Laboratory News

Federal Judge Hands Labs a Win: Issues Order to Stop Medicare Lab Bid Demo!

It's a major legal victory for three San Diego area laboratories in their federal court case to stop the Medicare Laboratory Competitive Bidding Demonstration  pilot. Late yesterday afternoon, U.S. District Court Judge Thomas J. Whelan issued a temporary restraining order, preventing the federal Centers for Medicare & Medicaid Services  (CMS) from proceeding with Medicare Laboratory Competitive Bidding Demonstration Project in the San Diego-Carlsbad-San Marcos metropolitan statistical area (MSA).

Per Judge Whelan's order:

1)   CMS cannot announce the winning laboratory bidders as CMS had planned for Friday, April 11

2)   CMS cannot otherwise implement and carry out the project

3)   CMS cannot disclose any information in the bid applications submitted for the project

The injunction is to remain in place "until further order of the court," said Whelan, who is a judge at the U.S. District Court for the Southern District of California.

Judge Whelan agreed with many of the arguments of attorney Patric Hooper of Hooper Lundy & Bookman in Los Angeles. Hooper represents three San Diego laboratories: , Sharp HealthcareScripps Health , and Internist Laboratory . In January, the three labs filed suit, challenging the procedural steps that U.S. Department of Health and Human Services  (HHS) Secretary Michael Leavitt used to implement the bidding demonstration project. In addition to challenging the project on procedural grounds, the three labs said the project would cause them irreparable harm. Whelan essentially agreed.

Finding in favor of the plaintiff labs, Judge Whelan described the nature of the harm that would be a consequence if the plaintiff laboratories were not named as winning bidders.  He observed that, for example, Sharp alleged that it would close drawing sites and shut down a significant segment of its outreach lab. "Other significant operational changes will be required, including costly changes to Sharp's medical record-keeping system... Sharp contends that the economic impact will be significant," said the judge in his decision.

"Scripps contends that its inability to continue to participate in the Medicare program will have wide-ranging, adverse consequences for the entire Scripps health system, and its patients," Whelan wrote. The judge also acknowledged the potential harm to Medicare beneficiaries. "The quality of patient health care (for Medicare beneficiaries and others) will diminish," Whelan wrote.

"The secretary cannot identify hardships that even remotely rival those identified by plaintiffs," the decision said. "At most, implementation of the demonstration project will be delayed for a period of months. Given that roughly five years have passed since Congress authorized the project, it is doubtful that a short delay will have a significant impact on the ultimate long term goal of reducing Medicare costs."

Judge Whelan's ruling effectively stops the Medicare Part B Laboratory Competitive Bidding Demonstration Project dead in its tracks.  In the December 31, 2007 issue of The Dark Report , special coverage about the Competitive Bidding Demonstration detailed how and why CMS and its contractor, RTI International , had created flawed, biased requirements for implementing the bidding demonstration and selecting winning laboratories. Judge Whelan's ruling demonstrates that he also recognized these serious flaws and violations of federal statutes and Constitutional law.

One interesting point that is unknown is whether Judge Whelan's ruling that CMS is enjoined from "further disclosing any information included in the bid applications" submitted by the February 15, 2008 deadline means that CMS is obligated to return all the bidding materials to the bidding laboratories and destroy any copies in their possession. That is a relevant point because a CMS official stated publicly at the December 8, 2007 bidder's meeting that CMS would not be overly concerned about a delay in implementing the Competitive Bidding Demonstration Pilot in the San Diego MSA, since they intended to use the information on the bids as a prototype for a national Part B Laboratory testing fee schedule.

Dark Daily will provide additional information about this injunction and the judge's ruling. It is a significant development for the entire laboratory industry. Additional coverage will also be provided in next Monday's issue of The Dark Report. Like many court cases, this decision is just the next round in an ongoing story.

Related Resources:

Details for Demonstration Project For Competitive Bidding of Clinical Laboratory Services