AMERICAN CLINICAL LABORATORY ASSOCIATION, APPELLANT v. XAVIER BECERRA, SECRETARY, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, APPELLEE
No. 21-5122
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 25, 2022 Decided July 15, 2022
Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-02645)
Ashley C. Parrish argued the cause for appellant. With her on the briefs were Mark D. Polston and Gabriel Krimm.
McKaye L. Neumeister, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Brian M. Boynton, Acting Assistant Attorney General at the time the brief was filed, Abby C. Wright, Attorney, Janice L. Hoffman, Associate General Counsel, U.S. Department of Health & Human Services, and Susan Maxson Lyons, Deputy Associate General Counsel for Litigation.
Before: MILLETT, WILKINS, and JACKSON*, Circuit Judges.
Opinion for the Court filed by Circuit Judge WILKINS.
In 2016, the Secretary issued a final rule that implemented PAMA‘s definition of “applicable laboratory.” Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System, 81 Fed. Reg. 41,036 (June 23, 2016) (“2016 Rule“). The American Clinical Laboratory Association (“ACLA“) filed a lawsuit challenging
This Court assumes familiarity with the procedural, regulatory, and factual background of this case, which another panel of this Court laid out in a prior opinion. See Am. Clinical Lab‘y Ass‘n v. Azar, 931 F.3d 1195 (D.C. Cir. 2019) (“ACLA I“). In ACLA I, we reversed the District Court‘s dismissal of ACLA‘s complaint challenging the 2016 Rule for lack of subject matter jurisdiction, see Am. Clinical Lab‘y Ass‘n v. Azar, 334 F. Supp. 3d 301 (D.D.C. 2018) (holding that PAMA bars judicial review of the Secretary‘s data collection practices), and remanded to the District Court to consider in the first instance whether the 2016 Rule is consistent with the APA. See ACLA I, 931 F.3d at 1198.
On remand, the parties cross-moved for summary judgment. The District Court again declined to reach the merits of ACLA‘s APA challenge to the 2016 Rule, based on its determination that the Secretary had issued a new rule (“2018 Rule“) that superseded the 2016 Rule and mooted ACLA‘s lawsuit. Am. Clinical Lab‘y Ass‘n v. Becerra, No. 17-2645, 2021 WL 1197729, at *3-6 (D.D.C. Mar. 30, 2021). In relevant part, the 2018 Rule provides a more expansive definition of “applicable laboratory” and subjects more hospital laboratories to PAMA‘s reporting requirements. Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions, 83 Fed. Reg. 59,452 (Nov. 23, 2018) (“2018 Rule“). ACLA appeals the District Court‘s dismissal for mootness on the grounds that ACLA members continue to suffer from “downstream effects” of the 2016 Rule, notwithstanding the Secretary‘s promulgation of the 2018 Rule. Appellant Opening Br. at 35.
We conclude that the case is not moot. Accordingly, we reverse the District Court‘s dismissal for lack of subject matter jurisdiction and reach the merits of ACLA‘s APA claim.
I.
Under the Act, an applicable laboratory is “a laboratory that, with respect to its revenues under this subchapter, a majority of such revenues are from this section, section 1395l(h) of this title, or section 1395w-4 of this title.”
The 2016 Rule implemented PAMA‘s definition of “applicable laboratory” by identifying laboratories that would be subject to reporting requirements by their National Provider Identifier (“NPI“) number. (Healthcare providers generally use an NPI number to bill Medicare.) But as this Court previously observed in ACLA I,
Before this Court issued ACLA I, the Secretary promulgated the 2018 Rule, which “requires laboratories providing outreach services to report data using the CMS-1450 14x TOB—a billing form used only by hospital outreach laboratories.” ACLA I, 931 F.3d at 1202 (citing 2018 Rule, 83 Fed. Reg. at 59,673-75). In so doing, the Secretary amended the definition of “applicable laboratory” to include hospital laboratories that provide outreach services. This presumably resolved ACLA‘s key grievance with the 2016 Rule. Nevertheless, because the 2018 Rule was “not at issue” in ACLA I, a panel of this Court ultimately determined that ACLA had associational standing to challenge the 2016 Rule and that PAMA‘s jurisdiction-stripping provisions—with respect to judicial review of payment amounts—did not bar judicial review of a final rule. ACLA I, 931 F.3d at 1202, 1203-08. Accordingly, the Court reversed the District Court‘s holding on subject matter jurisdiction and remanded to the District Court to adjudicate the merits of ACLA‘s arbitrary-and-capricious challenge to the 2016 Rule. Id. at 1209.
On remand, the District Court reasoned that because ACLA‘s lawsuit did not challenge the 2018 Rule, “the only remedy that would be available to plaintiff here would be retrospective relief for any past payments that were calculated using the only [sic] 2016 Rule – that is, payments calculated for 2018-20 based on data collected data [sic] in early 2017 using the challenged definition.” Am. Clinical Lab‘y Ass‘n, 2021 WL 1197729, at *5 (citation omitted). But PAMA “bars judicial review of ‘the establishment of [Medicare] payment amounts.‘” Id. (quoting
II.
This Court reviews the district court‘s dismissal for lack of subject matter jurisdiction de novo. Fla. Health Scis. Ctr., Inc. v. Sec‘y of Health & Hum. Servs., 830 F.3d 515, 518 (D.C. Cir. 2016); ACLA I, 931 F.3d at 1202-03.
The “constitutional minimum of standing contains three elements“: (1) a concrete and particularized “injury-in-fact“; (2) that is fairly traceable to the challenged conduct; and (3) is likely to be
We begin by assuring ourselves, as we must, that ACLA had standing at the time it filed its complaint, Friends of the Earth, Inc. v. Laidlaw Env‘t Servs. (TOC), Inc., 528 U.S. 167, 180 (2000), and that ACLA presented sufficient evidence of its standing in support of the motion for summary judgment under review, Lujan, 504 U.S. at 561.
In ACLA I, we held that ACLA had established associational standing at the outset of the litigation. See ACLA I, 931 F.3d at 1203-04. ACLA also presented sufficient evidence of standing in support of its motion for summary judgment. ACLA has maintained associational standing through its members, including Aculabs, Inc. (“Aculabs“). J.A. 44; see Narragansett Indian Tribal Hist. Pres. Off. v. FERC, 949 F.3d 8, 12 (D.C. Cir. 2020). As evidenced by a declaration from its president, Aculabs suffered two injuries.
First, Aculabs has suffered a competitive injury, compared to hospital-based laboratories. Pursuant to PAMA, Aculabs reports private payor data to the Secretary, J.A. 50-52, but the Secretary exempts other market participants—like hospital-based laboratories—from PAMA‘s reporting requirements, which puts Aculabs at a competitive disadvantage. Appellant Opening Br. at 34-35; see ACLA I, 931 F.3d at 1203. Second, the 2016 Rule‘s data collection regime has injured Aculabs by skewing the reimbursement rates on the Clinical Laboratory Fee Schedule lower. J.A. 50-51; see ACLA I, 931 F.3d at 1203. Consequently, Aculabs projects significant financial harm: it will not receive enough Medicare reimbursement to cover its costs. J.A. 51. In sum, Aculabs’ injuries-in-fact—its competitive injury and lower reimbursement rates—are fairly traceable to the 2016 Rule, and they were redressable at the time ACLA filed its complaint. ACLA I, 931 F.3d at 1204; see U.S. Gov‘t Accountability Off., GAO-19-67, Medicare Laboratory Tests: Implementation of New Rates May Lead to Billions in Excess Payment 12 (2018); Medicare Payment Advisory Comm‘n, Report to the Congress: Medicare and the Health Care Delivery System 297, 306, 324 (2021). The injuries are still redressable today because declaratory relief that the 2016 Rule is invalid will prevent its reinstatement in the future. See Friends of the Earth, 528 U.S. at 185 (“[A] plaintiff must demonstrate standing separately for each form of relief sought.“).
Furthermore, contrary to the District Court‘s determination, the fact that the Secretary replaced the 2016 Rule with the 2018 Rule did not moot this case. We conclude that HHS—as “the party asserting mootness“—has not met “[t]he ‘heavy burden of persua[ding]’ the court that the challenged conduct cannot reasonably be expected to start up again[.]” Id. at 189 (alteration in original) (citation omitted).
For example, in the 2018 Rule, the agency reiterated that it “continue[d] to believe that the NPI is the most effective mechanism for identifying Medicare revenues[.]” 83 Fed. Reg. at 59,672. The agency acknowledged that it would “only know the impact of the [new] data [collection scheme] on [Clinical Laboratory Fee Schedule] rates by collecting data from hospital outreach laboratories.” Id. at 59,674.
Accordingly, pursuant to the voluntary cessation doctrine, the government failed to meet its burden to establish that “there is no reasonable expectation that” the agency will restore the 2016 Rule. Zukerman v. U.S. Postal Serv., 961 F.3d 431, 442 (D.C. Cir. 2020) (internal quotation marks and citations omitted).
In other words, the record evidence in this case reflects that the agency has only “temporarily alter[ed] [its] questionable behavior.” City News & Novelty, Inc. v. City of Waukesha, 531 U.S. 278, 284 n.1 (2001); see also City of Mesquite v. Aladdin‘s Castle, Inc., 455 U.S. 283, 289 (1982) (declining to find mootness because “[t]here is no certainty that a similar course would not be pursued if [the city‘s] most recent amendment were effective to defeat federal jurisdiction“); Deja Vu of Nashville, Inc. v. Metro. Gov‘t of Nashville & Davidson Cnty., Tenn., 274 F.3d 377, 387 (6th Cir. 2001) (declining to find mootness despite change in city ordinance because the city “repeatedly expressed its intention to reenact those portions of the Ordinance judged unconstitutional by the district court at the earliest opportunity“).
To be sure, “[c]ourts have noted that structural obstacles to reimposing a challenged law—such as a full repeal and the need to undertake new lawmaking—generally moot a case.” Alaska v. U.S. Dep‘t of Agric., 17 F.4th 1224, 1229 n.5 (D.C. Cir. 2021). And certainly, the government will more easily meet its burden to demonstrate mootness where structural obstacles are combined with a record “where nothing suggests” voluntary cessation. Id. In contrast, in American Bankers Association v. National Credit Union Administration, 934 F.3d 649 (D.C. Cir. 2019), this Court determined that a challenge to an agency rule was not moot because the government “evince[d]” the “inten[tion] to reinstitute” the challenged portion of the rule. Id. at 661. Such is the case here.
Furthermore, on remand, the District Court ruled that it lacked subject matter jurisdiction over ACLA‘s lawsuit because the Medicare statute requires claim presentment and exhaustion, pursuant to
“To obtain judicial review of claims arising under the Medicare Act, a plaintiff must first present the claims to the Secretary of Health and Human Services.” Am. Hosp. Ass‘n v. Azar, 895 F.3d 822, 823 (D.C. Cir. 2018). Section 405(h) “divests the district courts of federal-question jurisdiction ‘on any claim arising under’ Title II of the Social Security Act.” Id. at 825 (quoting
III.
Because we have jurisdiction over ACLA‘s lawsuit, we will turn to the merits of ACLA‘s APA challenge to the 2016 Rule. In short, ACLA contends that the 2016 Rule‘s implementation of the term “applicable laboratory” contravenes the APA because its reliance on NPIs ultimately excludes hospital laboratories that provide outreach services from data reporting requirements. Accordingly, the 2016 Rule results in inaccurate marketplace data and depresses Medicare reimbursement rates.
Under the familiar standards of the APA, we must “set aside agency action” that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
We hold that the 2016 Rule is arbitrary and capricious because the agency “failed to consider an important aspect of the problem.” Id. PAMA provides that an applicable laboratory “means a laboratory that” receives “a majority” of its Medicare revenues from the Physician Fee Schedule or Clinical Laboratory Fee Schedule. See
The 2016 Rule is arbitrary and capricious because it failed to reasonably explain the agency‘s use of NPIs to identify laboratory revenue. Pursuant to the 2016 Rule‘s data-reporting requirements, the Secretary decided to identify laboratories by their NPIs. ACLA I, 931 F.3d at 1208. The statute does not, however, answer the precise question of how to identify “[a laboratory‘s] revenues under this subchapter.”
Thus, the agency, without adequate explanation, exempted a sizable portion of the laboratories covered by the statute from data reporting requirements. Furthermore, the agency admitted at oral argument that it did not even know how many outreach laboratories had NPIs, and it has never disputed ACLA‘s argument that the number is low. See Oral Arg. Tr. 11:22-12:11. Indeed, only 21 hospital laboratories—out of a total of 1,942 reporting laboratories—reported their data, even though hospital laboratories accounted for nearly a quarter of Medicare payments made under the Clinical Laboratory Fee Schedule in 2015. J.A. 63, 432. And those 21 hospitals represented only “one percent of all reporting entities and less than one half of one percent of all hospital labs paid under Medicare Part B for lab services in 2015.” J.A. 433. For these reasons, we conclude that the agency did not justify its decision to identify applicable laboratory revenues by NPIs.
IV.
For the foregoing reasons, the judgment of the District Court is reversed and the case is hereby remanded for further proceedings consistent with this opinion. The District Court is instructed to enter a declaratory judgment in favor of ACLA. This relief is prospective and will neither require the Secretary to accelerate the data reporting period for laboratories nor recalculate past Medicare reimbursement rates, in light of PAMA‘s provision stripping jurisdiction to review Medicare payment amounts, see
So ordered.