Case 1:14-cv KBJ Document 3 Filed 04/18/14 Page 1 of 19 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

CALIFORNIA CLINICAL

LABORATORY ASSOCIATION

1127 Eleventh Street, Suite 820

Sacramento, CA 95814, and

JANE DOE,

Plaintiffs,

v.

SECRETARY OF HEALTH

AND HUMAN SERVICES,

200 Independence Avenue, SW

Washington, DC 20201,

Defendant.

COMPLAINT

COME NOW Plaintiffs California Clinical Laboratory Association (“CCLA”) and Jane Doe

(collectively, “Plaintiffs”), by and through their attorneys Hooper, Lundy & Bookman, P.C., who

bring this action against Defendant Secretary of Health and Human Services (“Secretary”), alleging

as follows:

PRELIMINARY STATEMENT

1.

Unless declared invalid and enjoined by the Court, private contractors known as

Medicare Administrative Contractors (“MACs”) will continue to develop and apply Medicare Local

Coverage Determinations (“LCDs”) that establish Medicare coverage policies effectively depriving

Medicare beneficiaries throughout the United States of critically necessary clinical laboratory

services ordered by their physicians for the treatment and management of diseases and medical

conditions.

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-2.

The current LCD development process and the resulting LCD policies of the MACs

are legally invalid and ultra vires because:

a.

They are the product of an unconstitutional delegation by Congress of

regulatory policymaking authority to private entities in violation of Article 1, Section 1 of the United

States Constitution;

b.

They implement substantive Medicare policy without being promulgated

pursuant to the rulemaking requirements of the Administrative Procedure Act (“APA”), 5 U.S.C.

§ 553, as required by 42 U.S.C. § 1395hh(a);

c.

They are based on criteria that are not permitted to be considered by MACs in

developing LCDs when determining whether particular services are reasonable and necessary for the

diagnosis and treatment of a disease or condition under 42 U.S.C. § 1395y(a)(1), such as whether the

services are allegedly experimental or investigational;

d.

They are being applied to deny Medicare coverage for laboratory services

despite the fact that the Secretary has failed to implement the statutory procedures required by

Congress, including a procedure for assuring the nationwide consistency of LCDs and a mediation

process mandated by 42 U.S.C. §§ 1395y(l)(5) and 1395ff(i), respectively, causing inconsistent

treatment of Medicare beneficiaries in different regions of the country and other harmful

consequences; and

e.

The executive department over which the Secretary presides, the United States

Department of Health and Human Services (“HHS”), has eliminated any meaningful opportunity for

laboratories to administratively appeal the application of LCDs to laboratory services by unilaterally

suspending the only portion of the administrative appeal process where laboratories have any chance

of avoiding the impact of adverse LCDs and of obtaining coverage for a laboratory service for a

particular Medicare claim.

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-JURISDICTION AND VENUE

3.

The Court has jurisdiction under 28 U.S.C. § 1331 to resolve the very important

federal questions, including the significant constitutional issue, posed by the Complaint. The Court

also has jurisdiction under 28 U.S.C. § 1361 to mandate the Secretary’s compliance with the

mandatory constitutional and statutory provisions at issue. And, with respect to the plaintiff

enrollee, Jane Doe, this Court has jurisdiction under 42 U.S.C. § 1395ff(f)(3) to resolve the purely

legal issues here without requiring any exhaustion of any administrative procedures. Under the

separation-of-powers doctrine, Congress may not preclude judicial review of its unlawful delegation

of authority to private entities and other constitutional issues when such review is requested by

parties adversely affected by such unconstitutional acts, including the laboratory members of CCLA

here.

4.

Venue lies in this judicial district under 28 U.S.C. § 1391.

PARTIES

5.

Plaintiff CCLA is a nonprofit California trade association whose members include

large national laboratories and smaller regional and local laboratories. CCLA’s members also

include laboratories that provide specialty tests, including molecular diagnostic testing (described

below), on a nationwide basis. When ordered by patients’ physicians, laboratory testing generates

test results that are used by the physicians for the ongoing treatment and management of their

patients’ conditions and diseases. CCLA members are all properly licensed and certified as clinical

laboratories under the relevant state and federal laws and regulations, including the Clinical

Laboratory Improvement Amendments of 1988 (“CLIA”). See 42 C.F.R. pt. 493 (setting forth

extensive quality requirements for CLIA-certified laboratories).

Among CCLA’s goals is

encouraging greater efficiency, reliability, and safety in the performance of clinical laboratory

testing and providing the public, including Medicare beneficiaries, with adequate access to such

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-testing. CCLA members are adversely affected by the LCD process because certain laboratory

testing ordered by patients’ doctors, discussed below, is not being covered and paid for by Medicare

due to the implementation of various LCDs identified below. Therefore, due to the LCDs discussed

below, CCLA’s members have been, and continue to be, denied Medicare coverage for tests actually

ordered and performed.

6.

Plaintiff Jane Doe is an 82-year-old Medicare beneficiary and retired registered nurse

who resides in Virginia. She is using the pseudonym “Jane Doe” for this matter to protect the

confidential nature of her specific health information. She is, however, a Medicare Part B enrollee

who suffers from several chronic conditions requiring the administration of numerous drugs, all of

which have been prescribed by her physician. She has on several occasions suffered allergic and

other very serious adverse reactions to such drugs. In fact, she even reported the adverse reactions to

the Food and Drug Administration (“FDA”). To obtain information about the drug risks and other

highly valuable information specific to her medication and treatment, her physician recently ordered

pharmacogenomic testing from a clinical laboratory in Virginia. Jane Doe has learned that Medicare

will not cover or pay for such testing because of a policy contained in an LCD issued by a MAC,

LCD No. 34999, described below in paragraph 32. This non-coverage policy jeopardizes her and

similarly situated Part B enrollees’ access to medically necessary laboratory services.

7.

Defendant Secretary of Health and Human Services heads HHS, which administers

the Medicare Program through its operating component, the Centers for Medicare & Medicaid

Services (“CMS”). The Secretary is sued in her official capacity only.

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-BACKGROUND AND FACTUAL ALLEGATIONS

The Medicare Program

8.

Congress added Title XVIII to the Social Security Act in 1965 to establish the

Medicare Program, the nationwide health insurance program for the aged and disabled. Title XVIII

is commonly known as the Medicare Act.

9.

While the Medicare Act contains various standards for administering the Medicare

Program, Congress authorizes the Secretary to establish Medicare policy consistent with these

standards through the promulgation of formal regulations. The Secretary, through CMS and other

governmental sub-agencies, has promulgated thousands of such regulations beginning at 42 C.F.R.

§ 400.200.

The policies in LCDs, however, are not promulgated by the Secretary or her

governmental employees, but rather are established on an ad hoc basis by the MACs without going

through the rulemaking process used by the Secretary to promulgate Medicare regulations.

10.

The very first provision of the Medicare Act, 42 U.S.C. § 1395, prohibits the Federal

Government from exercising any control over the practice of medicine or the manner in which

medical services are provided through the Medicare Program. As indicated above, all of the

laboratory testing involved in this lawsuit will have been ordered by the patients’ treating or

consulting physicians to treat and manage the patients’ medical problems. In many instances, the

policies at issue in the LCDs interfere with the manner in which medical services are provided to

Medicare beneficiaries because they do not cover the laboratory testing ordered by physicians to

treat and manage their patients’ conditions.

11.

Congress established Part A of the Medicare Program to cover institutional health

care services, such as hospital inpatient services. Congress further established Part B of the

Medicare Program to cover medical and related services furnished by physicians and clinical

laboratories to Medicare “enrollees.” This lawsuit is limited to Medicare coverage for clinical

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-laboratory services furnished under Part B of the Medicare Program to Part B “enrollees.” However,

many other programs, including state Medicaid programs and private health insurance programs,

follow Medicare principles to determine coverage and payment rules for their respective programs’

beneficiaries. For example, private insurance policies may use Medicare LCDs as a basis for

denying coverage for particular services furnished to privately insured patients.

12.

With some exceptions not relevant here, Congress has limited Medicare coverage for

Part B Medicare services to services that are reasonable and necessary for the diagnosis or treatment

of illness or injury or to improve the functioning of a malformed body member. 42 U.S.C.

§ 1395y(a)(1)(A).

Consistent with this requirement, the Secretary promulgated 42 C.F.R.

§ 411.15(k), which incorporates the “reasonable and necessary” requirement of the statute in general.

The Secretary has also promulgated 42 C.F.R. § 410.32(a), which specifically requires (a) laboratory

tests to be ordered by the patient’s treating or consulting physician for the treatment of the patient’s

condition, and (b) the results of such testing to be used in the management of the patient’s specific

condition, in order to meet the requirements of § 411.15(k). The laboratory tests at issue here are not

“screening” tests, i.e., tests ordered for asymptomatic patients. All tests at issue here have been

ordered by the patients’ physicians to guide the physicians’ treatment and management of the

patients’ existing diseases or conditions and therefore meet this statutory and regulatory standard.

MACs and LCDs

13.

Not surprisingly given the size and complexity of the Medicare Program, Congress

expressly authorized the Secretary and CMS to use private contractors, the MACs, to help administer

the Medicare Program, including Part B. Under 42 U.S.C. §§ 1395u(a) and 1395kk-1, MACs are

authorized to perform various functions, including Medicare payment functions.

14.

Twelve different MAC “jurisdictions” currently cover all of the States and certain

federal territories for most Medicare Part B services, including clinical laboratory services. For

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-example, the District of Columbia, along with certain nearby States, is in Jurisdiction L, and

California, along with other nearby States and some territories, is in Jurisdiction E.

15.

Some Part B MACs have more than one jurisdiction to cover. For example, Palmetto

GBA (“Palmetto”) and Noridian Healthcare Solutions, LLC (“Noridian”) control three different

jurisdictions with 20 States under their jurisdiction. The remaining States and territories are divided

among six other MACs. These six include Novitas Solutions, Inc., and First Coast Service Options,

Inc., which are under common control and preside over three jurisdictions covering 13 States and

two territories.

Some of the MACs are owned by private insurers.

For example, National

Government Services, Inc., the MAC for two jurisdictions, including 10 States, is owned by

Wellpoint (formerly consisting of Wellpoint and Anthem), the largest private health insurer in the

country. Similarly, Palmetto is owned by Blue Cross of South Carolina, a for-profit health insurer.

Overly restrictive Medicare coverage and payment decisions by the MACs thus can have a positive

financial impact for the MACs’ related owners and companies if the Medicare LCD policies are used

in the policies governing privately insured patients.

16.

The single MAC function at issue here is Congress’s decision to delegate to the

MACs the function of developing and applying Medicare coverage policy through LCDs. See 42

U.S.C. § 1395kk-1(a)(4). LCDs are defined in 42 U.S.C. § 1395ff(f)(2)(B) as determinations made

by a MAC (previously known as a Medicare fiscal intermediary or carrier) “respecting whether or

not a particular item or service is covered on a [MAC-wide] basis under such parts, in accordance

with section 1395y(a)(1)(A) of this title.” This definition is also contained in 42 C.F.R. § 400.202.

As pointed out above, § 1395y(a)(1)(A) and its implementing regulation, 42 C.F.R. § 411.15(k),

require services to be reasonable and necessary to the diagnosis and treatment of a disease or

condition to be covered by Medicare. There are numerous other coverage requirements contained

elsewhere in § 1395y(a) and in § 411.15, which MACs may not use to deny coverage through an

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-LCD under the plain, mandatory language of § 1395ff(f)(2)(B). This includes experimental and

investigational devices under 42 C.F.R. § 411.15(o) since only § 411.15(k) implements

§ 1395y(a)(1)(A).

17.

LCDs are to be distinguished from National Coverage Determinations (“NCDs”),

which are required to be developed by the Secretary rather than the MACs. NCDs have national

effect and are required to be promulgated by the Secretary pursuant to a policymaking process

similar to the APA rulemaking process. 42 U.S.C. § 1395y(l)(1)-(4). Thus, NCDs are expressly

exempted from the APA rulemaking requirements. However, to be effective, all other Medicare

policies that establish new or change existing Medicare legal standards must be established pursuant

to the APA under 42 U.S.C. § 1395hh(a).

18.

The Secretary is statutorily required to have a plan for providing consistency among

different LCDs issued by different MACs in different jurisdictions of the country. 42 U.S.C.

§ 1395y(l)(5). The Secretary is also statutorily required to establish a mediation process to resolve

disputes among various stakeholders regarding LCD issues. 42 U.S.C. § 1395ff(i). The Secretary

has failed to satisfy these statutory requirements, which impose clear, nondiscretionary duties on the

Secretary.

The LCD “Appeal” Processes

19.

MACs do not promulgate LCDs pursuant to the APA even though LCDs routinely

establish new Medicare coverage policy or change existing policy. And, neither the Secretary nor

CMS reviews or approves LCDs. Rather, once LCDs are issued as final LCDs, they become the

final Medicare coverage policy for the services discussed in the LCDs within the jurisdiction

covered by the MAC.

20.

Some clinical laboratory tests are ordered by physicians who are geographically

distant from the clinical laboratories performing the testing, including some of CCLA’s laboratory

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-members. This may occur because of the unique testing offered by the laboratories or other needs of

the ordering physicians. For example, a particular clinical laboratory furnishing particular kinds of

molecular diagnostic laboratory testing services for oncologists often receives orders from doctors at

the leading cancer centers throughout the country. Thus, in many cases, LCDs have a nationwide

effect on laboratory services because a single MAC is responsible for the laboratory offering the

services nationwide. In other situations, different MACs in different regions might treat the same

type of laboratory test differently from a coverage standpoint. Therefore, Part B enrollees in

different parts of the country receive different Medicare benefits depending solely on the

policymaking of the MAC in the area where the laboratory furnishing the testing is located.

21.

Recognizing this particular flaw in the MACs’ LCD process, HHS’s Office of

Inspector General (“OIG”) issued a report in January 2014, No. OEI-01-11-00500, criticizing

various aspects of the LCD process, including objecting to the inconsistency of different LCDs and

of the “blanket denials” made by some MACs in some regions for some services. The OIG also

noted that (a) the Medicare Payment Advisory Commission, a statutorily designated expert group,

recommended in 2001 that Medicare eliminate LCDs; and (b) the Government Accountability Office

criticized the “broad discretion” given to MACs because such discretion “resulted in variations of

coverage.” OIG Report at 4, 10.

22.

CMS has issued guidelines in a Medicare manual for MACs to use to give notice of

draft LCDs. Under these guidelines, Part B enrollees are not given notice of proposed LCDs;

instead, MACs “shall solicit comments from the medical community.” The MACs also are required

to post draft LCDs on their websites. See Medicare Program Integrity Manual § 13.7. Nothing in

the guidelines requires a MAC to give any particular weight to the comments submitted by

laboratories and test-ordering doctors, and MACs seldom do so, as shown by the LCDs discussed

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-below. In short, MACs have the complete discretion to ignore comments from laboratories and

ordering physicians and/or to rely on comments received through ex parte communications.

23.

Congress established a formal appeal process for Part B enrollees, only, to challenge

LCDs after they go into effect. 42 U.S.C. § 1395ff(f). Regulations applicable to this process are at

42 C.F.R. §§ 426.100-426.130. Obviously, an enrollee must know about the process to use it.

Moreover, to pursue this process, an enrollee must demonstrate a need for a particular item or

service that is being excluded from coverage by an LCD. The enrollee must also submit highly

technical information to successfully challenge an LCD through this process.

24.

Providers and suppliers of the services, including clinical laboratories, which are in

the best position to produce the information necessary to challenge an LCD, are not permitted to

pursue this process on behalf of a patient and cannot use this process, themselves, to challenge

LCDs. 42 U.S.C. § 1395ff(f)(5). Laboratories and other suppliers of Part B services may therefore

only proceed through a separate administrative appeal process, under 42 U.S.C. § 1395ff(b), on a

Medicare claim-by-claim basis after coverage for their testing has been denied by a MAC pursuant

to an LCD. In other words, laboratories must wait until a Medicare claim for a particular patient is

denied by the MAC before they can pursue an appeal of the claim. Moreover, under this other

process, the laboratories may not challenge the validity of an LCD itself. Additionally, the

administrative law judge (“ALJ”) who hears the laboratory’s appeal in this other process must give

“substantial deference” to the LCD used by the MAC to deny a laboratory’s Medicare claim. See 42

C.F.R. § 405.1062(a). Making matters worse, the Chief ALJ for this process recently put a

minimum two-year hold on the ALJ process due to a backlog of Medicare appeals. See Mem. from

Nancy J. Griswold, Chief ALJ, Office of Medicare Hearings & Appeals, to Medicare Appellants

(Dec. 24, 2013). Thus, it will be years before a laboratory can even attempt to avoid the application

of an adverse LCD for a claim for laboratory services ordered by a doctor today for a Medicare

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-patient. Several of the laboratory members of CCLA currently have administrative appeals pending

and/or will be filing additional appeals, which will be adversely affected by the delay caused by the

two-year hold on ALJ appeals.

25.

Congress has mandated that Medicare payment for laboratory services be made on the

basis of a national fee schedule. 42 U.S.C. § 1395l(a)(2)(D). Medicare payment is not at issue here.

Rather, Medicare coverage of services is at issue. If a MAC does not cover a service due to a

particular LCD, Medicare will not pay for it.

The LCDs at Issue

26.

HHS acknowledges that since the inception of the Medicare fee schedule for

laboratory services, there has been “a significant amount of technological change in the clinical

laboratory area . . . .” Proposed Rule, 78 Fed. Reg. 43,282, 43,350 (July 19, 2013). HHS further

notes that many new technologies now exist that did not exist when the fee schedule was established,

most notably genetic and genomic tests used by physicians to “personalize” the delivery of medical

services for their patients. The new technology includes laboratory-developed tests, which use

sophisticated proprietary technology. Id. While HHS, through CMS, has requested comments on

the Medicare payment policy for the new testing, as reflected in the discussion in the July 19, 2013

Federal Register, HHS and CMS defer totally to the MACs to determine Medicare coverage for such

tests. And, as shown below, over the considerable opposition of clinical laboratories and other

affected parties, MACs are making blanket denials of coverage for testing ordered by physicians for

their patients based on LCDs the MACs develop exclusively.

27.

Genetic testing is also known as “molecular diagnostic testing.” It uses laboratory

analyses of nucleic acids (DNA/RNA) to detect variants in genes that may be indicative of disorders

and also to test for histocompatibility antigens. This technology is now available due to the results

of the Human Genome project. As indicated above, the testing at issue here does not involve genetic

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-testing for asymptomatic patients, such as screening tests for those who might want to know their

susceptibility to breast or ovarian cancer due to hereditary factors. Rather, the testing at issue in this

action is testing ordered by doctors to guide and manage their treatment of patients who have active

and often deadly diseases, such as lung and other forms of cancer. For example, the results of a

particular type of molecular diagnostic test might be used by a physician to advise a patient about

whether to forego a chemotherapy regimen following a surgical excision of a particular type of

malignant tumor when the test results show that for this particular patient, it is unlikely the cancer

will metastasize (spread) to other organs given the patients’ genetic makeup. Such a result could

spare a particular patient the toxic side effects of chemotherapy, which chemotherapy actually only

helps about one-half or less of the patients who receive it from their doctors. Before such laboratory

testing existed, all patients with a particular kind of cancer would be administered the same

chemotherapy regimen pursuant to standard treatment protocols, whether or not the cancer was

going to spread to other parts of the particular patient’s body without such chemotherapy.

28.

One of the first LCDs developed by a MAC regarding Medicare coverage for

molecular diagnostic testing is LCD L24308, issued by Noridian in 2006. In this LCD, Noridian

acknowledges that “there are numerous potentially medically reasonable and necessary ‘therapy

directing’ genetic tests, either currently available or in the development ‘pipeline’ for emerging use

in coming months and years.” But, the LCD substantially limits coverage beyond a relatively few

genetic tests used in a relatively few situations. According to this LCD, Noridian “has decided that

no additional ‘personalized medicine’ or ‘therapy-directing’ testing will be included under the

coverage of this LCD.” However, in this same LCD, at page 5, Noridian specifies that coverage for

such tests will nevertheless be allowed in the future “based on applicable FDA approval and labeling

(if such exists) and appropriate standard of reasonableness and necessity.” Essentially, this meant

that laboratories would have to pursue administrative appeals for other genetic tests after claims

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-were denied and proceed on a case-by-case basis through the administrative appeal process, which

has recently been placed on hold.

29.

In 2011, however, another MAC, Palmetto, issued Draft LCD L32288, which created

considerable controversy in the clinical laboratory field because it drastically changed the standard

for coverage for molecular diagnostic testing. Under this LCD, at page 2, Palmetto confirmed its

policy of “non-coverage” for all molecular diagnostic tests that are not explicitly covered by an

NCD, an LCD, or a coverage article published by Palmetto. Palmetto further held that until it

determines whether a particular test meets Medicare’s reasonable-and-necessary requirement, the

test will be considered “investigational” and not covered by Medicare. Not surprisingly, many

laboratories, doctors and other health care professionals objected to this LCD. Moreover, the

process for obtaining Palmetto’s approval has become unworkable and is based purely on ad hoc,

subjective criteria that are changed at the whim of the MAC’s medical directors. The problems are

addressed in the March 11, 2013 letter from the American Clinical Laboratory Association, a

national trade group of laboratories, to Palmetto’s Medical Director, copy attached as Exhibit A. In

sum, this national association stressed that Palmetto’s blanket denial policy in the LCD “will restrict

patient access and negatively affect medical diagnosis and treatment for Medicare beneficiaries.”

Exhibit A, page 1. Several months later, CCLA met with HHS/CMS officials to try to alleviate

some of the ongoing major problems resulting from this LCD. See October 10, 2013 letter, Exhibit

B, confirming the substance of the meeting.

30.

However, rather than fixing the problems, Palmetto finalized additional LCDs, which

set forth the same blanket denial policy for molecular diagnostic testing not specifically approved by

Palmetto. For example, Palmetto published a draft LCD, LCD L33599 in 2013, which confirmed

Palmetto’s policy that unless a molecular diagnostic test was expressly approved by Palmetto, it

would be considered non-covered. In a 16-page letter, dated August 29, 2013 (Exhibit C), the

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-Association for Molecular Pathology, a national association of doctors, scientists, and

representatives from leading academic hospitals, stressed the negative impact of this policy on

Medicare patients and pointed out the lack of empirical support for the blanket denial policy. Yet,

Palmetto made the draft LCD final effective January 30, 2014.

31.

In or about September 2013, Noridian replaced Palmetto as the MAC for Jurisdiction

E, which includes California and other Western States, and issued a final LCD, L33541, without

giving any prior notice or soliciting any comments, confirming that it was adopting as its policy

Palmetto’s policy regarding molecular diagnostic testing, discussed above. In the meantime, at least

two other MACs have issued their own policy for molecular diagnostic testing through LCD L33703

and Draft LCD L34506, which policy is different from Palmetto’s and Noridian’s policy.

32.

More recently, Palmetto has issued yet another LCD affecting coverage for molecular

diagnostic testing in the field of pharmacogenomics -- Draft LCD 34999. Pharmacogenomic testing

is ordered by doctors to provide them with information about the risks inherent in the treatment of

patients with pharmaceuticals.

Serious, disabling and fatal adverse events associated with

therapeutic drugs are well documented. For example, in 2012, the FDA, itself, received a total of

210,648 domestic reports of such incidents. See Institute for Safe Medication Practices, “Leading

Drug Safety Issues of 2012,” Quarter Watch, 2012 Q4 (2013). Obviously many more incidents went

unreported to the FDA. Pharmacogenomic testing can reduce the risk associated with many

medications far greater than the testing proposed to be covered under the Draft LCD, as commenters

across the country, including CCLA (Exhibit D) and others (Exhibit E), have informed Palmetto.

Notwithstanding these presentations, on March 2, 2014, Palmetto chose to implement the draft as a

final LCD effective March 6, 2014, thus depriving Part B enrollees of the benefit of a whole array of

safe, effective and economical testing.

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-33.

The laboratory LCDs are not limited to molecular diagnostic testing. For example,

MACs have issued LCDs affecting coverage of laboratory testing for drugs of abuse. Different

MACs have developed different coverage policies for such testing over the objections of various

stakeholders, including CCLA (Exhibit F).

Proposed LCDs will disallow coverage for all

confirmatory drug testing ordered by physicians for patients suspected of using illicit drugs if a less

comprehensive screening test showed negative results for drug use. See LCDs DL 35105 and DL

35159. This policy is inconsistent with the standard of medical practice regarding testing for drug

abuse. In fact, the Florida and Kentucky Attorneys General and the Florida Assistant Secretary for

Substance Abuse and Mental Health submitted comments to the MAC about how destructive this

policy will be to efforts throughout the country to stop the abuse of heroin and prescription pain

medications and “would walk the science back” by disallowing confirmatory quantitative laboratory

testing of the less sensitive cup tests as physicians attempt to combat prescription drug abuse

(Exhibit G).

34.

Because of the constitutional and statutory violations discussed herein, CCLA and its

members and Medicare Part B enrollees, including Jane Doe, are being, and will continue to be,

harmed due to the deprivation of rights assured by the constitutional and statutory provisions at issue

here. Specifically, Medicare Part B enrollees are being denied access to extremely valuable clinical

laboratory tests that their doctors order or would likely order if the MACs did not develop and apply

the LCDs discussed above.

35.

Furthermore, the Secretary and the MACs, as agents of the Secretary, are required to

follow and abide by the mandatory provisions of the controlling Medicare statutes and regulations as

discussed herein.

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-CAUSES OF ACTION

COUNT I:

Congress Has Unlawfully Delegated Regulatory Power to the MACs

36.

Plaintiffs repeat and reallege paragraphs 1-35 as if set forth fully herein.

37.

Article I, Section 1 of the United States Constitution vests all federal legislative

powers in Congress. The Constitution therefore bars Congress from delegating regulatory power to

private entities.

38.

Congress’s express delegation to MACs of the authority to develop and apply LCDs

pursuant to 42 U.S.C. § 1395kk(a) violates Article I, Section 1 of the United States Constitution

because, in delegating the authority to develop LCDs to MACs, Congress has unlawfully delegated

critical Medicare regulatory policymaking authority to private entities.

COUNT II:

As the Secretary’s Agents, MACs Have Violated 42 U.S.C. § 1395hh(a)

39.

Plaintiffs repeat and reallege paragraphs 1-35 as if set forth fully herein.

40.

The MACs’ practice of developing and implementing Medicare policy through the

informal procedures of soliciting comments from the “medical community” and not enrollees and

others before finalizing and implementing LCDs violates 42 U.S.C. § 1395hh(a), which requires new

Medicare policy, such as the Medicare coverage policies of the LCDs, to be promulgated pursuant to

the rulemaking requirements of the APA.

COUNT III:

As the Secretary’s Agents, MACs Have Violated 42 U.S.C. § 1395ff(f)(2)(b)

41.

Plaintiffs repeat and reallege paragraphs 1-35 as if set forth fully herein.

42.

MACs are limited to developing LCDs based exclusively on the requirements of 42

U.S.C. § 1395y(a)(1)(A) pursuant to the mandatory language 42 U.S.C. § 1395ff(f)(2)(b). Section

1395y(a)(1)(A), in turn, is limited to excluding Medicare coverage for items and services that “are

not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the

functioning of a malformed body member.” The Medicare regulation generally implementing this

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-statutory requirement is 42 C.F.R. § 411.15(k), which similarly limits Medicare coverage to items

and services reasonable and necessary for the diagnosis or treatment of an illness, etc. And, the

specific Medicare regulation dealing with laboratory services, 42 C.F.R. § 410.32(a), indicates that

to be considered reasonable and necessary under the controlling regulation, § 411.15(k), laboratory

and other diagnostic services must be ordered by a patient’s attending or consulting physician for the

treatment of patient’s specific medical problem and used for the management of that medical

problem.

43.

Notwithstanding the fact that the MACs’ statutory directive is limited to these

parameters, the MACs routinely use coverage criteria found elsewhere in § 1395y(a)(1) and

§ 405.211 to develop LCDs denying coverage for laboratory tests, such as basing coverage denial

policies in LCDs on the MACs’ concept of experimental and investigational services, which is not a

criterion found in § 1395y(a)(1)(A), § 411.15(k), or § 410.32(a). Instead, it is a separate criterion

found at § 411.15(o) and pertains to medical devices rather than to diagnostic laboratory services.

The critical criteria applicable to coverage for clinical laboratory services are contained in

§ 410.32(a), and are derived from § 1395y(a)(1) and § 411.15(k), as the Secretary pointed out when

promulgating § 410.32. See Final Rule, 62 Fed. Reg. 59,048, 59,057 (Oct. 31, 1997). In short,

laboratory tests must be clinically useful to patients’ treating and consulting physicians.

44.

The MACs’ use of extra-statutory and extra-regulation criteria is ultra vires and

therefore invalid, as are the LCDs based on the use of such criteria.

COUNT IV:

The Secretary Has Violated the Clear,

Nondiscretionary Duty Imposed By 42 U.S.C. § 1395y(l)(5)

45.

Plaintiffs repeat and reallege paragraphs 1-35 as if set forth fully herein.

46.

Under 42 U.S.C. § 1395y(l)(5), the Secretary is required to develop a plan to evaluate

new LCDs to determine which should be adopted nationally and to what extent greater consistency

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18

-can be achieved among LCDs. As pointed out in the recent HHS OIG report on LCDs (at pages

12-13), this is not being done, effectively causing access issues for beneficiaries.

47.

Plaintiffs have no other avenues of relief available to them. For example, the

Secretary’s recent ad hoc decision to suspend the ALJ process available to laboratories to challenge

the application of LCDs on a claim-by-claim violates Congress’s intent for ALJ hearings to be

finalized within 90 days of the filing of an ALJ appeal, as reflected in 42 U.S.C. § 1395ff(d)(1), and

also denies laboratories and other affected providers and suppliers procedural due process of the law

since delaying hearings for two or more years deprives them of a timely notice and opportunity to be

heard. This hearing process is especially important to laboratories and other providers and suppliers

with respect to LCDs since they are not permitted to challenge the LCDs through the process

available to Part B enrollees only.

COUNT V:

The Secretary Has Violated the Clear,

Nondiscretionary Duty Imposed By 42 U.S.C. § 1395ff(i)

48.

Plaintiffs repeat and reallege paragraphs 1-35 as if set forth fully herein.

49.

Under 42 U.S.C. § 1395ff(i), the Secretary is required to establish a mediation process

that is to be used to resolve disputes over LCDs when there is a systematic and a large volume of

complaints about the LCDs from stakeholders, including groups representing providers. There is

and continues to be a large volume of and systematic complaints over the molecular diagnostic

testing LCDs as detailed above. Yet, as far as Plaintiffs can determine, there is no mediation process

available to them and their members and other affected parties.

50.

Plaintiffs have no other avenues of relief available to them.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs request:

A.

An order declaring the LCD process and the resulting LCDs for laboratory services at

issue to be invalid and unenforceable;

B.

An order enjoining the Secretary, her employees, and her agents, including the

MACs, from developing and applying any draft, existing or new LCDs for clinical laboratory

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Exhibit A:

March 11, 2013 Letter from American Clinical Laboratory Association to Palmetto GBA

Plaintiffs’ Complaint,

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March 11, 2013

Dr. Elaine Jeter, Medical Director Palmetto GBA J1 Part B Medical Affairs P.O. Box 1476

Augusta, Georgia 30903-1476

American Clinical Ltihoratiory

As` elation

RE: Proposed/Draft Local Coverage Determination: Molecular Diagnostic Tests (MDT) (DL 32288)

Dear Dr. Jeter,

The American Clinical Laboratory Association ("ACLA") hereby submits comments on Palmetto GBA's ("Palmetto's") Draft Local Coverage Determination for Molecular Diagnostic Tests.1 ACLA is an association representing clinical laboratories throughout the country, including local, regional, and national laboratories. As providers of millions of clinical diagnostic laboratory services each year, many of them in Palmetto's Medicare Administrative Contractor jurisdiction, ACLA member companies would be impacted directly by the Draft LCD.

We agree with the Centers for Medicare and Medicaid Services ("CMS") and Palmetto that the Medicare program, through its administrative contractors, is entitled to know what items and services it is paying for on behalf of Medicare beneficiaries and also that those items and services are reasonable and medically necessary. Regarding this Draft LCD, ACLA believes that the scope is overbroad, as it appears that it would encompass many tests whose medical necessity and clinical utility are widely recognized. Broadly denying coverage for well-established tests will restrict patient access and negatively affect medical diagnosis and treatment for Medicare beneficiaries. Additionally, the Technical Assessment process should have consistent and objective standards that are easy for laboratories to understand and abide by and are consistent with New York State and other regulatory oversight agencies. We have several constructive suggestions for Palmetto as it amends and finalizes the Draft LCD.

A. The Scope of the Draft LCD is Overly Broad

The text of the draft LCD is unclear with regard to what tests it would cover, but on its face, it could be read to apply to almost all testing performed by clinical laboratories, including several long-established tests. The Draft LCD's definition of a molecular diagnostic test ("MDT") reads:

Draft Local Coverage Determination (LCD) for Molecular Diagnostic Tests (MDT) (DL 32288), available at httpl/www.ems.govirnedicare-coverage-database/details/lcd-

- details.aspx?1.CD1d=33028&Contrici-174&ver=l 5&ContrVer,-,1&na e= I 74* l&bc=AOAAAgA AAA AAAAVQ3d %3d&.

1100 New York Avenue, N.W.. Suite 725 West I. Washington, DC 20005 r (202) 637-9466 Fax: (202) 637-2050

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ACLA Comments on Draft LCD for Molecular Diagnostic Tests (DL 32288) March 11, 2013

Page 2

Any test that involves detection or identification of nucleic acid(s) (DNA/RNA), proteins, chromosomes, enzymes, cancer chemotherapy sensitivity and/or other metabolite(s). The test may or may not include multiple components. A MDT may consist of a single mutation analysis/identification, and/or may or may not rely upon an algorithm or other form of data evaluation/derivation.

We recommend that the definition of MDT be limited to a test for which DNA or RNA is the analyte of interest; that evaluates a patient's DNA or RNA to determine if there are any mutations (such as nucleotide changes, deletions, insertions, or rearrangements) that have a pathological effect; and that employs techniques specific to molecular pathology testing such as DNA and RNA isolation, polymerase chain reaction ("PCR"), hybridization, and sequence analysis. This would be a far more precise and accurate definition of a molecular diagnostic test and would appropriately limit the scope of the LCD to what we assume are its intended targets, based on its title,

ACLA is concerned, also, by the description of "Applicable Tests/Assays." It is not clear whether the Draft LCD would apply to any test that meets the definition of MDT or one of four broad criteria, or whether it would apply to a test meeting the MDT definition and any one of the four additional criteria. (Those criteria are: all non-FDA approved/cleared Laboratory Developed Tests ("LDTs"); all modified FDA-approved/cleared kits/tests/assays; all tests that use more than one CPT code to identify the service (including anatomic pathology codes); and all tests that are billed with a "not otherwise classified" ("NOC") code.)2 The introduction says "In addition to the MDT definition, this policy applies to all tests that meet at least one of the following descriptions..." Given the broad scope of the definition of MDT, as proposed, the Draft LCD would catch thousands of tests in its scope if it applied to all molecular diagnostic tests and to any tests that met one of the other criteria. Even if it applied only to those tests that are considered MDTs and meet at least one of the other criteria, we still believe it would reach a large number of tests that Palmetto may not intend to reach with the policy.

In a previous iteration of the Draft LCD, released late in 2011, Palmetto agreed not to apply the non-coverage policy to a test that had received a specific CPT code.'' It is unclear whether Palmetto has reversed course and decided to include all Tier l and Tier B molecular pathology tests in the scope of the LCD, now that those tests have received specific CPT codes. For reasons discussed more fully below, Palmetto does not need to conduct a Technical Assessment on tests that have been assigned CPT codes that are recognized by the Medicare program, and they should be excluded from the application of this policy. This Draft LCD should apply only to new molecular diagnostic tests (and only those encompassed by a more limited definition and clarification of the additional criteria) and not to those tests that have been 2 We believe that instead of "All tests that meet the first three bullets and are billed with an NOC code," the last

criteria probably could read "All tests that meet any of the first three bullets and are billed with an NOC code," but it is not clear why it is necessary to add the additional criterion of being billed with an NOC code. For example, a non-FDA approved LDT would fall under the scope of the policy as drafted, whether or not it was billed with an NOC code.

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ACLA Comments on Draft LCD for Molecular Diagnostic Tests (DL 32288)

March I I, 2013

Page 3

recognized and paid for by the Medicare program for more than a decade, such as KRAS and

BRAF.

Palmetto should narrow the scope of the Draft LCD by revising its definition of MDT so

that it more accurately describes the tests commonly known as molecular diagnostic tests and

does not inadvertently (or intentionally) include tests beyond that. Palmetto also should exclude

from the scope of the Draft LCD any Tier I or Tier II molecular diagnostic tests that have been

assigned CPT codes.4

B.

Too Many Tests Would Be Subject to the Technical Assessment

Requirements.

If a test has been assigned a CPT code through the CPT Editorial Panel, it should not be

subject to a Technical Assessment. Conducting a Technical Assessment on each and every

KR.AS and BRAF test done by every laboratory that submits claims to Palmetto is unnecessary.

We recognize that Palmetto has limited resources to conduct the Technical Assessments for the

tests, and therefore we believe it will be difficult for Palmetto to process such a great number of

tests from multiple laboratories in a timely manner. This is likely to result in a backlog that will

delay payment for new tests in particular, as well as for existing tests.

Molecular diagnostic tests that have been assigned CPT codes already have been shown

to have clinical utility and validity. It is clear what each of the tests is and what its intended use

is. Palmetto should not have to review each molecular diagnostic test's "analytical and clinical

validity and clinical utility" if a test has been through a review by the CPT Editorial Panel and

has been assigned a CPT code. Further, the Medicare program has recognized the Tier I and Tier

II CPT Codes, and it has recognized the value of and paid for the tests represented by them for

many years. We believe that if a molecular diagnostic test has an assigned CPT code, it should

not have to undergo a Technical Assessment.

Similarly, if a test has received approval through New York State's Clinical Laboratory

Reference System ("CLRS"), it should not have to undergo a duplicative Technical. Assessment

by Palmetto. CLRS has a rigorous test approval process through which laboratories providing

tests to New York State patients must demonstrate the test's specifications for accuracy,

precision, reportable range of test results, reference intervals, analytical sensitivity and

specificity and other applicable performance characteristics, including the clinical sensitivity and

specificity of novel assays without comparative methods; assure that the established reference

interval is appropriate for the laboratory's population; and, submit validation data and a Standard

Operating Procedures Manual for review by CLRS staff in accordance with established

guidelines. The universe of tests covered by New York State's CLRS program overlaps in large

part with the universe of tests that Palmetto intends to review, and much of the information

As an aside, we are puzzled by Palmetto's statement that "the available language in the HCPCS and CPT manuals to describe the pathology and laboratory categories and the tests included in those categories are not specific to the actual test results provided..." It is not clear why such descriptions should specify the test results provided when they are meant to describe the tests themselves.

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ACLA Comments on Draft LCD for Molecular Diagnostic Tests (DL 32288) March 1 1, 2013

Page 4

submitted to Palmetto will be the same. New York State's CLRS program is a well-established and professional program. Rather than requiring another Technical Assessment, Palmetto should assign unique test identifiers to those tests that have been reviewed and approved already by the CLRS program. This would be consistent with oral and written representations made to ACLA in late November 2011. (See attachment.) At the very least, a laboratory should be able to submit the same dossier that it did to New York State without having to customize it for Palmetto.

C. The Technical Assessment Process Should Be More Transparent and Standardized.

The Draft LCD lacks many details about the Technical Assessment process. For example, it says that a lab "must submit a comprehensive dossier on each new test/assay prior to claim submission," yet there is no information about what must be included in a dossier and how it must be submitted. Some of this information may be included with other information about Palmetto's MolDx program, although that program is not cross-referenced in the Draft LCD, and the program's processes and parameters have shifted repeatedly since it was announced. We believe there is still confusion about what information should be included in the dossier. As a result, laboratories sometimes have to submit information multiple times before a dossier is complete. Moreover, it also appears that the requirements for the dossier seem to vary from one test submission to the next and from one laboratory to the next. As we have suggested in the past, it would be helpful for the entire process and instructions to be set forth in one document that is easily accessible and easily understood. Without clear direction for what should be included and prompt review of the materials submitted in a dossier, the policy in effect could act as a denial of some tests that are reasonable and medically necessary for Medicare beneficiaries.

We are concerned that there are no objective standards for assessing the "analytical and clinical validity and clinical utility" of a test that have been articulated and publicized. Because the LCD states that the tests are non-covered, there should be greater transparency in the Technical Assessment process and a clear statement of the rationale for when the test is considered non-covered. Further, we would like to see a process for appealing and getting a timely review of a decision that a test does not meet the "analytical and clinical validity and clinical utility" tests.

D. Conclusion

ACLA recommends that Palmetto narrow the scope of the Draft LCD by amending the definition of MDT to encompass only those tests that truly are molecular diagnostic tests. Also the LCD should only apply to new tests that have not been validated in another way, such as being described by a CPT code or being approved by the New York State CLRS program. We also are concerned that broadly denying coverage for widely recognized and clinically accepted tests will restrict patient access and negatively affect medical diagnosis and treatment for Medicare beneficiaries. Finally, we request there be objective written standards for each

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ACLA Comments on Draft LCD for Molecular Diagnostic Tests (DL 32288) March 11, 2013

Page 5

Technical Assessment and a reasonable appeal process that would help promote fairness and impartiality in the approval process. Thank you for your attention to our concerns.

Sincerely,

Alan Mertz, President

Attachment

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Exhibit B:

October 10, 2013 Letter from California Clinical Laboratory Association to CMS

Plaintiffs’ Complaint,

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(

(

CCIIIN R

AI

TC

AN

i

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roity

ASSOCIATION

1127 Eleventh Street, Suite 820 • Sacramento, CA 95814 • (916) 446-2646

October 10, 2013

Louis Jacques, MD

Director, Coverage and Analysis Group Center for Medicare Management

Centers for Medicare and Medicaid Services Room C4-01-26

7500 Security Boulevard Baltimore, MD 21244

Re: Palmetto MolDx

Dear Dr. Jacques,

The California Clinical Laboratory Association (CCI.A) would like to express our thanks for the opportunity to meet with you and your staff on August 8, 2013. Since 2008, we have worked closely with Palmetto GBA (Palmetto) to provide comments on how the MolDx program can be designed and managed under the existing law and regulations of the Medicare program. Since CMS has oversight over the MolDx program, we used this meeting as an opportunity to share our stakeholder concerns with you and your staff. During the course of our meeting, we strongly described a number of our substantial concerns regarding the implementation of

Palmetto's MolDx program. With your group, as with Palmetto, our hope is to craft a

consensus that will allow the MolDx program to fulfill its stated intent, both for the jurisdictions that are currently utilizing MolDx and for any future expansions to new geographies.

This letter serves as the proposal you requested us to provide as a follow up to that meeting. CCLA supports the intent of the MolDx program to establish transparency, evidentiary standards for technology assessments (TA), and a clearer, more consistent path for coverage and payment. However, the program design and operations must be consistent with

regulations that guide the applicable state and federal programs. This is especially important since this program is not monitored as a designated innovation project under the Center for

Medicare & Medicaid innovation (CMMI). We discuss both longstanding and current concerns about the manner in which the program has been implemented to date. Our goal in this document is to present and explain our concerns, make clear how they reflect real problems that are counterproductive to CMS goals, and provide potential solutions. We summarize our proposed solutions in the conclusion.

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Concern 1: MolDx violates multiple aspects of due process 1. The foundational LCD for MolDx is improper in scone.

Our foremost concern is based on the "foundation" of the MolDx program: LCD L32288,

Molecular Diagnostic Tests, which essentially states that any and all molecular tests that are not specifically mentioned as a covered service are considered non-covered. This overreaching LCD was opposed by many constituents comprising the CAC. The same "foundational" MolDx LCD is in the process of being duplicated in.111 (NC/SC/VA/WV), where opposition and concerns have been publicly described by the Association for Molecular Pathology as wel1.1

The LCD is contrary to Medicare negotiated rule making criteria regarding the LCD process for laboratories; violates the Program Manual chapter for LCDs; and puts any laboratory provider that performs these tests in the MolDx jurisdiction at a large disadvantage over similar

laboratories elsewhere. As such, we have repeatedly requested that this improper LCD should be rescinded. Both CCLA and ACLA had been promised that this LCD would be rewritten as a coverage LCD, as opposed to an open ended non-coverage LCD; however, nothing has been initiated. We believe that an LCD should not be written for anything other than a specific and evidence based coverage or non-coverage decision for a specific test or condition -- as was originally intended in negotiated rulemaking. The program manual states that all LCDs must be based on analysis of evidence, whereas the MolDx LCD simply.states without citation that all tests Palmetto has not yet had time to review are medically unnecessary, regardless of the applicable data.

2. The Ongoing MolDx Publication Process violates Manual instructions.

An LCD is statutorily defined as a coverage decision that is based on the "reasonable and necessary" standard and is binding in a MAC jurisdiction. The program manual provides very clear instructions about how to promulgate an LCD. This process is clearly described in the Medicare Program Integrity Manual, which was revised as recently as June 21, 2013. Section 13.7.2 of the manual states that a draft LCD must be published and requires a minimum 45 day comment period before that LCD can be finalized. Section D also articulates a requirement for an open CAC meeting: "Contractors shall provide open meetings for the purpose of discussing draft LCDs. Carriers shall hold these open meetings prior to presenting the policy to the CAC. To accommodate those who cannot be physically present at the meetings, contractors shall provide other means for attendance (e.g., telephone conference) and accept written or e-mail comments...Interested parties (generally those that would be affected by the LCD, including providers, physicians vendors, manufacturers, beneficiaries and caregivers) can make presentations of information related to draft policies..." Yet, Palmetto has stated that LCD L32288 allows it to post non-coverage decisions at will, without the benefit of, and without the right to, any of the formal LCD and CAC processes set forth in the Program Manual, including its notice and comment provisions.

htto://vvww.amp,org/publications_resourees/position statements letters/docum• ts/20l3/Palmetto%2ODLCD%20M DT%20DL33599.pdf (AMP complaints about extension of MOLDX to 3111.

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Although all other CMS contractors continue to follow the Program Manual process, Palmetto's MolDx program does not, and LCD L32288 specifically did not. The justification provided by Palmetto is that their coverage by article process is "more expedient," But expediency is not a sufficient justification for ignoring due process. The procedures for LCDs mandated in the Program Manual are less expedient for good reason. They are designed to ensure that the end result is legitimately obtained after appropriate notice and opportunity for comment, and that the end result is a good policy because it has been informed by stakeholder input. To ignore these processes for the sake of expediency is to risk an illegitimate outcome that is bad policy, and that is exactly what has occurred in this instance,

in some cases, Palmetto has argued that specific tests that are non-covered are "statutorily excluded" from Medicare coverage. However, for laboratory tests, statutory exclusions are typically screening tests where there are no signs or symptoms of a disease. Palmetto has created a similar "statutory exclusion" if it thinks a test is not actionable enough or if it is de facto "prognostic." Definition of what specifically constitutes "signs" of disease and the "actionability" of results can be subjective and therefore potentially controversial —this is why it should be exposed to the LCD process (In addition, these reasons for non-coverage are paraphrases of the reasonable-necessary concept, and therefore fall under the protections and process of SSA 1862 decisions for LCDs). CCLA members are concerned that under Palmetto's internal process, some prognostic tests have been deemed to have adequate clinical utility for coverage without further predictive evidence, while others have not.

Concern 2: The MolDx Review Process Lacks Transparency and is Inconsistent

Palmetto's staff openly admit that their TA process relies very heavily on external subject matter experts (SMEs). The identity and number of these subject matter experts is unknown, which concerns us because of the lack of transparency and the possibility for conflicts of interest. However, our greater concerns are the clearly inconsistent standards to which different dossiers are held by different reviewers, as well as the long and unpredictable turnaround times for certain reviews (see below). Too often, error-filled assessments are

returned to the submitting lab, along with a conclusory statement that the matter is closed for six months and at that time; "new publications" will be reviewed. One recommendation to

resolve at least the issue of transparency and facilitate comment and advice would be to develop a CAC-like panel with expertise in molecular diagnostics. Consistent with the

precedent set by the national MedCAC process, the MolDx MedCAC panel, as well as their list of SMEs, would be published; thereby facilitating independent expert review while improving the transparency with which those reviews occur. Labs would be provided with the name of the SME assigned for review of their submission, which would also allow the test provider to raise any concerns they may have about reviewers with potential conflicts of interest or insufficient expertise. The creation of this MolDx-specific CAC together with the restoration of the

aforementioned LCD process would represent significant improvements over the current MolDx process without being unduly burdensome to participants.

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Concern 3: MolDx Evidence Standards Can and Should be More Transparent and Consistent

The reason most frequently given by Palmetto for not having a successful technology

assessment is the lack of clinical utility. While we agree that there needs to be evidence of the actionability of tests, the Medicare regulations do not refer to "clinical utility"; instead, the basic tenet of Medicare coverage is defined as Medical Necessity (Sodal Security Act § 1262; 42 U.S.C. § 1395y}. Medicare defines medical necessity as services that are "reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body member, and not excluded under another provision of the Medicare

Program."

Nonetheless, if medical necessity is to be interpreted as "clinical utility", then the standard should be clear and consistent, and reflect an understanding of the realities of medical practice, which unfortunately has not always been the case with Palmetto's dossier reviews. For

example, while Palmetto has favored some companies with approval based on a clinical utility standard of impacting provider decisions (Fryback and Thornbury Level 3, with no health outcome data, let alone demonstrated improvement in health outcomes), others have been declined with almost identical or even higher levels of evidence (Fryback and Thornbury Levels 4 or higher). In addition, if health outcome benefit is the new desired and regulatorliy

established standard, then reimbursement regulations must also be changed for pricing to be adjusted accordingly to reflect the heavy additional costs of the prospective year, multi-center randomized clinical studies that presumably will be required. This has not been the case, however, with MACs using raw cost of goods sold as the benchmark for pricing. Critical to any technology assessment paradigm for coverage decisions, however, is a value-based mechanism for determining pricing and reimbursement that recognizes exactly how medicine is practiced in the "real world".

Concern 4: MolDx Coding Policies

The 2013 Tier I AMA CPT codes for molecular diagnostic tests were created to provide payor transparency for tests for which coverage and reimbursement are being sought. These codes were created to be analyte specific but methodology agnostic both for coverage and pricing. However, the MolDx program directly contravenes this intent by requiring methodology specific coding in addition to CPT coding to enable Palmetto to differentiate between laboratory developed tests (LDTs) and FDA-cleared or approved tests for the same analyte. Although FDA clearance is clearly not a prerequisite for Medicare coverage, Palmetto has taken the position that there are substantial differences between validated LDTs and FDA-cleared or approved tests, and therefore MolDx prices FDA-cleared or approved versions greater than LDTs for the same analyte. There are several pivotal problems that result.

s Such a blanket policy assumes that all validation dossiers for all FDA-cleared or

approved tests are superior to their LDT brethren, which simply is not the case. In fact, not only is the validation package for certain LDTs superior to that for some FDA-cleared

(31)

or approved tests, but the clinical utility of certain LDTs exceeds that of their FDA-cleared or approved counterparts. For example, the pre-market approval (PMA) for Roche's BRAF test, which is a companion diagnostic for Zelboraf, focused only on the V600E mutation. However, after the drug was approved, several studies found two more mutations (V600D and V600K) against which Zelboraf worked that were present in approximately 33% of patients negative for V600E. So, while testing for all 3 BRAF mutations clearly represents the best evidence-based medical practice, and existing LDTs do this while their FDA-approved counterpart does not, the current

reimbursement level for the BRAF LDTs is lower than the reimbursement level for the FDA-approved BRAF test, which threatens the continued availability of such LDTs for patients in need of them.

• While MolDx created several tiers of pricing based on FDA approval and other factors, it transmitted only the lowest price to CMS as a CPT payment code, which was then adopted by other MACs and will shape the national price. It does not represent a fair average of the real costs or even the real MAC Medicare payments for the codes. As you know, MolDx requires the assignment of a program specific Identifier to each test. This can be very granular, with different codes for slightly different EGFR or KRAS tests, for example. At first these identifiers were to be exclusively Z codes which are copyrighted by McKesson. Many laboratories expressed concern over this mandate due to the licensure requirements in the vendor agreement, which they viewed as a conflict of interest resulting from the vendor's extensive service portfolio ranging from claims processing and utilization control products to competing laboratory services. In an effort to preserve proprietary information and limit the identifier exercise to a simple code number process, the MolDx program provided a separate Palmetto specific number, the PTI number, so that labs which were unwilling for legal reasons to accept the McKesson licensing agreement could still participate in MolDx. At the request of Palmetto, labs using PTI codes, representing greater than 70% of identifier usage, gave their consent for the public information to be published along with their respective PTI codes in the same manner as Z codes were to be published.

Now, it appears that Palmetto has unilaterally cancelled the PTI program. Palmetto indicated that it had been requested not to publish PT! codes "by CMS" and that then! code option would be shut down after August 31 and will not be recognized after January 1, 2014.

This closure of the Pit system and forcing labs to enter legal agreements with McKesson or lose all Medicare payments is simply wrong. There is no other way to put it. CCLA is adamant that identifiers should not be owned by any single for-profit entity, since a numbering system should not be proprietary. Once McKesson eliminates all competitors, such as the PTI system, this multi-billion dollar for profit enterprise will have a free hand to revise contracts against a laboratory, which would be bankrupted (by exclusion from Medicare) by resisting. The private information (supporting a PTI code) is already protected by the MolDx program and public information belongs to the labs and has been made public by the labs. Accordingly, it is the strong recommendation of CCLA that the controversy of who owns the information be

eliminated by defaulting to a simple numbering system that is not owned by anyone. It can be established by a simple numbering sequence in the registry itself, which should be viewed as an agnostic technology tool utilized by Palmetto with no interest in ownership of the data.

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Concern 5: The MolDx review cycle is lengthy and unpredictable

The MolDx technology assessment rules originally required that a response to a TA request be made within 60 days. It now states 120 days. However, even that deadline is rarely met. Many laboratories that submitted requests for review in Q4 of 2012 are still waiting as we enter October of 2013. We believe this represents a poor prediction and poor match of staffing capacity to MolDx's voluntary expansion of its scope and workload. It is easy to be grossly overcommitted and hopelessly behind; the job of management is to predict and avoid that. The MolDx program continues to refine response timelines and Palmetto representatives have represented a willingness to communicate with providers. However, just as timelines are not met, neither is communication consistent. The program cannot succeed without reasonable criteria and the discipline of meeting published timelines and establishing open

communication.

CCI.A Proposal Summary and Highlights

As detailed above, the following summarizes the highlights of our proposal for improving the MolDx program:

• Oversight of the MaiDx program at the CMS level is required to establish program consistency and adherence to existing regulatory guidelines. The program must have transparency and must provide for stakeholder comment and advice:

o Restore the statutorily mandated, Program Manual defined LCD process, and rescind LCD L32288

o Create a MolDx MedCAC, which in turn will develop its panel of SMEs, the membership of which will be publicly disclosed

o Provide the stakeholders with notice of the SME assigned to their TA submission and allow them an opportunity to comment on the SME selection

o Clarify the appropriate 'reasonable and necessary" standard for Medicare coverage of molecular diagnostic tests and specify what exactly that standard represents.

■ We recommend the standard be to demonstrate that test results of a

given diagnostic service influence the clinician's patient management decision

o Consider incorporation of a registry for new assays to facilitate early adoption while developing evidence for optimized utilization

o Develop and implement realistic yet expeditious review timelines o Restore the PTI option and/or offer a similar, proprietary, and

non-controversial identifier such as the NIH' Genetic Test Registry code numbers o Restore pricing on the basis of a gap fill methodology with the consideration of

Figure

Updating...

References