Explaining the Legal News: Why ACLA Court Win Boosts Chances of PAMA Pricing Relief

By now, you’ve no doubt heard the news that the American Clinical Laboratory Association (ACLA) “won” its lawsuit against CMS over PAMA lab pricing. Only it’s not as simple as that. The favorable US Court of Appeals for the District of Columbia Circuit ruling in late July is anything but final victory in the legal war against PAMA. Paradoxically, though, it may lead to final victory on other fronts. Here’s a rundown of what’s going on so you know what’s happening and can explain it to your lab execs.

What the Lab Industry Is So Ticked Off About

The idea of the PAMA statute is to base Part B lab test prices on market rates. Industry opposition and the ACLA lawsuit isn’t about the concept of market pricing—on the contrary, it was a concept the industry embraced—but with how CMS took the good idea and distorted it beyond recognition in its implementation, specifically its decision to exempt virtually all hospital labs from the data-reporting requirements. As a result, the pricing data CMS collected was skewed and didn’t accurately represent the private market the way Congress intended when it passed the legislation.

Litigation is a strategy of last resort. For years, industry tried to negotiate a solution and expand data-reporting to hospital labs but CMS stuck to its guns and the controversial new PAMA Clinical Laboratory Fee Schedule rates took effect in 2018. Frustrated by the lack of progress on the regulatory front, the industry led by the ACLA, escalated things by taking CMS to court. The essence of ACLA’s legal claim is that CMS abused its power by rewriting rather than implementing PAMA.

CMS Wins Round One

In September 2018, it looked like the litigation strategy would fail when U.S. District Judge Amy Berman Jackson dismissed the lawsuit. While acknowledging that ACLA’s “arguments on the merits raise important questions,” she reasoned that the court didn’t have jurisdiction over, i.e., legal authority to rule on, how a federal agency like CMS engaged in PAMA rate-setting.

ACLA Wins Round Two

Despite the setback, the ACLA decided to maintain the pressure by filing an appeal. We’re not challenging the rate-setting itself, the ACLA argued, but the implementation of the rate setting. The agency’s “egregious violation of the statutory requirements should not be shielded from judicial review,” noted the ACLA appeal. And it worked. The Court of Appeals agreed that there’s a difference between the federal agency’s establishing test payment amounts and establishing the process for collecting pricing data. The former isn’t subject to judicial review but the latter is. Result: The ACLA could proceed with its suit.

What It All Means

Although it’s a victory, the Court of Appeals ruling isn’t final victory. It just means that ACLA can take its case to court and raise those “important questions” the lower court avoided answering. Victory on the merits may take years, if it happens at all.

But that’s not the point—at least not the whole point. All along, the industry strategy in opposing the CMS PAMA pricing scheme has been to engage the agency on multiple fronts—in court, in Congress and in behind the scenes negotiations. Success on the litigation front increases the industry’s credibility in Congress and leverage in negotiations. In fact, those efforts were already starting to bear fruit before the new Court of Appeal ruling came down, including:

• CMS’ agreement to include certain hospital outreach labs in data-reporting for 2019 (see, Lab Compliance Advisor, (LCA), Jan. 21, 2019); and
• The introduction of a new Congressional bill to delay the reporting of lab payment data required by PAMA by one year.

Takeaway: After years of frustration, it appears that the balance may be tipping and that industry is winning the battle with CMS over PAMA pricing. Chances are that real relief will come in the form of new legislation or, more realistically, revised regulations long before the court battle is renewed.