Oral arguments in ACLA v. Azar appeal set for April 23

Dive Brief:

HHS filed its response to the American Clinical Laboratory Association's appeal of its lawsuit. The lab trade group has argued the department improperly implemented the Protecting Access to Medicare Act, resulting in market data not being collected from the majority of hospital labs and putting at risk the business of the industry.
Last September, U.S. District Judge Amy Berman Jackson dismissed the lab group' case on the grounds that Congress precluded judicial review of the type of case, but noted ACLA's arguments "raise important questions."
In its appellee brief, HHS disagreed, pointing to Florida Health Sciences Center, Inc. v. Secretary of HHS where a district court found judicial review "is unavailable where the challenged agency action is inextricably intertwined with unreviewable agency action." The department argues the collection of data is "without a doubt inextricably intertwined with the ultimate payment rates."

Dive Insight:

Oral arguments for the appeal are scheduled to take place April 23, according to the Feb. 25 court filing.

"In short, plaintiff seeks higher payment amounts through an attack on the Secretary’s definition of ‘applicable laboratory.’ However framed, that challenge to the payment amounts is barred by the plain text of the statute," HHS lawyers wrote in the government’s brief.

The U.S. clinical lab market totaled $78.34 billion in 2018, 2.1% of total healthcare costs, according to Divyaa Ravishankar, industry principal at Frost & Sullivan. He said PAMA-based pricing has hampered community labs in the U.S., resulting in large clinical lab companies like Quest Diagnostics and LabCorp moving to consolidate the industry.

"Hospital laboratory testing contribute to the bulk of the revenues," Ravishankar said in webinar Tuesday. "PAMA is expected to offset pricing of tests, leaving no profits for rural and nursing home laboratories."

Quest CEO Steve Rusckowski said the 10% expected reduction in Medicare reimbursement rates in 2019 will continue to drive M&A for the company.

"The impact of these cuts will be more significant on smaller independent hospital outreach laboratories which we believe could eliminate the majority of their profit, and will provide a catalyst for market consolidation," Rusckowski said on the company’s Feb. 14 fourth quarter earnings call.

Threats to smaller labs as more reimbursement cuts take hold is the reason ACLA asserts there is greater urgency for the court to take action. ACLA President Julie Khani argues HHS’ data collection resulted in reimbursement rates by Medicare that do not reflect the private market as Congress intended, putting seniors at risk.

"We believe we still have strong standing and arguments moving forward and the impact on labs will only continue to increase in 2019 with another round of cuts underway," an ACLA spokesperson told MedTech Dive.