CMS is alleged not to have submitted for notice and comment the requirement for a losing bidder to continue to treat Medicare patients without reimbursement. The plaintiffs argue that this forced acceptance of non-reimbursed Medicare is also a "taking" under the 5th Amendment, which states personal property cannot be taken by the government without just compensation.

CMS also allegedly did not submit for notice and comment its definition of small business labs (exempt from the project) as those that will supply less than $100,000 in tests to Medicare. Other preexisting federal definitions of small business labs, such as the Small Business Administration, define the cut-off revenue amount as 12.5 million. Internist is a small business laboratory that is not exempt under CMS' definition. Approximately 65% of Internist's laboratory services are for Medicare beneficiaries residing in the site area. Because Internist is highly unlikely to bid successfully it, will be forced out of business by the loss of revenue.


Neither Scripps nor Internists provide all 303 tests in the demonstration project. This requires the labs to request price information from competitors, a difficult and onerous position that leaves the labs unable to fairly compete. If Scripps is not a winner in the process it will be forced to accept unreimbursed Medicare, lose around $1.9 million in revenue and subsequently will have to lay off workers. Sharp may also be forced to close labs and reduce the workforce.

The plaintiffs also argue that the CMS' narrow definition of the "face to face" exception in the law is arbitrary and capricious--meaning without a sound and fair basis. In spite of hospital labs (such as Sharp and Scripps) being seemingly exempt from the project due to the face-to-face nature of their work, CMS requires these labs to bid if they have over $100,000 in non-hospital patient Medicare tests. The requirement for otherwise exempt labs servicing nursing facility patients and ESRD to accept the prices determined through the demonstration project is also argued to be arbitrary and capricious.

DOTmed News will continue to keep track of this further Medicare-related challenge to the healthcare industry.

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