On July 15, 2022, the D.C. Circuit issued a decision in favor of the American Clinical Laboratory Association (ACLA) in American Clinical Laboratory Association v. Becerra. The decision is the latest chapter in long-pending litigation brought by ACLA challenging CMS’s 2016 Final Rule implementing Section 216 of the Protecting Access to Medicare Act of 2014 (PAMA). Although Congress directed CMS in Section 216 to set reimbursement rates based on pricing data collected from “applicable laborator[ies],” the 2016 Final Rule excluded hospital outreach laboratories from the data collection—resulting in artificially low reimbursement rates for laboratories. The Court’s decision rejects the government’s arguments seeking to avoid judicial review and, holding in favor of ACLA, concludes that CMS’s 2016 Final Rule is arbitrary and capricious because the agency “failed to consider an important aspect of the problem.”
Under Section 216 of PAMA, Congress required the Secretary of HHS to collect private payor reimbursement rate information from “applicable laboratories,” and directed the Secretary to use that data to establish new Medicare reimbursement rates for clinical laboratory services. In implementing Section 216, the Secretary limited the reporting requirement to only those laboratories that have their own National Provider Identifier, effectively carving out hospital outreach laboratories from reporting private payor data. Because hospital outreach laboratories generally have higher commercial payment rates than independent laboratories, ACLA argued that the Secretary’s exclusion of hospital outreach laboratory data was unlawful under PAMA and resulted in invalidly low reimbursement rates.
The ACLA’s challenge endured several procedural battles. The district court judge initially dismissed the case under 42 U.S.C. § 1395m-1(h)(1), which precludes judicial review of the payment amounts established by the Secretary. ACLA successfully reversed that decision on appeal to the D.C. Circuit, convincing the appellate court that Congress did not intend to bar judicial review of the Secretary’s data collection procedures. On remand, the district court judge dismissed the case a second time, this time concluding that the case was moot because the Secretary had promulgated a new rule — the 2018 Final Rule — that did not carve out hospital laboratories from the data collection requirements.
On appeal, the D.C. Circuit again reversed the district court and ruled in ACLA’s favor. Contrary to the district court’s conclusions, the government’s intent to replace the 2016 rule with the 2018 rule did not moot the case. The D.C. Circuit also rejected other jurisdictional arguments raised by the government, agreeing with ACLA that it had standing to challenge the final rule and had properly exhausted its administrative remedies. On the merits, the D.C. Circuit held that the 2016 Final Rule is arbitrary and capricious because HHS failed to reasonably explain its decision to use National Provider Identifiers to identify laboratory revenue, which exempted a sizable portion of the laboratories covered by the statute from the data reporting requirements. The Court recognized that that only 21 hospital laboratories—out of a total of 1,942 reporting laboratories—reported their data, even though hospital laboratories accounted for nearly a quarter of Medicare payments made under the Clinical Laboratory Fee Schedule. Moreover, those 21 hospitals represented only one percent of all reporting entities and less than one half of one percent of all hospital labs paid under Medicare Part B for laboratory services in 2015. Accordingly, the D.C. Circuit reversed the judgment of the district court and remanded the case for further proceedings consistent with its opinion, including an instruction to enter a declaratory judgment in ACLA’s favor.
The D.C. Circuit’s decision in American Clinical Laboratory Association. v. Becerra is available here.
