An agreement to destroy the bid documents was negotiated agreement between attorneys for the plaintiff clinical laboratories and federal attorneys for the Department of Health and Human Services (HHS).

This negotiated agreement was presented on July 20 to Judge Thomas J. Whelan of the U.S. District Court for the Southern District of California. In this agreement, the federal government says it will destroy all the bid documents that were submitted to CMS in February 2008 by medical laboratories. The destruction of these documents must be accomplished by August 20.

Then, on August 3, 2010, Judge Whelan dismissed the case which had been filed in January 2008 by three San Diego-area laboratories: Internist Laboratory, Sharp Healthcare, and Scripps Health. It was Whelan’s preliminary injunction on April 8, 2008 which stopped the Medicare Laboratory Competitive Bidding project from going forward. However, over the past two years, CMS had repeatedly refused to return the bid documents and the three plaintiff laboratories continued to press for their destruction or return.

Actively supporting the plaintiff laboratories in the case were such laboratory groups as the American Association of Bioanalysts (AAB) and the National Independent Laboratory Association (NILA), both in St. Louis, Missouri, the American Clinical Laboratory Association (ACLA) of Washington, DC, and other laboratory associations.

“We are very pleased to have successfully concluded this litigation, which many thought was unlikely to succeed,” stated Mark S. Birenbaum, Ph.D., Director of AAB and NILA.

“Destruction of the bid documents is a positive outcome,” observed Alan Mertz, President of ACLA. “We didn’t feel that it was appropriate for CMS to keep those bid documents, which had been submitted for a demonstration bidding project that Congress has since repealed by statute. The design of the competitive bidding demonstration project required labs to submit bids that were a certain amount below the Medicare fee schedule to even be considered, and that meant labs submitted some bids to CMS that were priced below their cost of providing the service.”

In April 2010, The Dark Report learned that lawyers for both sides were negotiating over whether CMS should return, destroy, or do something else with the bidding documents that laboratories had submitted on February 15, 2008. (See The Dark Report, “Two Years Later, CMS Still Holds Labs’ Competitive Bid Documents,” April 19, 2010.) The government had refused to return the bid documents, more than two years after Whelan issued a ruling that stopped CMS from proceeding with the laboratory services competitive bidding demonstration project.

In March, 2010, Whelan had denied a motion by CMS to dismiss the amended complaint originally filed by the plaintiff laboratories to challenge CMS’ retention of the bid information from the three San Diego labs, as well as to dissolve the preliminary injunction against CMS that the plaintiff labs had won in April 2008. The preliminary injunction prevented CMS from proceeding with the bidding project, and Congress repealed the project by statute in the summer of 2008.

Prior to Whelan’s ruling on March 18, 2010, one of the plaintiffs’ attorneys told The Dark Report that “federal lawyers are taking a hard line on this case so far. Even though there is a new administration in place at CMS, we speculate that they may not like the precedent represented by this case, since it could potentially establish terms or limits on their discretion to use this kind of information.”

So long as CMS held the 2008 bid documents, some laboratory industry experts pointed out that CMS might be motivated to use that information to reset the fee schedule for Medicare Part B laboratory services. Lawyers for the plaintiff laboratories have publicly said, however, that they have no reason to believe that CMS has used any of the bid information to date.

Clinical laboratories and pathology groups across the country can breathe a collective sigh of relief that, for the moment, efforts by CMS to implement a Medicare competitive bidding demonstration for Part B clinical laboratory testing is dead. One important lesson from these events is that the laboratory testing industry should be more assertive at using federal courts to challenge the actions of federal health officials that appear to violate federal statutes and/or the Constitution.

Related information

AAB and NILA Win Final Battle in Competitive Bidding Lawsuit

Medicare Laboratory Competitive Bid Repeal Passed by Senate Yesterday

The Medicare Clinical Laboratory Services Competitive Bidding Demonstration Fact Sheet