American Clinical Laboratory v. Alex Azar, II
Opinion
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 *1199 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
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."
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.
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,
Applying the majority-payments test to hospital laboratories has proved more complicated than for independent laboratories and physician-office laboratories. Medicare reimburses laboratory services provided by hospital laboratories in a range of different ways, and it is not obvious which, if any, are relevant to PAMA. When hospital laboratories serve admitted inpatients and registered outpatients, Medicare does not use the PFS or CLFS, but pays for those services through distinct fee schedules that bundle the laboratory testing with other hospital services.
See
Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System,
However, some hospitals also provide "outreach services"-that is, laboratory services for people who are neither inpatients nor outpatients. Hospitals' outreach services may compete for such business with independent laboratories, and Medicare reimburses hospitals for those services under the PFS and CLFS. Considered as a freestanding entity, a hospital laboratory that offered outreach services could fit the statutory definition of an applicable laboratory if it received most of its Medicare revenue from the PFS and CLFS.
In October 2015, the Secretary proposed a rule to implement the data reporting provision of PAMA.
See
The practical effect of applying the majority-payments test to an entity defined by its TIN would be that essentially no hospital laboratory could qualify as an applicable laboratory.
See
Insofar as hospitals' Medicare revenue associated with those fee schedules is dwarfed by their other types of Medicare revenue, reliance on the TIN to define the relevant entity would exclude all hospital-based laboratories from the "applicable laboratories" reporting requirement at the threshold, without subjecting the laboratories as such to the majority-payments test. The Secretary anticipated that consequence, explaining: "[W]e believe the statute intends to limit reporting primarily to independent laboratories and physician offices ... and not to include other entities (such as hospitals, or other health care providers) that do not receive the majority of their revenues from PFS or CLFS services."
Many healthcare entities and other stakeholders opposed that part of the proposed rule, arguing that reading the statute's definition of applicable laboratory to generally exclude hospital laboratories violated PAMA.
See, e.g.
,
Commenters advocated identifying entities by their National Provider Identifier (NPI) numbers rather than their TIN. Healthcare providers use NPI numbers to bill Medicare. Because more hospital laboratories have NPI numbers distinct from those of their associated hospitals, they reasoned, identifying the relevant entity at the NPI level would mean hospital laboratories with their own NPI numbers would be evaluated for whether they, considered separately, meet the majority-payments test defining "applicable laboratories."
In the final rule issued in June 2016, the Secretary accepted that suggestion and defined applicable laboratories at the NPI level rather than the TIN level.
2
As it turns out, however, NPIs suffer from virtually the same flaw as TINs because "[v]ery few hospitals have laboratory-specific NPIs, and they generally submit claims under the hospital's NPI." J.A. 271 (letter from ACLA to Department of Health and Human Services Office of Inspector General). In 2016, approximately 2,000 out of 260,000 total laboratories nationwide (0.7 percent) reported data to the Secretary. Out of the approximately 7,000 hospital laboratories in the United States, only 21 (0.3 percent) reported data, comprising about one percent of all the reporting labs. Much of the data collected by the Secretary came from the country's two largest independent laboratories-Quest and Labcorp-which have lower cost structures than other laboratories.
See
J.A. 70-71 (Declaration from Senior Vice President of Quest Diagnostics). According to ACLA, that skewed the Medicare reimbursement rates low. The government, for its part, maintains that the data used to calculate the 2018 rates "was sufficient and resulted in accurate weighted medians of private payor rates."
See
Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions,
In 2018, the Secretary finalized another rule-not at issue here-that amended the implementation of "applicable laboratories" in an effort to include more hospital-based outreach laboratory services in the next set of data.
Plaintiff in this case, American Clinical Laboratory Association, is a trade association of laboratories. It submitted comments to the Secretary both before the 2015 proposed rule and before the 2016 final rule.
See
J.A. 82. ACLA brought suit in 2017 to challenge the 2016 rule's implementation of applicable laboratory as contrary to the statute and arbitrary and capricious in violation of the APA. The district court dismissed for want of jurisdiction.
Am. Clinical Lab. Ass'n v. Azar
,
II. Standing
Although the Secretary scarcely challenges standing on appeal, we have an independent obligation to assure ourselves that ACLA has standing to challenge the final rule.
Steel Co. v. Citizens for a Better Env't
,
First, ACLA has established injury in fact. By adopting an impermissible definition of "applicable laboratories" that excludes virtually all hospital laboratories, ACLA asserts that the rule harms its members in various ways. First, it disproportionately burdens independent laboratories with the cost of data-production obligations not borne by its hospital-based competitor laboratories. ACLA submitted a declaration from the Senior Vice President of Quest Diagnostics, an ACLA member, asserting that "laboratories that reported private payor information were significantly disadvantaged as compared to other laboratories that, while required to report under PAMA, were excused from that obligation by the Secretary." J.A. 73. Second, it artificially depresses the reimbursement rates by excluding data from a portion of the market that receives higher-than-average Medicare reimbursements for its laboratory services. An affidavit from the Chief Executive Officer of Joint Venture Hospital Laboratories, LLC, an ACLA member, attests that the "elimination of ... hospital[ ] laboratories from the reporting requirements skews the data" that is used to calculate the weighted median of commercial payor rates and ultimately set the Medicare reimbursement rate. J.A. 61. And, because "hospital laboratories typically receive higher commercial rates than other types of laboratories," the Medicare reimbursement rates are lower than they would be if the Secretary collected more data from hospital laboratories.
As for causation and redressability, ACLA has met its burden at this stage.
See
Lujan
,
The Secretary briefly protests that ACLA cannot claim lower repayment rates as an injury for standing purposes because the statute expressly prohibits challenging the rates.
See
Appellee's Br. 25-26. That argument conflates two issues. It is true that ACLA cannot challenge the rates themselves under the statute's jurisdiction-stripping provision.
See
42 U.S.C. § 1395m-1(h)(1). But that does mean the rates cannot be the source of ACLA's members' injury in a challenge to the data-collection rule. What matters is that ACLA's challenge (here, to the definition of applicable laboratory for purposes of data collection) is sufficiently linked to its asserted injury (lower reimbursement rates).
See
Sierra Club v. EPA
,
III. Jurisdiction Stripping
The primary question on appeal is whether PAMA's provision eliminating administrative and judicial review of the "establishment of payment amounts," 42 U.S.C. § 1395m-1(h)(1), bars our review of the rule the Secretary promulgated to implement the statute's data-collection provision,
We start with the text: "There shall be no administrative or judicial review under section 1395ff of this title, section 1395
oo
of this title, or otherwise, of the establishment of payment amounts under this section." 42 U.S.C. § 1395m-1(h)(1). The header of subsection (a) of the statute-the part that defines the parameters for data collection-cross-references payment rates in announcing that it deals with "[r]eporting of private sector payment rates for establishment of medicare payment
*1205
rates."
See
That conclusion is plausible, but the text does not compel it. Several features of the statute suggest that Congress meant to bar challenges to the "establishment of payment amounts" but not to prevent review of the rule delineating the data collection practices that precede and inform the setting of those amounts. The jurisdiction-stripping provision itself bars review "under section 1395ff of this title, section 1395
oo
of this title, or otherwise." 42 U.S.C. § 1395m-1(h)(1). The two cross-referenced sections cover administrative appeals by patients or providers who wish to contest a coverage determination or reimbursement amount.
See
42 U.S.C. §§ 1395
oo
, 1395ff. That suggests Congress intended to preclude review of the amounts of money paid in the ultimate reimbursement decisions. Additionally, subsection (a)'s reference to reporting private sector data
for
the establishment of payment amounts suggests that the two are not one and the same, but rather that collecting data from the private sector is a separate statutory duty preceding the establishment of Medicare payment rates.
See
42 U.S.C. § 1395m-1(a). Indeed, the final rule on data collection is not an "establishment of payment amounts," but a blueprint for which laboratories must report private payor data to the Secretary, how they must do so, and what consequences they face for noncompliance.
The structure of PAMA bespeaks the separation between data collection and pricing. In subsections (b), (c), and (d) on existing, new, and new advanced diagnostic laboratory services, Congress explained that it was directing the Secretary henceforth to calculate "weighted median" market-based prices for existing services and to "gapfill" and consult an expert panel to determine prices for new and new advanced services. In a separate provision, Congress detailed the framework for data collection.
Compare
42 U.S.C. § 1395m-1(b) - (d) (establishing processes for determining Medicare rates),
with
Textual and structural analysis of jurisdiction-stripping provisions in other statutes supports the Secretary's position that Congress did not bar review of PAMA's entire process for collecting data on private-payor rates.
See
Bowen
,
Unlike the provisions at issue in
Texas Alliance
and
Mercy Hospital
, the statutory text here does not subsume the data collection process within the establishment of payment amounts. On the contrary, Congress set out the process for data collection in a separate and distinct subsection and with its own set of rules. Congress also required that the parameters for that data collection be established through notice and comment rulemaking.
See
42 U.S.C. § 1395m-1(a)(12). Neither of the statutes at issue in
Texas Alliance
or
Mercy Hospital
had explicit notice and comment requirements. And, as our precedent makes clear, part of the purpose of notice and comment rulemaking is to ensure the parties develop a record for judicial review.
See
Int'l Union, United Mine Workers of Am. v. Mine Safety & Health Admin.
,
Because the gathering of data under PAMA is not "inextricably intertwined" with the establishment of payment rates, we lack a basis on which to infer that Congress, in eliminating jurisdiction over the latter, clearly meant also to bar review of the former.
Cf.
Florida Health Scis. Ctr., Inc. v. Sec'y of Health & Human Servs.
,
Important distinctions between the issues in this case and
Florida Health
show that the data collection process at issue here is not "inextricably intertwined" with the unreviewable establishment of payment amounts. Most importantly, unlike PAMA, the statute in
Florida Health
did not have a separate data-collection provision imposing new obligations on private parties nor did it have a notice and comment requirement. It simply directed the Secretary to estimate the amount of uncompensated services using "appropriate data," including data that the Secretary may "determine[ ]" serves as an adequate proxy for uncompensated care rates. 42 U.S.C. § 1395ww(r)(2)(C). The statute's text and structure made clear that choosing which data to use was part of the Secretary's unreviewable obligation to estimate uncompensated care rates.
Florida Health
,
PAMA's data collection provision, on the other hand, is distinct from its rate-estimation provisions. For data collection, the statute obligates clinical laboratories that participate in the Medicare program to report distinct reimbursement rates they receive from private insurers and requires the Secretary to establish the rules governing that reporting through notice and comment rulemaking. To be sure, the results of that data collection process are used to establish Medicare payment amounts. But the statute's bifurcated structure supports ACLA's view that the two provisions and the processes they require are distinct. This case differs from
DCH Regional Medical Center v. Azar
,
The government argues that it would make scant sense for Congress to have barred review only of "basic math" while "permitting review of every discretionary step that preceded that math." Appellee Br. 33. But establishing payment amounts sometimes involves more than rote math. For established laboratory services, the Secretary must array private payor data from thousands of laboratories and calculate a weighted median for each separate laboratory service. 42 U.S.C. § 1395m-1(b)(2). For new tests, regarding which private payor data does not yet exist, the Secretary must consider more complicated criteria and consult an expert panel.
See
In view of PAMA's text, its structure, and the distinct nature of the processes of data collection and establishment of payment rates, we cannot conclude that the bar against reviewing the "establishment of payment amounts" also prevents our review of the rule setting up a new and detailed process for collecting data on market rates that private insurers pay to laboratories. Because the statute is "reasonably susceptible" to this interpretation, we hold that it does not bar judicial review of the Secretary's rule establishing the parameters of data collection under 42 U.S.C. § 1395m-1(a).
Gutierrez de Martinez
,
IV. Ultra Vires
ACLA also argues that, even if the jurisdictional limitation of Section 1395m-1(h) applies, we should nonetheless review the Secretary's final rule because it "exceeds his statutory authority and is ultra vires. " Appellant's Br. 61. Although we hold that the statute itself does not bar review, we nonetheless consider ACLA's ultra vires argument because, if valid, it would not just open the courthouse door, but invalidate the rule and obviate any need to remand to the district court for consideration of the arbitrary-and-capricious challenge.
If an agency exceeds "its statutory bounds, judicial review remains available" to curb the rogue action.
SAS Inst., Inc. v. Iancu
, --- U.S. ----,
Here, the statute says that applicable laboratory "means a laboratory that , with respect to its revenues under this subchapter, a majority of such revenues are from" the PFS and CLFS. 42 U.S.C. § 1395m-1(a)(2) (emphasis added). ACLA argues that choosing to compare a laboratory's total revenues from the PFS and CLFS against the "total Medicare revenues of any entity with an NPI (of which the laboratory is often only one component)," Appellant's Br. 64, violates the statute's command that the reporting unit be the laboratory rather than a broader entity. Again, the reporting unit matters because comparing a hospital laboratory's reimbursements from PFS and CLFS to the entire hospital's Medicare revenue (as opposed to just the hospital laboratory ' s Medicare revenue) means that a hospital laboratory without its own, laboratory-specific NPI will not qualify as an applicable laboratory under the statute.
HHS did not clearly step so far outside the scope of the task that Congress gave it as to have acted
ultra vires
. PAMA does not define the term "laboratory," and the Secretary's charge was to operationalize that important term despite its ambiguity. After incorporating industry comments into the final rule, the Secretary chose to identify laboratories by their NPI numbers.
See
J.A. 563-64 (Florida Hospital Association recommending HHS define applicable laboratory at the NPI level rather than the TIN level);
compare
* * *
For the reasons discussed above, we reverse the district court's holding on subject matter jurisdiction and remand for further proceedings consistent with this opinion.
So ordered.
The statute authorizes the Secretary to establish a "low volume or low expenditure threshold" to exclude especially small laboratories. 42 U.S.C. § 1395m-1(a)(2). The Secretary has set the low expenditure threshold at $12,500, meaning that labs receiving less than $12,500 of Medicare revenue from the CLFS and PFS are exempt from reporting requirements. ACLA does not challenge that provision, which exempts approximately 95 percent of physician-office laboratories.
The rule rejected commenters' alternative suggestion that entities be identified by their Clinical Laboratory Improvement Amendments (CLIA) certificate, which is used to certify that a laboratory meets health and safety regulations, because that certificate is not associated with Medicare billing.
Reference
- Full Case Name
- AMERICAN CLINICAL LABORATORY ASSOCIATION, Appellant v. Alex Michael AZAR, II, in His Official Capacity as Secretary of Health and Human Services, Appellee
- Cited By
- 20 cases
- Status
- Published