Atlantic Urological Associates, P.A. v. Leavitt

Citations: 549 F. Supp. 2d 13; 2008 U.S. Dist. LEXIS 26318; 2008 WL 839217Docket: Civil Action 08-141 (RMC)

Court: District Court, District of Columbia; March 31, 2008; Federal District Court

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Plaintiffs, consisting of three urology physician group practices, a self-employed pathologist, a management company for pathology laboratories, and its Director of Clinical Operations, filed a suit against Michael O. Leavitt, Secretary of the Department of Health and Human Services (HHS), challenging HHS's Final Order regarding Medicare billing for laboratory testing services. The Final Order, published on January 3, 2008, delays the implementation of the November 2007 Anti-Markup Rule for one year, specifically for services outside of anatomic pathology diagnostic testing.

Plaintiffs seek to enjoin and invalidate this Final Order and have moved for a preliminary injunction, which HHS opposes, also seeking to dismiss the case for lack of jurisdiction. An Interim Order was established on February 8, 2008, setting a briefing schedule and a hearing date, with the Secretary agreeing not to apply the Anti-Markup Rule to certain Medicare claims from February 1 to April 1, 2008. This provision protects claims submitted for anatomic pathology testing services in centralized buildings that do not meet the “same building” criteria under the physician self-referral exception.

On March 31, 2008, the Secretary proposed to extend the Interim Order for an additional thirty days but reserved the right to recoup any Medicare payments for claims submitted from April 2 to May 2, 2008, which would be subject to the Anti-Markup Rule. The Court concluded that the Secretary's reservation of recoupment rights indicated insufficient waiver of the Anti-Markup Rule's implementation, leading to the decision to grant the Plaintiffs' motion for a preliminary injunction.

The Final Order under review postpones for one year the implementation of the Anti-Markup Rule for services beyond anatomic pathology diagnostic testing. Medicare Part B offers coverage for physician and outpatient services, including diagnostic lab tests. Following a July 12, 2007 notice proposing the Anti-Markup Rule, concerns were raised about the high costs associated with diagnostic tests performed in centralized buildings. The finalized Anti-Markup Rule, published on November 27, 2007, restricted payments for anatomic pathology tests conducted outside the billing physician's office to the lower of three specified amounts. However, the Final Rule now delays the Anti-Markup Rule's application until January 1, 2009, except for the technical component of diagnostic tests and anatomic pathology services in centralized buildings, which remain the focus of CMS’s concerns. The Secretary has not provided an administrative record detailing the informal comments that influenced this Final Rule.

In the analysis section, the text addresses a motion to dismiss for lack of jurisdiction, emphasizing that federal courts have limited jurisdiction and that the burden of proving subject matter jurisdiction lies with the plaintiff. The Secretary contends that Uropath lacks standing and references case law indicating that Medicare Act claims must follow HHS's administrative procedures before being brought to federal court. Plaintiffs argue that an exception to this requirement applies based on precedent.

Federal question jurisdiction under section 405(h) may be permitted if it leads to no review at all rather than channeling review through the agency. The jurisdictional issues remain undecided, but a preliminary injunction can be issued under the All Writs Act to maintain the status quo. A preliminary injunction is considered an extraordinary remedy and requires the movant to demonstrate a clear burden of persuasion. The court evaluates four factors: (1) substantial likelihood of success on the merits; (2) potential for irreparable injury if not granted; (3) potential substantial harm to other parties; and (4) whether public interest favors issuance. These factors are balanced on a "sliding scale," allowing a lesser showing on one factor to be offset by a stronger showing on another.

To justify a preliminary injunction, the movant must show a significant likelihood of success on the merits and at least some demonstration of injury. In this case, the plaintiffs have shown a likelihood of success under the Administrative Procedure Act (APA), which mandates that agency actions must not be arbitrary, capricious, or in violation of the law. A reviewing court assesses whether an agency's decision considered relevant factors and maintained a rational connection between facts and conclusions. Actions deemed arbitrary or capricious may arise when an agency ignores important aspects, relies on improper factors, provides contradictory explanations, or lacks plausibility. An agency must adequately explain its decisions, and failure to provide a reasoned explanation or reliance on an unsupported conclusion allows the court to overturn its actions. Changes to an agency's interpretation of regulations require formal notice and comment rulemaking.

Under the Administrative Procedure Act (APA), agencies must engage in notice and comment procedures for not only the creation of regulations but also their amendments and repeals. The Secretary issued the Final Rule without adhering to these procedures and acknowledged an informal comment process, yet failed to provide a record of the comments for judicial review. This lack of adherence supports a finding of arbitrary and capricious rulemaking, which justifies a preliminary injunction.

The plaintiffs demonstrated irreparable harm, showing that the Anti-Markup Rule, if enforced, would likely lead to the closure of their businesses. The Secretary's argument that monetary damages could remedy the situation was insufficient. No other parties would be adversely affected by the injunction, as its implementation would merely maintain the current status. Public interest also favors transparent agency rulemaking, supporting the issuance of the injunction.

In conclusion, the plaintiffs are likely to succeed on the merits, the Secretary would not face significant harm from the injunction, and the balance of harms, along with public interest considerations, strongly favors the plaintiffs. Therefore, the court granted the plaintiffs' motion for a preliminary injunction.