PAMA: ACLA Loses Court Lab Fees Battle But May Still Win Regulatory War

It was a long shot to begin with. But that doesn’t ease the disappointment of what happened in a Washington, DC courtroom when a federal judge tossed a lab industry lawsuit challenging the legality of CMS’s new “market-based” PAMA Part B fee schedule for lab tests. Here’s a rundown of the latest developments and why the new court ruling is not the end of hope for PAMA relief.

The Case against PAMA Lab Fees
When PAMA was adopted in 2014, the lab industry actually embraced it and the idea of basing Medicare payments for lab tests on competitive rates paid in the private market. The problem—and the thrust of the case brought by the American Clinical Laboratory Association (ACLA) on industry’s behalf—is that the CMS formula for implementing market prices is unfaithful to the intent and spirit of the PAMA legislation.

Specifically, PAMA directed HHS (via CMS) to gather private market payment data from a broad spectrum of labs participating in Medicare and use that data to set reimbursement rates. The problem is that CMS ended up collecting data from a miniscule percentage of the market and completely excluded higher-charging hospital labs. The result was an artificial and unfair downward skewing of prices. In the lawsuit, ACLA argued that CMS’s refusal to count hospital labs in the definition of “applicable laboratories” required to report pricing data was an “unreasonable interpretation” of PAMA and “abuse of discretion” resulting in an “arbitrary and capricious” pricing formula.

A Painful Ruling
As any administrative attorney can tell you, the chances of getting a court to strike down regulations for violating the statute they’re designed to implement are pretty tenuous. So, the fact that the ACLA’s case, aka, ACLA v. Azar, didn’t survive motion to dismiss isn’t all that surprising.

What really sticks in the craw is that the judge acknowledged that the ACLA’s claims that CMS mangled PAMA seemed to have merit. Her decision to dismiss was based not on the substance but a legal technicality, i.e., the court’s supposed lack of jurisdiction or legal authority to rule on HHS’ rate-making authority specifically stated in PAMA. We’re not asking you to review rate-making but how the agency collected its rate setting data, ACLA argued. But the court didn’t buy it.

The Court Case May Be Lost…
Continued legal options are few and not likely to lead to better outcomes. One option, filing a new complaint to correct the defect stated in the complaint, isn’t available in this particular case, notes Seattle health attorney David Gee.

ACLA can try the appeals court. But Gee’s Davis Wright Tremaine LLP partner Jordan Keville thinks the chances of winning on appeal are slim. Even if the ACLA defied the odds and won, an appeal could still take at least a year. And winning on appeal wouldn’t decide the outcome on the merits—it would just send the case back to the district court with the instruction that ACLA can bring the lawsuit, Keville explains.

… But the Legislative/Regulatory Battle Continues
More realistic hopes for PAMA relief come from the legislative or regulatory front, which ACLA is also pursuing, notes Gee. In July, proposed rulemaking to change the formula/calculations of the rates was issued. There was also a request for comments on new approaches to collecting data. One approach would include more hospital labs in data gathering increasing rates. The ACLA, he notes, is in favor of using this approach, although hospital associations voiced opposition.

Keville thinks the ACLA may appeal the court case not so much in the expectation of winning the litigation but to strengthen its leverage in the regulatory battle. Winning in the district court may make HHS less willing to accept regulatory changes; but if an appeal, it might be more inclined to compromise, according to Gee.

Takeaway: Although it’s a setback, the failure of the ACLA court challenge against PAMA pricing is just one prong of a wider strategy that might just provide real relief in the form of revisions to CMS regulations and even new legislation.