United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 25, 2022 Decided July 15, 2022
No. 21-5122
AMERICAN CLINICAL LABORATORY ASSOCIATION,
APPELLANT
v.
XAVIER BECERRA, SECRETARY, UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES,
APPELLEE
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.
2
Before: MILLETT, WILKINS, and JACKSON*, Circuit
Judges.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: The Protecting Access to
Medicare Act of 2014 (“PAMA” or “Act”), Pub. L. No. 113-
93, 128 Stat. 1040, requires “applicable laborator[ies]” to
report private payor—e.g., an insurance company—rates for
laboratory tests to the Secretary of Health and Human Services
(“HHS”). The Medicare program then uses private market
payment rate data to set new Medicare reimbursement rates for
laboratory tests. Specifically, PAMA directs the Secretary to
calculate the “weighted median” of private payor data, which
informs Medicare payment rates. 42 U.S.C. § 1395m-
1(b)(1)(A). The Act provides that once Medicare rates are
calculated, “the payment amounts . . . shall continue to apply
until the year following the next data collection period.”
Id. § 1395m-1(b)(4)(A). The Act further states that “[t]he
payment amounts . . . shall not be subject to any adjustment.”
Id. § 1395m-1(b)(4)(B).
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 the 2016 Rule as
arbitrary and capricious under the Administrative Procedure
Act (“APA”) on the basis that it depresses Medicare
reimbursement rates by excluding most hospital laboratories
*
Circuit Judge, now Justice, Jackson was a member of the panel at
the time the case was argued but did not participate in this opinion.
3
from PAMA’s reporting requirements. Specifically, ACLA
contends that because hospital laboratories tend to charge
higher prices than standalone laboratories, their exclusion from
reporting obligations results in an artificially low weighted
median.
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”
4
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.”
42 U.S.C. § 1395m-1(a)(2). This definition refers to a
laboratory that receives most of its overall Medicare funding
from the Physician Fee Schedule or the Clinical Laboratory Fee
Schedule. ACLA I, 931 F.3d at 1199–1200. These fee
schedules, in turn, typically “pay for laboratory services
provided by independent laboratories and physician-office
laboratories.” Id. at 1200. As a general matter, hospital
laboratories that provide “outreach services”—services for
people who are neither hospital inpatients or outpatients—fall
within the ambit of PAMA’s definition of an applicable
laboratory, so long as they receive most of their Medicare
revenue from the Physician Fee Schedule or Clinical
Laboratory Fee Schedule. Id.
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, “very few hospitals have laboratory-
specific NPIs, and they generally submit claims under the
hospital’s NPI.” 931 F.3d at 1202 (alteration accepted)
5
(internal quotation marks and citation omitted). Therefore,
because hospital laboratories that provide outreach services do
not typically have their own NPIs, the 2016 Rule exempts these
entities from data reporting requirements, even if they meet
PAMA’s statutory definition of an “applicable laboratory.”
See 42 U.S.C. § 1395m-1(a)(2). As such, ACLA contends that
the 2016 Rule excludes “a large swath of the clinical laboratory
marketplace from the statutory reporting requirements,” which
“reduces the weighted median of all reported tests, [thereby]
depressing the Medicare reimbursement rates.” Appellant
Opening Br. at 2, 14.
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
6
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 42 U.S.C. § 1395m-1(h)).
Accordingly, the District Court held that “even if the Court
were to rule in plaintiff’s favor on the merits, it could not order
the agency to revise any payment amounts in the fee schedules
used to determine 2018-20 payments or any particular
payments to plaintiff’s members.” Id. at *5 (citation omitted).
“Further, the Court could not vacate [the 2016 Rule] and order
the Secretary to bring his regulations into compliance with the
Medicare statute since the [2016 Rule’s] definition is no longer
in effect.” Id. at *6. Accordingly, the District Court
determined that ACLA’s lawsuit was moot and dismissed the
case for lack of subject matter jurisdiction for a second time.
Id.
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 redressed by a favorable decision. Lujan v. Defs.
of Wildlife, 504 U.S. 555, 560–61 (1992). To demonstrate
associational standing, ACLA must show that “at least one of
[its] members satisfies the three elements” outlined in Lujan.
7
See Am. Libr. Ass’n v. FCC, 401 F.3d 489, 492 (D.C. Cir. 2005)
(citing Lujan, 504 U.S. at 560).
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
8
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. Further, HHS expressly
left open the possibility of “revisit[ing] the use of the CMS-
1450 14x TOB through future rulemaking” if “it becomes
apparent that the data from hospital outreach laboratories do
not result in a significant change in the weighted median of
private payor rates,” id., which is what the agency expects to
happen. See, e.g., Appellee Br. at 41 (“ACLA . . . failed to
establish that any increase in the number of laboratories
reporting would have ultimately influenced the fee schedule.”),
9
60 (“There is . . . no reason to think that the data set used [under
the 2016 Rule] was inaccurate. . . .”), 62 (“‘[A]dditional
reporting may not be likely to change payment rates,
irrespective of how many additional smaller laboratories are
required to report.’”) (quoting 2016 Rule, 81 Fed. Reg. at
41,049). Furthermore, during oral argument, HHS continued
to defend its policy of relying on NPIs. See Oral Arg. Tr. 13:2–
14:3. 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
10
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 42 U.S.C. § 405(h), but ACLA satisfied
neither requirement. Am. Clinical Lab’y Ass’n, 2021 WL
1197729, at *4. Again, we disagree.
“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 42 U.S.C. § 405(h)). Another statute,
42 U.S.C. § 1395ii, provides that section 405(h) applies to the
Medicare Act. Am. Hosp. Ass’n, 895 F.3d at 825. We conclude
that ACLA fulfilled the requirements of presentment and
exhaustion through its member, BioReference Laboratories
(“BioReference”), which presented claims to the agency and
exhausted its administrative remedies. See Appellant Reply Br.
at 12–13. The government does not dispute the fact that
BioReference is a member of ACLA.
III.
Because we have jurisdiction over ACLA’s lawsuit, we
will turn to the merits of ACLA’s APA challenge to the 2016
11
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.”
5 U.S.C. § 706(2)(A). “We will uphold the agency’s action if
the agency ‘examine[d] the relevant data and articulate[d] a
satisfactory explanation for its action including a rational
connection between the facts found and the choice made.’”
Baystate Franklin Med. Ctr. v. Azar, 950 F.3d 84, 89 (D.C. Cir.
2020) (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). Agency
action is arbitrary and capricious “if the agency has relied on
factors which Congress has not intended it to consider”;
“entirely failed to consider an important aspect of the
problem”; “offered an explanation for its decision that runs
counter to the evidence before [it]”; or “is so implausible that
it could not be ascribed to a difference in view or the product
of agency expertise.” State Farm, 463 U.S. at 43. “The scope
of review under the ‘arbitrary and capricious’ standard is
narrow and a court is not to substitute its judgment for that of
the agency.” Id.
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 42 U.S.C. § 1395m-
12
1(a)(2). “Considered as a freestanding entity, a hospital
laboratory that offered outreach services could fit the statutory
definition of an applicable laboratory if it received most of its
Medicare revenue from the [Physician Fee Schedule] and
[Clinical Laboratory Fee Schedule].” ACLA I, 931 F.3d at
1200. Thus, hospital laboratories that provide outreach
services may, in some instances, constitute “applicable
laboratories” under PAMA. Cf. 2016 Rule, 81 Fed. Reg. at
41,045 (noting that “[m]ost hospital laboratories will not meet
the majority of revenues threshold”) (emphasis added).
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.”
42 U.S.C. § 1395m-1(a)(2). Depending on how revenue is
identified, “a hospital laboratory without its own, laboratory-
specific NPI [does] not qualify as an applicable laboratory”
under the Secretary’s definition, and thus hospital outreach
laboratories without NPIs would not be subject to reporting
requirements. ACLA I, 931 F.3d at 1208. This is problematic,
given that the agency specifically determined that its rule
should capture data from hospital outreach laboratories. See
2016 Rule, 81 Fed. Reg. at 41,045–46; 2018 Rule, 83 Fed. Reg.
at 59,668, 59,671, 59,674. ACLA even submitted comments
during the rulemaking process that should have alerted HHS to
the fact that few hospital laboratories have NPIs, but HHS
nevertheless failed to address the Rule’s under-inclusive
nature. See 2016 Rule, 81 Fed. Reg. at 41,046–47.
Thus, the agency, without adequate explanation, exempted
a sizable portion of the laboratories covered by the statute from
13
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 42 U.S.C. § 1395m-1(h)(1).
Furthermore, because HHS has already replaced the 2016 Rule
with the 2018 Rule—which provides an updated methodology
for collecting information from laboratories—we deny
ACLA’s request to vacate the 2016 Rule.
So ordered.