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The reporting delays will give hospital labs that perform outreach testing time to gather and format their
pricing and volume data in a manner consistent with CMS requirements. Thanks to a policy shift by CMS
in Nov. 2018, hospital outreach labs are now “applicable labs” under PAMA and will have to report data
for the first time in this next reporting cycle. Hospital labs’ exclusion from the initial data reporting in
2017 meant that CMS relied almost exclusively on data from large independent labs in setting the first
three-year cycle of fee schedule prices under PAMA. The over-reliance on data from large reference
labs artificially depressed the CLFS pricing of many common lab tests.

The LAB Act also requires the Medicare Payment Advisory Commission (MedPAC) to conduct a study and
provide recommendations on how CMS could improve its data collection process and rate-setting
methodology to establish a more accurate market rate for lab tests. MedPAC must submit its report to
Congress by June 2021.

Perhaps most significantly, the CARES Act also freezes any reductions to the CLFS in 2021, thus delaying
until 2022 any further cuts in the current price of tests on the fee schedule. Many common tests were
scheduled to have their fees cut by up to 10 percent in 2021. The maximum rate reduction in 2022,
2023, and 2024 is 15 percent from the previous year’s rate.

Appeals Court Reverses Lower Court Dismissal of ACLA v. Azar PAMA Lawsuit –

On July 30, 2019, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit overturned the
district court’s Sept. 2018 dismissal of ACLA’s lawsuit challenging CMS’s PAMA data reporting rule. The
lower court had thrown out the case on the ground that PAMA expressly precludes judicial review of the
establishment of CLFS prices. The appeals court agreed with ACLA that “Congress meant to bar
challenges to the ‘establishment of payment amounts’ but not to prevent review of the rule delineating
the data collection practices that precede and inform the setting of those amounts.”

The court did not address the merits of ACLA’s challenge. Instead, it sent the case back to the district
court to consider whether ACLA had demonstrated that CMS’s methodology is “arbitrary and capricious”
or otherwise in violation of the PAMA law. Briefing on the remand to the lower court was completed in
late spring; it was unclear when the district judge would issue a ruling. Regardless of the outcome,
PAMA data reporting will still be postponed until 2022 in accordance with the CARES Act discussed
above. But the content of the data to be reported, and what labs the data is collected from, could be
influenced by the decision in the court case.

Bipartisan Reps. Formally Introduce VALID Act; Senator Proposes Competing VITAL Act

On March 5, 2020, U.S. Representatives Diana DeGette (D-CO) and Larry Bucshon (R-IN) formally
introduced H.R. 6102, the Verifying Accurate, Leading-edge IVCT Development Act of 2020 (VALID Act).
An early draft of the bill had been circulated in Dec. 2018, but the formal introduction followed months
of interaction with industry stakeholders. The legislation would overhaul how the FDA reviews and
approves diagnostic tests going forward, and, according to the authors, would give laboratories greater
flexibility to respond to public health emergencies such as COVID-19, while continuing to keep patients
safe.
The VALID Act would create a new product category for in vitro clinical tests (IVCTs), putting their review
and approval under the guise of the FDA going forward. Currently the FDA regulates in vitro test kits as
medical devices under the Medical Device amendments to the Federal Food, Drug & Cosmetics Act.
There is considerable debate whether FDA’s jurisdiction over test kit manufacturing extends to

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