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September 26, 2018

Judge dismisses lab group's suit over Medicare payment cuts

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    A federal judge on Friday dismissed a lawsuit challenging CMS' method for calculating Medicare reimbursements for most clinical lab tests.

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    Background: CMS reduces Medicare payments for clinical lab tests, and lab group files suit

    CMS in November 2017 released the final clinical lab fee schedule for 2018, under which the agency reduced Medicare payments to clinical labs by an estimated $670 million.

    The final fee schedule included cuts to Medicare lab payments that were called for under the Protecting Access to Medicare Act (PAMA). Under the fee schedule for 2018, Medicare payment rates for 23 of the top 25 lab services as measured by spending declined by 10% when compared with 2017 payment rates.

    Major lab groups contested the process CMS used for setting the payment rates. Under PAMA, CMS was required to establish lab pricing and payments "based on the weighted median of private payor rates." However, lab groups said CMS excluded a majority of hospital labs when analyzing private payor rates. The American Clinical Laboratory Association (ACLA) and 21 additional groups—including the American Medical Association and the American Hospital Association—in a letter sent to CMS Administrator Seema Verma in October 2017 wrote that CMS' process for establishing the payment rates "would not stand up to statistical validity review."

    In addition, ACLA in December 2017 filed a lawsuit challenging CMS' process for calculating 2018 Medicare reimbursements for most clinical lab tests. In the suit, which ACLA filed in the U.S. District Court for the District of Columbia, ACLA claimed CMS did not comply with PAMA and ignored Congress' intent in the law by implementing a "highly flawed" reimbursement system for clinical lab tests for 2018.

    Specifically, ACLA in the lawsuit argued that CMS failed to require that "all applicable laboratories" report market information on private payor rates, and instead, "arbitrarily" exempted 99.3% of the laboratory market from the statutory reporting requirements. ACLA claimed CMS collected the majority of the data from the two largest laboratory owners in the United States.

    ACLA in the suit argued that "because the information reported to [CMS] does not reflect the market as a whole and does not comply with Congress' directives, any Medicare [reimbursement] rates that [were] … set using the reported information … [do] not meet the standard that Congress intended."

    Judge dismisses suit

    U.S. District Judge Amy Berman Jackson dismissed the lawsuit because the court does not have the power to review the payment methodology, even though she acknowledged that she thought ACLA's arguments raised valid points. Berman in the ruling wrote, "While the court acknowledges that plaintiff's arguments on the merits raise important questions … Congress expressly precluded judicial review of issues such as these, and the court has no jurisdiction to hear the case."


    ACLA President Julie Khani in a statement said, "This is an extremely disappointing outcome for ACLA's members and the millions of seniors they serve—including the most vulnerable Medicare beneficiaries—who rely on clinical laboratory tests for their most basic health needs." She added, "While the District Court's opinion acknowledges that ACLA's 'arguments on the merits raise important questions,' the District Court refused to consider those arguments, because it erroneously concluded that Congress had stripped it of jurisdiction to do so. The Court's decision that it is powerless to require HHS to comply with the statutory requirements sets a harmful precedent that allows agencies to circumvent Congress' express directions at the expense of patient care."

    According to Modern Healthcare, ACLA and its members are considering appealing Berman's ruling.

    A CMS spokesperson said federal officials are reviewing the decision and "have no further comment at this time," Becker's Hospital Review reports (Dickson, Modern Healthcare, 9/24; Porter, HealthLeaders Media, 9/24; Gooch, Becker's Hospital Review, 9/24; Raymond, Reuters, 9/24).

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