quite pleased about this decision,” he stated. “Judge Whelan truly understood the issues and the possibility of the harm that the demonstration project could cause to labs and to Medicare patients. If CMS must now go back and follow all the rule-making procedures, it will be a complex process that takes time.
Legislative Solution Eyed
Commenting on the court decision during a meeting at ACLA’s offices last Wednesday, Marc D. Grodman M.D., President of Bio-Reference Laboratories, Inc., of Elmwood Park, New Jersey, and incoming Chairman of ACLA, said, “Right now, the government can do nothing and wait for a hearing on a permanent injunction or they could decide to appeal this decision. In all likelihood they will not appeal and there will be hearings and discovery on whether to make this a permanent injunction. All of that could take months. The point is that this issue will require a legislative solution and this court decision is an absolute endorsement of the position that the entire industry has been talking about for months, that repeal is necessary.
“Quite frankly when we have discussed this issue with members of Congress, we found support in favor of the industry position among congressional members and we found no support in favor of the laboratory demonstration project,” Grodman continued. “This court decision is simply an endorsement of what everyone has been saying, and it will likely lead to strengthening our support to get a permanent solution.”
As CMS moved to implement the demonstration project, THE DARK REPORT has been critical of the procedures CMS followed. In a special issue devoted to the Medicare Laboratory Competitive Bidding Demonstration Project, THE DARK REPORT explained in detail many of the steps CMS failed to follow. (See TDR, December 31, 2007.)
Now several of those same procedural issues are at the heart of the court’s decision, raising previous questions about whether CMS will go be able to go forward with this project in the coming months.
San Diego Judge’s Ruling May Help Repeal of Law
ANOTHER BENEFIT TO THE DECISION in the San Diego Medicare laboratory competitive bidding case is that it gives us breathing room to get Congress to put a stake through the heart of the laboratory competitive bidding demonstration project,” declared Alan Mertz, President of the American Clinical Laboratory Association (ACLA) in Washington, DC. “In fact, the judge’s decision bolsters our arguments, and legislation to repeal the project is gaining steam in Congress.”
Legislation introduced in the U.S. House of Representatives (HR 3453) has 40 bipartisan co-sponsors. A similar Senate bill (S.2099) has eight bipartisan co-sponsors.
“The judge was crystal clear in finding that both laboratories and patients could be hurt,” Mertz added. “ACLA applauds the court for recognizing the harm this project will cause and for highlighting the fatal flaws in this project. Now it is time for Congress to finish the job and repeal this ill-conceived project.
“Senator Max Baucus (D-MT) has said he intends to move a Medicare package to the floor of the U.S. Senate early next month,” Mertz continued. “We are urging Congress to include our legislation to eliminate the demonstration project in that Medicare package.”
Federal Attorneys Had Tough Week on Lab Cases
LAWYERS FOR THE federal Centers for Medicare & Medicaid Services (CMS) had a tough time in the past few weeks in cases involving laboratory testing services.
First, on March 31, U.S. District Judge Rosemary M. Collyer granted a temporary injunction stopping CMS from implementing the anti-markup regulation that affected only anatomic pathology condo/pod labs. That was a legal victory for UroPath, Inc. and its affiliates, in the lawsuit they had filed in federal district court in Washington, DC. (See pages 8-9.)
Next, CMS lost an important decision on Friday, April 4, when U.S. District Judge Thomas J. Whelan agreed to hear arguments from three San Diego laboratories in their case against CMS. That ruling meant that Whelan would hear arguments from the labs for a preliminary injunction against CMS for implementing the Medicare Laboratory Competitive Bidding Demonstration Project in the San Diego-Carlsbad-San Marcos metropolitan statistical area (MSA).
Then, on April 9, Whelan issued the most significant decision in that case so far when he basically agreed with the arguments of attorney Patric Hooper of Hooper Lundy & Bookman in Los Angeles and issued the preliminary injunction. Hooper represents the three San Diego labs that sued CMS: Sharp Healthcare, Scripps Health, and Internist Laboratory.