Ruling on Labs Bidding Demo Could Help HME; Baird Plans to Refile Lawsuit

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.