SAN DIEGO--A federal court ruling has stopped a competitive bidding demonstration for clinical laboratory services in its tracks and could open the channels for a legal battle on Medicare’s DMEPOS bidding program.
On Wednesday, U.S. District Court Judge Thomas J. Whelan granted a preliminary injunction sought by San Diego-area laboratories Sharp Healthcare, Scripps Health and Internist Laboratory to block a Department of Health and Human Services competitive bidding demonstration for certain diagnostic tests covered under Part B.
The injunction temporarily blocks implementation of the bidding demonstration and enjoins HHS from announcing winners of the process, which was scheduled for April 11. Under the order, CMS is also not allowed to disclose any information included in the bid applications submitted in connection with the project.
The labs filed the lawsuit Jan. 29, arguing, among other things, that the bidding project threatened “irreparable harm” to labs in the San Diego area, the first site for the demonstration.
In issuing the injunction, the court found that HHS failed to comply with required federal rulemaking procedures and that, unless the project was enjoined immediately, both the laboratories and their Medicare patients would be harmed.
Whelan ruled that the labs had standing to bring the lawsuit because they were obligated to submit bids and are “now threatened with the prospect of losing their ability to participate in Medicare.” Thus, he said, they “have felt the effects of the agency’s decision in a concrete way.”
Whelan also rebutted the government’s contention that the labs should look to administrative remedies before suing, saying that if the labs lose “they cannot submit claims to Medicare and therefore, will not be in a position to obtain administrative review.”
So what does the ruling mean for DMEPOS competitive bidding?
Patric Hooper of Hooper, Lundy & Bookman, Los Angeles, lead counsel for the labs, told members of the press the decision marked the first time a court had enjoined a Medicare demonstration project because of failure to adhere to federal rulemaking procedures and called the action "a very important ruling for all providers and beneficiaries of the Medicare program."
Jeff Baird, chairman of the Health Care Group at Amarillo, Texas-based Brown & Fortunato, could not agree more. Baird said his firm plans to refile a lawsuit against DME competitive bidding, which, like the labs’ lawsuit, was initially dismissed on the premise that it was “not ripe”--in other words, there was nothing to adjudicate because bids had not yet been awarded or denied and the consequences of the government action could not be adequately surmised.
“My general understanding,” Baird said, “is that the government lawyers said [the laboratory lawsuit] is not ripe, meaning the winners and losers have not been chosen. They also said if you have a loser, the losing company has the right to an administrative appeal and therefore has some recourse. They were trying to get the judge to throw [the case] out.
“What’s significant is that the judge said ‘no.’ The judge said he wants to see what the allegations are.”
Baird’s lawsuit, filed in June 2007 on behalf of Medicare beneficiaries and providers in the Dallas CBA, is one of two backed by Waterloo, Iowa-based VGM and its Last Chance for Patient Choice, a non-profit formed to fight competitive bidding.
The second, filed in December on behalf of a provider in the Cleveland CBA by law firm Walter & Haverfield, is based on CMS' failure to follow federal law in enacting the rules related to the bidding program. That suit, according to lead attorney Michael Jordan, is “absolutely still on.” (See HomeCare Monday, Jan. 8.)
Baird said Brown & Fortunato has been following the laboratory lawsuit and is currently “reviewing the pleadings and orders in order to determine their applicability to the anticipated litigation to be filed on behalf of the HME industry.
“I believe we can use [this ruling] as precedent to the litigation we intend on refilling in Dallas,” Baird said. “We think that this will be--depending on how the court rules--persuasive to the federal court which will see our case. It’s basically the same issues.”
Baird said those issues echo many in the labs case, where the plaintiffs claim that rather than creating competition, the competitive bidding demonstration would result in fewer facilities, less competition and increases in Medicare’s expenditures.
Citing in particular questionable bid disqualifications in round one, several industry groups including the American Association for Homecare, VGM and the National Association of Independent Medical Equipment Suppliers are pondering additional lawsuits contesting the program. In an email Friday, the newly formed Accredited Medical Equipment Providers of America, whose members were disqualified in the first round, also confirmed it intends to file suit.
Congress is also becoming involved. In the wake of hearings on the labs issue last year by the House Committee on Small Business, Chairwoman Nydia M. Velazquez, D-N.Y., called Whelan’s decision “wise.”
According to a statement from Velazquez, who introduced the Community Clinical Laboratory Fairness in Competition Act (H.R. 3453) calling for the repeal of the labs bidding program, “CMS’ ill-conceived program would have compromised access to services for many Medicare recipients and put many great laboratories out of business.” The result would be that larger firms will shut out smaller competitors, the statement said.
“When it comes to medical services, quality is what matters--not size,” Velazquez said. “CMS’ pilot bidding program allows the government to pick and choose the winners and losers arbitrarily. That’s unfair to small firms and bad for patients.”
Whelan’s ruling is subject to appeal by HHS, which means the labs bidding demo may still go forward.