NEW YORK – The American Clinical Laboratory Association may not win the battle, but it still could win the war.
Last year the American Clinical Laboratory Association (ACLA) won a victory in its ongoing lawsuit against the US Department of Health and Human Services over the department's implementation of the Protecting Access to Medicare Act (PAMA) when the US Court of Appeals for the District of Columbia overturned a lower court decision dismissing the lab association's suit.
Winning the suit itself, however, remains an uphill battle, attorneys familiar with the case suggested, noting that federal agencies are generally given wide latitude around interpretation and implementation of laws.
They added, though, that the decision by the court of appeals to allow the suit to move forward sent a message to legislators that there have been issues with PAMA's implementation, and that this could help put pressure on Congress to make a legislative fix. Further, they suggested that the passage last month of the Laboratory Access for Beneficiaries (LAB) Act, which will delay by one year the reporting of lab payment data required by PAMA, indicates that this message has, to an extent, already been received.
Passed in 2014 and implemented in 2018, PAMA calls for the Centers for Medicare and Medicaid Services to set prices for lab tests based on private payor rates that it collected using payment data from clinical labs nationwide. At the heart of ACLA's complaint is the method HHS used to determine what labs were required to report pricing data under PAMA.
According to the organization, the agency's definition of an applicable laboratory excluded the vast majority of hospital outreach labs, which typically have some of the industry's higher reimbursement rates. This, ACLA argued, caused payment data from large reference labs like Quest Diagnostics and Laboratory Corporation of America to dominate the rate setting process, and because such labs typically receive lower reimbursement than many hospital and small independent labs, this skewed prices lower than they otherwise would have been.
ACLA filed a suit against HHS in 2017. US District Court Judge Amy Berman Jackson dismissed the case due to a "lack of subject matter jurisdiction." That decision was overturned last year and in October ACLA moved for summary judgment against HHS in the US District Court for the District of Columbia.
In November, HHS opposed ACLA's request for summary judgment and filed its own motion for summary judgment, arguing that the organization lacked standing and had not yet exhausted the available administrative remedies. The court, the agency added, should defer to the agency's definition of an applicable laboratory, a term that it said "was not defined in the statute and was ambiguous."
ACLA replied in opposition to HHS's motion for summary judgment in December, and HHS is schedule to reply in support of its motion by January 24, 2020.
"Litigating against a government agency is always an uphill battle because the legal standard favors the agency," said Karen Lovitch, leader of health law practice at law firm Mintz, noting that this made it somewhat surprising that ACLA won its appeal of the case's initial dismissal.
With regard to whether ACLA's argument that HHS improperly defined what labs were required to report under PAMA, Lovitch said that "there is a presumption in favor of agency decision-making. ACLA would have to demonstrate that what was done here was 'arbitrary and capricious,' that's essentially the legal standard. And that is a high bar."
That said, Lovitch added that she believed ACLA's arguments that HHS' definition of an applicable laboratory goes against Congress' intent when it drafted PAMA are strong.
Another attorney familiar with the case who requested anonymity due to relationships with interested parties agreed with Lovitch that ACLA's argument that HHS' implementation went against Congress' intent was solid.
He said that he was involved in initial discussions with Congress around drafting PAMA "and we definitely were not looking to have the largest reference labs basically set the rates for everything.
"Even the largest reference labs were not thinking that," he said.
Nonetheless, he said that while it was encouraging from ACLA's point of view that the case had been allowed to proceed, winning remained a heavy lift. The federal government is generally given substantial discretion in applying a statute, and unless it has done something that clearly goes against the statute or its rulemaking was incorrect, courts have often sided with the government
"And here [HHS] did go through rulemaking and there are areas where the statute didn't spell things out," he said.
Secondly, this lawyer noted, "even if they are successful, what is the remedy going to be?"
HHS has revised the applicable lab qualifications to include a larger proportion of hospital outreach labs, so even if the court found that the initial regulation was "arbitrary and capricious," it may decide HHS has remedied it. .
"I don't have a strong sense that the government will lose here even though they lost in the first round," he said. "It's not a slam dunk by any means."
ACLA has tried to use the fact that HHS changed the applicable lab qualifications to its advantage, arguing in its motion for summary judgment that HHS has "effectively acknowledged the problems with its final rule, adopting a new rule in 2018 that requires hospital laboratories to report data," an argument that Lovitch said could carry weight with the court.
While the changed HHS qualifications do require more hospital outreach labs to report pricing data, it is unclear that many of them will actually do so. The American Hospital Association has opposed CMS' move to require hospital labs to collect and report private payor data under PAMA, and many hospitals appear to feel that the burden of reporting this data outweighs whatever boost in pricing reporting might provide.
CMS' ability to fine non-reporting labs could prove an effective inducement. Under PAMA, the agency can fine labs as much as $10,000 per day for failing to report required information. However, the agency has not enforced those fines to date and has shown little indication that it plans to in this reporting round.
Asked whether a court might, as part of a remedy, rule that CMS must enforce these fines, Lovitch was dubious. "It seems unlikely to me that the court would instruct CMS to enforce the fines," she said, adding that she did not believe ACLA had sought such a remedy.
Lovitch added that even if ACLA is successful in its suit, HHS could appeal and make no additional changes to PAMA while that appeal plays out.
"I suspect CMS will exhaust all opportunities to appeal, absent a settlement," she said.
Both lawyers suggested that ACLA was perhaps more likely to achieve its aims through legislative, not legal, means, though Lovitch noted that the lawsuit could help by drawing attention to the issue and putting pressure on Congress to act.
"I think it's a strong appeal to Congress," Lovitch said. "They can say to Congress, you passed PAMA; this is what we believe based on our view of the legislative history that you intended. It's clear to us that the regulations [HHS] has put into place are not consistent with the legislative history, and you should be concerned about that."