On December 11, 2017, the American Clinical Laboratory Association (ACLA) filed suit on behalf of its membership against the Secretary of HHS, challenging the Secretary’s implementation of the Protecting Access to Medicare Act of 2014 (PAMA). In PAMA, Congress required the Secretary to collect private payor reimbursement rate information from “applicable laboratories,” which the Secretary would then use to establish new Medicare reimbursement rates for clinical laboratory services. Under the final rule, however, the Secretary does not collect information from the vast majority of laboratories, including virtually every hospital outreach laboratory. ACLA is seeking declaratory and injunctive relief, requiring the Secretary to comply with the terms of PAMA and setting aside the Secretary’s final rule exempting thousands of laboratories from reporting private payor data. In October, 23 organizations, including the American Hospital Association, the American Medical Association and ACLA, requested that CMS suspend full implementation of the final rule, citing significant concerns with the Secretary’s data collection process. ACLA is represented by King & Spalding in this matter.
Congress defined “applicable laboratory” to be any “laboratory” that received a majority of its Medicare revenues from the Physician Fee Schedule or Clinical Laboratory Fee Schedule, with certain exceptions for laboratories with low service volume. According to ACLA’s challenge, the Secretary disregarded the statute’s express language and adopted a different definition of “applicable laboratory,” limiting the reporting requirement to those laboratories that have their own National Provider Identifier (NPI) before applying the majority of Medicare revenues test. The new NPI requirement, which does not appear in the statute, effectively carves out hospital outreach laboratories from reporting private payor data. Hospital outreach laboratories provide services to non-hospital patients, often referred for testing from local physicians, and are typically paid on the Clinical Laboratory Fee Schedule.
The ACLA complaint asserts that excluding hospital outreach laboratories from the statutory reporting obligations is significant. First, approximately 7,000 hospital laboratories obtain payment under the Clinical Laboratory Fee Schedule, receiving approximately 26 percent of all such Medicare payments. Nonetheless, only 21 hospital laboratories reported private payor data under the Secretary’s definition of “applicable laboratory” — less than 1 percent of the reported laboratory test volume. Second, excluding hospital laboratories from having to report private payor data omits the entities with the highest private payor rates, estimated to be approximately 160 percent of current Medicare rates. By comparison, large, independent laboratories, which reported the vast majority of data used by the Secretary to set new payment rates, typically have lower cost structures and thus often have lower private payor rates, well-below Medicare payment rates. The result is a significant reduction in payments under the Clinical Laboratory Fee Schedule: $670 million less in payments in 2018, which is more than six times what the Congressional Budget Office estimated when PAMA was enacted.
As explained in the declarations accompanying the complaint, the exclusion of hospital outreach laboratories from the private-payor data reporting requirements, and the associated decrease in Clinical Laboratory Fee Schedule rates effective January 1, will force many laboratories to scale back services or go out of business altogether. This may leave Medicare beneficiaries without access to crucial diagnostic care, particularly in rural areas or specialized settings like nursing homes.
The case is American Clinical Laboratory Association v. Hargan, No. 1:17-cv-2645 in the United States District Court for the District of Columbia. The complaint is available here.
