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American Clinical Laboratory Association v. Azar

United States Court of Appeals, District of Columbia Circuit

July 30, 2019

American Clinical Laboratory Association, Appellant
Alex Michael Azar, II, In His Official Capacity as Secretary of Health and Human Services, Appellee

          Argued April 23, 2019

          Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-02645)

          Ashley C. Parrish argued the cause for appellant. With him on the briefs were Mark D. Polston, Elizabeth N. Swayne, and Amelia G. Yowell.

          R. Scott Caulkins and Jeffrey J. Sherrin were on the brief for amicus curiae American Association of Bioanalysts in support of plaintiffs-appellant.

          David McAloon was on the brief for amici curiae The College of American Pathologists, et al. in support of appellant.

          Dennis Fan, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Abby C.

          Wright, Attorney, Robert P. Charrow, General Counsel, U.S. Department of Health & Human Services, Janice L. Hoffman, Associate General Counsel, Susan Maxson Lyons, Deputy Associate General Counsel, and Debra M. Laboschin, Attorney. Alisa B. Klein, Attorney U.S. Department of Justice, entered an appearance.

          Before: Griffith, Millett and Pillard, Circuit Judges.



         The Protecting Access to Medicare Act (PAMA, or the Act) seeks to align Medicare reimbursement rates for laboratory tests with rates paid for such tests in the private market. To enable the Secretary of Health and Human Services (HHS) to ascertain the private market's reimbursement rates, PAMA requires "applicable laboratories" to report private payor data to the Secretary that the Medicare program then uses to set new, presumably lower, Medicare reimbursement rates. The Secretary must implement the statute's definition of "applicable laboratory" before it can be used to collect the requisite data. In 2016, the Secretary issued a final rule doing so, and plaintiff American Clinical Laboratory Association (ACLA) filed suit claiming the rule unlawfully excluded most hospital laboratories from the Act's reporting requirements.

         Based on PAMA's prohibition of judicial review of "the establishment of payment amounts," the district court dismissed ACLA's complaint for lack of subject matter jurisdiction. We conclude that the statutory provision stripping jurisdiction to review payment amounts does not cover the statute's data-collection provision. We also reject ACLA's claim that the Secretary's rule was ultra vires. We thus reverse and remand to the district court to consider in the first instance whether the rule comports with the APA.

         I. Background

         The federal Medicare program, which pays for healthcare for elderly and disabled individuals, see 42 U.S.C. § 1395 et seq., is the nation's largest purchaser of clinical laboratory services. In 2013, the HHS Office of Inspector General concluded that Medicare was paying 18 to 30 percent more than private insurance companies for a range of common laboratory tests. Congress responded by enacting the Protecting Access to Medicare Act, Pub. L. No. 113-93, 128 Stat. 1040 (2014). A central goal of the Act is to set Medicare reimbursement rates for laboratory tests at approximately the price private insurers pay for the same tests. See 42 U.S.C. § 1395m-1(b)(1)(A).

         To inform the Secretary's rate setting, the statute requires "applicable laborator[ies]" within the private sector to report "private payor" data-both the price and volume of laboratory tests-to HHS every three years. Id. § 1395m-1(a). The statute defines the term "private payor" as a "health insurance issuer and a group health plan," a "Medicare Advantage plan," or a "medicaid managed care organization." Id. § 1395m-1(a)(8). It calls on the Secretary to establish parameters for data collection through notice and comment rulemaking. Id. § 1395m-1(a)(12). Applicable laboratories that fail to report accurate data face monetary penalties of up to $10, 000 per day. Id. § 1395m-1(a)(9).

         In separate provisions, the statute explains how the Secretary is to use private payor data on each laboratory test already available in the market to calculate a "weighted median" rate, which becomes Medicare's reimbursement rate for that test. Id. § 1395m-1(b). For new tests that do not have private payor data, the Secretary is to use a "gapfilling process" and consult with an expert advisory panel to establish the new test's Medicare payment rate. Id. §§ 1395m-1(c)-(d), (f). Because the market-approximating Medicare rates are likely to be lower than existing Medicare rates, the statute allows for a multi-year "[p]hase-in" process to transition to the market-based rates. Id. § 1395m-1(b)(3). Finally, the statute declares that "[t]here shall be no administrative or judicial review . . . of the establishment of payment amounts under this section," id. § 1395m-1(h)(1), thereby barring otherwise available review by the Departmental Appeals Board and Provider Reimbursement Board as well as the federal courts.

         This appeal is about whether the Secretary's implementation of PAMA's definition of "applicable laboratories" is subject to review in response to a claim that it unlawfully excludes hospital laboratories-which tend to charge higher prices than standalone laboratories-from the dataset used to determine new Medicare rates. See Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System, 81 Fed. Reg. 41, 036 (June 23, 2016). Laboratory tests are available to the public through three main types of laboratories: physician-office laboratories (which in 2015 comprised 17 percent of all labs), independent laboratories (50 percent of all labs), and hospital laboratories (33 percent of all labs). The statute does not expressly discuss those distinct types of institutional settings, instead generally defining an applicable laboratory as "a laboratory that, with respect to its revenues under this subchapter, a majority of such revenues are from this section, section 1395l(h) of this title, or section 1395w-4 of this title." 42 U.S.C. ยง 1395m-1(a)(2). In plain terms, that definition refers to a laboratory that receives most of its overall Medicare funding from the Physician Fee Schedule (PFS) or ...

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