American Clinical Laboratory v. Alex Azar, II

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 23, 2019 Decided July 30, 2019

No. 18-5312

AMERICAN CLINICAL LABORATORY ASSOCIATION,

APPELLANT

v.

ALEX MICHAEL AZAR, II, IN HIS OFFICIAL CAPACITY AS

SECRETARY 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

him on the briefs were Mark D. Polston, Elizabeth N. Swayne,

and Amelia G. Yowell.

R. Scott Caulkins and Jeffrey J. Sherrin were on the brief

for amicus curiae American Association of Bioanalysts in

support of plaintiffs-appellant.

David McAloon was on the brief for amici curiae The

College of American Pathologists, et al. in support of appellant.

Dennis Fan, Attorney, U.S. Department of Justice, argued

the cause for appellee. With him on the brief were Abby C.

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Wright, Attorney, Robert P. Charrow, General Counsel, U.S.

Department of Health & Human Services, Janice L. Hoffman,

Associate General Counsel, Susan Maxson Lyons, Deputy

Associate General Counsel, and Debra M. Laboschin,

Attorney. Alisa B. Klein, Attorney U.S. Department of Justice,

entered an appearance.

Before: GRIFFITH, MILLETT and PILLARD, Circuit Judges.

Opinion for the Court filed by Circuit Judge PILLARD.

PILLARD, Circuit Judge: The Protecting Access to

Medicare Act (PAMA, or the Act) seeks to align Medicare

reimbursement rates for laboratory tests with rates paid for

such tests in the private market. To enable the Secretary of

Health and Human Services (HHS) to ascertain the private

market’s reimbursement rates, PAMA requires “applicable

laboratories” to report private payor data to the Secretary that

the Medicare program then uses to set new, presumably lower,

Medicare reimbursement rates. The Secretary must implement

the statute’s definition of “applicable laboratory” before it can

be used to collect the requisite data. In 2016, the Secretary

issued a final rule doing so, and plaintiff American Clinical

Laboratory Association (ACLA) filed suit claiming the rule

unlawfully excluded most hospital laboratories from the Act’s

reporting requirements.

Based on PAMA’s prohibition of judicial review of “the

establishment of payment amounts,” the district court

dismissed ACLA’s complaint for lack of subject matter

jurisdiction. We conclude that the statutory provision stripping

jurisdiction to review payment amounts does not cover the

statute’s data-collection provision. We also reject ACLA’s

claim that the Secretary’s rule was ultra vires. We thus reverse

3

and remand to the district court to consider in the first instance

whether the rule comports with the APA.

I. Background

The federal Medicare program, which pays for healthcare

for elderly and disabled individuals, see 42 U.S.C. § 1395 et

seq., is the nation’s largest purchaser of clinical laboratory

services. In 2013, the HHS Office of Inspector General

concluded that Medicare was paying 18 to 30 percent more

than private insurance companies for a range of common

laboratory tests. Congress responded by enacting the

Protecting Access to Medicare Act, Pub. L. No. 113-93, 128

Stat. 1040 (2014). A central goal of the Act is to set Medicare

reimbursement rates for laboratory tests at approximately the

price private insurers pay for the same tests. See 42 U.S.C.

§ 1395m-1(b)(1)(A).

To inform the Secretary’s rate setting, the statute requires

“applicable laborator[ies]” within the private sector to report

“private payor” data—both the price and volume of laboratory

tests—to HHS every three years. Id. § 1395m-1(a). The statute

defines the term “private payor” as a “health insurance issuer

and a group health plan,” a “Medicare Advantage plan,” or a

“medicaid managed care organization.” Id. § 1395m-1(a)(8).

It calls on the Secretary to establish parameters for data

collection through notice and comment rulemaking. Id.

§ 1395m-1(a)(12). Applicable laboratories that fail to report

accurate data face monetary penalties of up to $10,000 per day.

Id. § 1395m-1(a)(9).

In separate provisions, the statute explains how the

Secretary is to use private payor data on each laboratory test

already available in the market to calculate a “weighted

median” rate, which becomes Medicare’s reimbursement rate

for that test. Id. § 1395m-1(b). For new tests that do not have

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private payor data, the Secretary is to use a “gapfilling process”

and consult with an expert advisory panel to establish the new

test’s Medicare payment rate. Id. §§ 1395m-1(c)-(d), (f).

Because the market-approximating Medicare rates are likely to

be lower than existing Medicare rates, the statute allows for a

multi-year “[p]hase-in” process to transition to the market-

based rates. Id. § 1395m-1(b)(3). Finally, the statute declares

that “[t]here shall be no administrative or judicial review . . . of

the establishment of payment amounts under this section,” id.

§ 1395m-1(h)(1), thereby barring otherwise available review

by the Departmental Appeals Board and Provider

Reimbursement Board as well as the federal courts.

This appeal is about whether the Secretary’s

implementation of PAMA’s definition of “applicable

laboratories” is subject to review in response to a claim that it

unlawfully excludes hospital laboratories—which tend to

charge higher prices than standalone laboratories—from the

dataset used to determine new Medicare rates. See Medicare

Program; Medicare Clinical Diagnostic Laboratory Tests

Payment System, 81 Fed. Reg. 41,036 (June 23, 2016).

Laboratory tests are available to the public through three main

types of laboratories: physician-office laboratories (which in

2015 comprised 17 percent of all labs), independent

laboratories (50 percent of all labs), and hospital laboratories

(33 percent of all labs). The statute does not expressly discuss

those distinct types of institutional settings, instead generally

defining an applicable laboratory as “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). In

plain terms, that definition refers to a laboratory that receives

most of its overall Medicare funding from the Physician Fee

Schedule (PFS) or the Clinical Laboratory Fee Schedule

(CLFS). Those Medicare fee schedules are typically used to

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pay for laboratory services provided by independent

laboratories and physician-office laboratories. We refer to this

part of the statute’s definition of applicable labs as the

majority-payments test. 1

Applying the majority-payments test to hospital

laboratories has proved more complicated than for independent

laboratories and physician-office laboratories. Medicare

reimburses laboratory services provided by hospital

laboratories in a range of different ways, and it is not obvious

which, if any, are relevant to PAMA. When hospital

laboratories serve admitted inpatients and registered

outpatients, Medicare does not use the PFS or CLFS, but pays

for those services through distinct fee schedules that bundle the

laboratory testing with other hospital services. See Medicare

Program; Medicare Clinical Diagnostic Laboratory Tests

Payment System, 80 Fed. Reg. 59,386, 59,393 (Oct. 1, 2015).

A hospital laboratory serving only inpatients and outpatients

accordingly is not an applicable laboratory under PAMA

because it receives no Medicare reimbursements from the

applicable fee schedules.

However, some hospitals also provide “outreach

services”—that is, laboratory services for people who are

neither inpatients nor outpatients. Hospitals’ outreach services

may compete for such business with independent laboratories,

and Medicare reimburses hospitals for those services under the

1

The statute authorizes the Secretary to establish a “low volume or

low expenditure threshold” to exclude especially small laboratories.

42 U.S.C. § 1395m-1(a)(2). The Secretary has set the low

expenditure threshold at $12,500, meaning that labs receiving less

than $12,500 of Medicare revenue from the CLFS and PFS are

exempt from reporting requirements. ACLA does not challenge that

provision, which exempts approximately 95 percent of physician-

office laboratories.

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PFS and CLFS. 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 PFS and CLFS.

In October 2015, the Secretary proposed a rule to

implement the data reporting provision of PAMA. See 80 Fed.

Reg. at 59,386. The Secretary acknowledged that it was

“important” to “define laboratory broadly enough to

encompass every laboratory type that is subject to” the

applicable fee schedules, id. at 59,391, so proposed to include

any “entity that includes a laboratory” as well as any “entity

that itself is a laboratory,” id. at 59,392. But to make the

threshold identification of the relevant entity to be scrutinized

under the statutory majority-payments test, the proposed rule

defined “entity” as the institutional unit associated with a

distinct taxpayer identification number (TIN). Id. at 59,387. A

TIN is the institutional identifier Medicare service providers

use to report to the IRS tax-related information about all types

of Medicare payments. Id. at 59,421.

The practical effect of applying the majority-payments test

to an entity defined by its TIN would be that essentially no

hospital laboratory could qualify as an applicable laboratory.

See id. at 59,393. An independent laboratory that takes

Medicare payments has a TIN, but so does an entire hospital

that takes Medicare payments. Identifying the relevant entity

at the level of the TIN would mean that, for purposes of the

majority-payments test, Medicare reimbursements to a hospital

lab under the PFS and CLFS would be compared to the entire

hospital’s Medicare revenue rather than to its laboratory’s

Medicare revenue. Hospitals, in contrast to stand-alone

laboratories, receive Medicare reimbursements for a wide

range of services—everything from surgeries to room and

board—so even if the hospital laboratory received the majority

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of its Medicare revenue from the PFS and CLFS, the majority

of the hospital’s overall Medicare revenues would not come

from those fee schedules.

Insofar as hospitals’ Medicare revenue associated with

those fee schedules is dwarfed by their other types of Medicare

revenue, reliance on the TIN to define the relevant entity would

exclude all hospital-based laboratories from the “applicable

laboratories” reporting requirement at the threshold, without

subjecting the laboratories as such to the majority-payments

test. The Secretary anticipated that consequence, explaining:

“[W]e believe the statute intends to limit reporting primarily to

independent laboratories and physician offices . . . and not to

include other entities (such as hospitals, or other health care

providers) that do not receive the majority of their revenues

from PFS or CLFS services.” Id. at 59,393.

Many healthcare entities and other stakeholders opposed

that part of the proposed rule, arguing that reading the statute’s

definition of applicable laboratory to generally exclude

hospital laboratories violated PAMA. See, e.g., 81 Fed. Reg.

at 41,045. Why did that matter? A major laboratory services

provider asserted that hospital laboratories receive 1.5 to 4

times higher private payor reimbursement rates than

independent laboratories for the same test. (The record does

not specify whether that estimate isolated reimbursement

pursuant to the PFS or CLFS schedules, or included laboratory

tests provided—presumably at greater cost—as part of

inpatient and outpatient services). The American Hospital

Association advocated in favor of requiring hospital

laboratories to report their rate data, believing that would

“generally increase the weighted median,” and make the new

Medicare rates “more representative of overall market rates.”

Joint Appendix (J.A.) 595 (letter to Acting Administrator of

Centers for Medicare & Medicaid Services).

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Commenters advocated identifying entities by their

National Provider Identifier (NPI) numbers rather than their

TIN. Healthcare providers use NPI numbers to bill Medicare.

Because more hospital laboratories have NPI numbers distinct

from those of their associated hospitals, they reasoned,

identifying the relevant entity at the NPI level would mean

hospital laboratories with their own NPI numbers would be

evaluated for whether they, considered separately, meet the

majority-payments test defining “applicable laboratories.”

In the final rule issued in June 2016, the Secretary accepted

that suggestion and defined applicable laboratories at the NPI

level rather than the TIN level. 2 81 Fed. Reg. at 41,037. The

final rule reiterated the Secretary’s reading of the statute as

excluding the majority of hospital laboratories because those

laboratories receive most of their Medicare revenue from

bundled payments for inpatients and outpatients rather than

from the CLFS or PFS. Id. at 41,045. However, the Secretary

“agree[d] with commenters” that hospital outreach

laboratories—i.e., “laboratories that furnish laboratory tests for

patients that are not admitted hospital inpatients or registered

outpatients of the hospital” and that “are enrolled in Medicare

separately from the hospital of which they are a part”—“should

be accounted for” in the new payment rates. Id.

As it turns out, however, NPIs suffer from virtually the

same flaw as TINs because “[v]ery few hospitals have

laboratory-specific NPIs, and they generally submit claims

under the hospital’s NPI.” J.A. 271 (letter from ACLA to

Department of Health and Human Services Office of Inspector

2

The rule rejected commenters’ alternative suggestion that entities

be identified by their Clinical Laboratory Improvement Amendments

(CLIA) certificate, which is used to certify that a laboratory meets

health and safety regulations, because that certificate is not

associated with Medicare billing. 81 Fed. Reg. at 41,045-46.

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General). In 2016, approximately 2,000 out of 260,000 total

laboratories nationwide (0.7 percent) reported data to the

Secretary. Out of the approximately 7,000 hospital laboratories

in the United States, only 21 (0.3 percent) reported data,

comprising about one percent of all the reporting labs. Much

of the data collected by the Secretary came from the country’s

two largest independent laboratories—Quest and Labcorp—

which have lower cost structures than other laboratories. See

J.A. 70-71 (Declaration from Senior Vice President of Quest

Diagnostics). According to ACLA, that skewed the Medicare

reimbursement rates low. The government, for its part,

maintains that the data used to calculate the 2018 rates “was

sufficient and resulted in accurate weighted medians of private

payor rates.” See Medicare Program; Revisions to Payment

Policies Under the Physician Fee Schedule and Other

Revisions, 83 Fed. Reg. 59,452, 59,672 (Nov. 23, 2018).

In 2018, the Secretary finalized another rule—not at issue

here—that amended the implementation of “applicable

laboratories” in an effort to include more hospital-based

outreach laboratory services in the next set of data. Id. at

59,452. As HHS explained, “we are confident that our current

policy supports our collecting sufficient applicable information

. . . and that we received sufficient and reliable applicable

information with which we set [2018 rates],” but “we continue

to consider refinements to our policies that could lead to

including even more applicable information for the next data

reporting period.” Id. at 59,672. The 2018 rule requires

laboratories providing outreach services to report data using the

CMS–1450 14x TOB—a billing form used only by hospital

outreach laboratories. Id. at 59,673-75. The new rule, in effect,

categorizes as an applicable laboratory that portion of a

hospital laboratory that provides outreach services—even if

those services comprise only a minority of the laboratory’s

overall services. See id. at 59,673 (“[W]e believe that if we

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were to utilize such an approach in defining applicable

laboratory, all hospital outreach laboratories would meet the

majority of Medicare revenues threshold . . .”). Notably, this

approach was not encompassed by the relief that ACLA seeks

here. ACLA is emphatic that the statute requires the Secretary

to use the hospital laboratory as the denominator in the

majority-payments test. See Appellant’s Br. 65. The Secretary

will use the new data about hospital laboratories’ outreach

services in a revised fee schedule as of January 1, 2021. 80

Fed. Reg. at 59,667.

Plaintiff in this case, American Clinical Laboratory

Association, is a trade association of laboratories. It submitted

comments to the Secretary both before the 2015 proposed rule

and before the 2016 final rule. See J.A. 82. ACLA brought

suit in 2017 to challenge the 2016 rule’s implementation of

applicable laboratory as contrary to the statute and arbitrary

and capricious in violation of the APA. The district court

dismissed for want of jurisdiction. Am. Clinical Lab. Ass’n v.

Azar, 334 F. Supp. 3d 301, 309 (D.D.C. 2018). This Court

reviews de novo a district court’s legal determination as to

subject matter jurisdiction. See Piersall v. Winter, 435 F.3d

319, 321 (D.C. Cir. 2006).

II. Standing

Although the Secretary scarcely challenges standing on

appeal, we have an independent obligation to assure ourselves

that ACLA has standing to challenge the final rule. Steel Co.

v. Citizens for a Better Env’t, 523 U.S. 83, 94-95 (1998). The

“constitutional minimum” of standing requires that a plaintiff

have suffered a concrete and particularized injury that is fairly

traceable to the challenged conduct and is likely to be redressed

by a favorable decision. See Lujan v. Defs. of Wildlife, 504

U.S. 555, 560-61 (1992). In order to have associational

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standing, ACLA must demonstrate that “at least one of [its]

members satisfies” this test. See Am. Library Ass’n v. FCC,

401 F.3d 489, 492 (D.C. Cir. 2005). At the motion to dismiss

stage, “general factual allegations of injury resulting from the

defendant’s conduct may suffice” to establish standing. Lujan,

504 U.S. at 561. We hold that ACLA meets those familiar

requirements.

First, ACLA has established injury in fact. By adopting an

impermissible definition of “applicable laboratories” that

excludes virtually all hospital laboratories, ACLA asserts that

the rule harms its members in various ways. First, it

disproportionately burdens independent laboratories with the

cost of data-production obligations not borne by its hospital-

based competitor laboratories. ACLA submitted a declaration

from the Senior Vice President of Quest Diagnostics, an ACLA

member, asserting that “laboratories that reported private payor

information were significantly disadvantaged as compared to

other laboratories that, while required to report under PAMA,

were excused from that obligation by the Secretary.” J.A. 73.

Second, it artificially depresses the reimbursement rates by

excluding data from a portion of the market that receives

higher-than-average Medicare reimbursements for its

laboratory services. An affidavit from the Chief Executive

Officer of Joint Venture Hospital Laboratories, LLC, an ACLA

member, attests that the “elimination of . . . hospital[]

laboratories from the reporting requirements skews the data”

that is used to calculate the weighted median of commercial

payor rates and ultimately set the Medicare reimbursement

rate. J.A. 61. And, because “hospital laboratories typically

receive higher commercial rates than other types of

laboratories,” the Medicare reimbursement rates are lower than

they would be if the Secretary collected more data from

hospital laboratories. Id.; see also U.S. Gov’t Accountability

Office, GAO 19-67, Medicare Laboratory Tests;

12

Implementation of New Rates May Lead to Billions in Excess

Payment 12 (2018), https://www.gao.gov/assets/

700/695756.pdf (hospital laboratories “typically receive

relatively higher private-payer rates . . . by leveraging the

market power of their affiliated hospital when negotiating rates

with private payers.”). ACLA has adequately shown that at

least one of its members is reimbursed by Medicare at a rate

lower than it would be if we were to rule in ACLA’s favor and

invalidate the challenged limitation in the definition of

“applicable laboratory.” That establishes injury in fact.

As for causation and redressability, ACLA has met its

burden at this stage. See Lujan, 504 U.S. at 561. According to

the Joint Venture Hospital Laboratories affidavit, excluding

data from hospital laboratories “significantly depress[es]” the

weighted median payment rates that are used to generate the

new Medicare fee schedule. J.A. 62. Another declaration, by

the President of Aculabs, Inc. (also a member of ACLA),

attests: “If the Secretary’s failure to implement Congress’s

directives is not corrected, the impact on Aculabs’ business will

be severe” because Aculabs “will not receive Medicare-derived

reimbursement sufficient to cover its costs.” J.A. 49.

Requiring the Secretary to collect more fully representative

market data and use it to calculate a new weighted median

appears sufficiently likely to increase Medicare reimbursement

rates to establish redressability at this stage.

The Secretary briefly protests that ACLA cannot claim

lower repayment rates as an injury for standing purposes

because the statute expressly prohibits challenging the rates.

See Appellee’s Br. 25-26. That argument conflates two issues.

It is true that ACLA cannot challenge the rates themselves

under the statute’s jurisdiction-stripping provision. See 42

U.S.C. § 1395m-1(h)(1). But that does mean the rates cannot

be the source of ACLA’s members’ injury in a challenge to the

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data-collection rule. What matters is that ACLA’s challenge

(here, to the definition of applicable laboratory for purposes of

data collection) is sufficiently linked to its asserted injury

(lower reimbursement rates). See Sierra Club v. EPA, 292 F.3d

895, 899 (D.C. Cir. 2002). We assess in the next section the

distinct issue whether ACLA’s challenge is an impermissible

back-door effort to challenge reimbursement rates in

circumvention of the statutory bar.

III. Jurisdiction Stripping

The primary question on appeal is whether PAMA’s

provision eliminating administrative and judicial review of the

“establishment of payment amounts,” 42 U.S.C. § 1395m-

1(h)(1), bars our review of the rule the Secretary promulgated

to implement the statute’s data-collection provision, 81 Fed.

Reg. 41,036. When deciding whether a statute bars judicial

review, we begin with “the strong presumption that Congress

intends judicial review of administrative action.” Smith v.

Berryhill, 139 S. Ct. 1765, 1776 (2019) (quoting Bowen v.

Mich. Acad. of Family Physicians, 476 U.S. 667, 670 (1986)).

Even where, as here, a statutory provision expressly prohibits

judicial review, the presumption applies to dictate that such a

provision be read narrowly. See Dart v. United States, 848

F.2d 217, 221 (D.C. Cir. 1988). “When a statute is ‘reasonably

susceptible to divergent interpretation, we adopt the reading

that accords with traditional understandings and basic

principles: that executive determinations generally are subject

to judicial review.’” Kucana v. Holder, 558 U.S. 233, 251

(2010) (quoting Gutierrez de Martinez v. Lamagno, 515 U.S.

417, 434 (1995)). “Whether and to what extent a particular

statute precludes judicial review is determined not only from

its express language, but also from the structure of the statutory

scheme, its objectives, its legislative history, and the nature of

14

the administrative action involved.” Block v. Cmty. Nutrition

Inst., 467 U.S. 340, 345 (1984).

We start with the text: “There shall be no administrative

or judicial review under section 1395ff of this title, section

1395oo of this title, or otherwise, of the establishment of

payment amounts under this section.” 42 U.S.C. § 1395m-

1(h)(1). The header of subsection (a) of the statute—the part

that defines the parameters for data collection—cross-

references payment rates in announcing that it deals with

“[r]eporting of private sector payment rates for establishment

of medicare payment rates.” See id. § 1395m-1(a). The district

court concluded that the language of the jurisdiction-stripping

provision combined with the header of subsection (a) meant

that data collection was “part and parcel of ‘the establishment

of payment amounts under this section,’ which Congress

shielded from judicial review.” Am. Clinical Lab. Ass’n, 334

F. Supp. 3d at 307.

That conclusion is plausible, but the text does not compel

it. Several features of the statute suggest 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 jurisdiction-stripping provision itself bars

review “under section 1395ff of this title, section 1395oo of

this title, or otherwise.” 42 U.S.C. § 1395m-1(h)(1). The two

cross-referenced sections cover administrative appeals by

patients or providers who wish to contest a coverage

determination or reimbursement amount. See 42 U.S.C.

§§ 1395oo, 1395ff. That suggests Congress intended to

preclude review of the amounts of money paid in the ultimate

reimbursement decisions. Additionally, subsection (a)’s

reference to reporting private sector data for the establishment

of payment amounts suggests that the two are not one and the

15

same, but rather that collecting data from the private sector is a

separate statutory duty preceding the establishment of

Medicare payment rates. See 42 U.S.C. § 1395m-1(a). Indeed,

the final rule on data collection is not an “establishment of

payment amounts,” but a blueprint for which laboratories must

report private payor data to the Secretary, how they must do so,

and what consequences they face for noncompliance. 81 Fed.

Reg. at 41,037.

The structure of PAMA bespeaks the separation between

data collection and pricing. In subsections (b), (c), and (d) on

existing, new, and new advanced diagnostic laboratory

services, Congress explained that it was directing the Secretary

henceforth to calculate “weighted median” market-based

prices for existing services and to “gapfill” and consult an

expert panel to determine prices for new and new advanced

services. In a separate provision, Congress detailed the

framework for data collection. Compare 42 U.S.C. § 1395m-

1(b)-(d) (establishing processes for determining Medicare

rates), with id. § 1395m-1(a) (establishing processes for

collecting private-payor data). Whereas the rate-setting

provisions affect reimbursements for Medicare services, the

data-collection part of the statute imposes new obligations on

private parties (applicable laboratories). The latter requires

reporting of confidential data about private market rates—data

not otherwise used in any government program—so that the

Secretary may analyze it to formulate Medicare rates. Id.

§ 1395m-1(a). The Secretary is required to “establish through

notice and comment rulemaking parameters for data collection

under this subsection.” Id. § 1395m-1(a)(12). An applicable

lab’s failure to provide the specified information exposes it to

significant monetary penalties. Id. § 1395m-1(a)(9).

Textual and structural analysis of jurisdiction-stripping

provisions in other statutes supports the Secretary’s position

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that Congress did not bar review of PAMA’s entire process for

collecting data on private-payor rates. See Bowen, 476 U.S. at

675-76 (holding that the provision limiting review of amounts

of benefit payments under the Medicare program did not bar

review of the method by which such amounts were computed).

In Texas Alliance for Home Care Services v. Sebelius, for

example, we concluded that a provision’s “broad and

unequivocally preclusive language” barring review of “the

awarding of contracts” under Medicare also barred review of

the “applicable financial standards” that medical equipment

suppliers must meet in order to be eligible for those contracts.

681 F.3d 402, 409-11 & n.9 (D.C. Cir. 2012). In that case, the

challenged “applicable financial standards” were listed in the

statute itself as a “[c]ondition[] for awarding contract[s].” 42

U.S.C. § 1395w-3(b). In other words, the statutory text made

clear that the challenged action (defining applicable financial

standards) was encompassed within the terms of unreviewable

action (awarding contracts). The same was true in Mercy

Hospital, Inc. v. Azar, where we held that a statute barring

judicial review of “prospective payment rates” covered a

challenge to the formula the Secretary used to calculate those

rates. 891 F.3d 1062, 1067 (D.C. Cir. 2018). Through internal

cross-references, the “language of the statute tie[d] together the

prospective payment rate and the statutory adjustments” used

to calculate that rate. Id.

Unlike the provisions at issue in Texas Alliance and Mercy

Hospital, the statutory text here does not subsume the data

collection process within the establishment of payment

amounts. On the contrary, Congress set out the process for data

collection in a separate and distinct subsection and with its own

set of rules. Congress also required that the parameters for that

data collection be established through notice and comment

rulemaking. See 42 U.S.C. § 1395m-1(a)(12). Neither of the

statutes at issue in Texas Alliance or Mercy Hospital had

17

explicit notice and comment requirements. And, as our

precedent makes clear, part of the purpose of notice and

comment rulemaking is to ensure the parties develop a record

for judicial review. See Int’l Union, United Mine Workers of

Am. v. Mine Safety & Health Admin., 407 F.3d 1250, 1259

(D.C. Cir. 2005) (“[Rulemaking n]otice requirements are

designed . . . to give affected parties an opportunity to develop

evidence in the record to support their objections to the rule and

thereby enhance the quality of judicial review.”).

Because the gathering of data under PAMA is not

“inextricably intertwined” with the establishment of payment

rates, we lack a basis on which to infer that Congress, in

eliminating jurisdiction over the latter, clearly meant also to bar

review of the former. Cf. Florida Health Scis. Ctr., Inc. v.

Sec’y of Health & Human Servs., 830 F.3d 515, 521 (D.C. Cir.

2016). We held that we lacked jurisdiction in Florida Health

for reasons that appear at first blush to apply here. The statute

at issue in Florida Health required the Secretary to identify as

Disproportionate Share Hospitals (DSH) entitled to additional

federal compensation those hospitals serving high proportions

of poor patients. When the Affordable Care Act directed that

DSH status be based largely on the percentage of the nation’s

overall uncompensated care each hospital provides, the

Secretary chose to estimate that percentage by reference to the

number of days Medicaid and low-income Medicare patients

spent in a given hospital as a proportion of the national total of

such patients’ hospital days. Id. at 517; see 42 U.S.C.

§ 1395ww(r)(2)(C). In other words, the Secretary used a

hospital’s national share of Medicaid and low-income

Medicare patient care as a proxy for its share of uncompensated

care. See Florida Health, 830 F.3d at 517. The Secretary did

so because research supported the correlation between a

hospital’s national shares of uninsured patients and its poor-

insured, and the proxy data was already readily available and

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subject to audit. Id. The statute expressly precluded review of

the Secretary’s uncompensated care estimates, see id.

§ 1395ww(r)(3)(A), but plaintiffs sought review of those

estimates anyway by challenging the accuracy of the Medicaid

data on which they were based, Florida Health, 830 F.3d at

518. We held that the statutory bar on the Secretary’s

“estimate” of how much uncompensated care a hospital

provided also barred review of the proxy data on which the

Secretary relied. Id. at 518-19. We “could not review a

decision that was ‘indispensable’ or ‘integral’ to, or

‘inextricably intertwined,’ with the unreviewable agency

action.” Id. at 519 (quoting Texas Alliance, 681 F.3d at 409-

11).

Important distinctions between the issues in this case and

Florida Health show that the data collection process at issue

here is not “inextricably intertwined” with the unreviewable

establishment of payment amounts. Most importantly, unlike

PAMA, the statute in Florida Health did not have a separate

data-collection provision imposing new obligations on private

parties nor did it have a notice and comment requirement. It

simply directed the Secretary to estimate the amount of

uncompensated services using “appropriate data,” including

data that the Secretary may “determine[]” serves as an adequate

proxy for uncompensated care rates. 42 U.S.C.

§ 1395ww(r)(2)(C). The statute’s text and structure made clear

that choosing which data to use was part of the Secretary’s

unreviewable obligation to estimate uncompensated care rates.

Florida Health, 830 F.3d at 517, 519.

PAMA’s data collection provision, on the other hand, is

distinct from its rate-estimation provisions. For data collection,

the statute obligates clinical laboratories that participate in the

Medicare program to report distinct reimbursement rates they

receive from private insurers and requires the Secretary to

19

establish the rules governing that reporting through notice and

comment rulemaking. To be sure, the results of that data

collection process are used to establish Medicare payment

amounts. But the statute’s bifurcated structure supports

ACLA’s view that the two provisions and the processes they

require are distinct. This case differs from DCH Regional

Medical Center v. Azar, 925 F.3d 503 (D.C. Cir. 2019), for

similar reasons. We held there that a “methodology” used to

generate uncompensated care estimates under the same statute

at issue in Florida Health was itself unreviewable because

there was “no textual basis for separating estimates from their

underlying methodology,” id. at 507; the data-collection

provision of PAMA, in contrast, is separate from the provisions

establishing payment amounts. That the statutory scheme

requires private laboratories to report non-Medicare and

generally confidential business information (private market

rates) to the government on pain of monetary penalties further

stands this statutory scheme in sharp contrast to others where

the challenged action was found to be intertwined with other

agency actions regarding which Congress had barred judicial

review.

The government argues that it would make scant sense for

Congress to have barred review only of “basic math” while

“permitting review of every discretionary step that preceded

that math.” Appellee Br. 33. But establishing payment

amounts sometimes involves more than rote math. For

established laboratory services, the Secretary must array

private payor data from thousands of laboratories and calculate

a weighted median for each separate laboratory service. 42

U.S.C. § 1395m-1(b)(2). For new tests, regarding which

private payor data does not yet exist, the Secretary must

consider more complicated criteria and consult an expert panel.

See id. § 1395m-1(c)-(d), (f). That process is a good deal more

complex and discretionary than rote math.

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In view of PAMA’s text, its structure, and the distinct

nature of the processes of data collection and establishment of

payment rates, we cannot conclude that the bar against

reviewing the “establishment of payment amounts” also

prevents our review of the rule setting up a new and detailed

process for collecting data on market rates that private insurers

pay to laboratories. Because the statute is “reasonably

susceptible” to this interpretation, we hold that it does not bar

judicial review of the Secretary’s rule establishing the

parameters of data collection under 42 U.S.C. § 1395m-1(a).

Gutierrez de Martinez, 515 U.S. at 434.

IV. Ultra Vires

ACLA also argues that, even if the jurisdictional limitation

of Section 1395m-1(h) applies, we should nonetheless review

the Secretary’s final rule because it “exceeds his statutory

authority and is ultra vires.” Appellant’s Br. 61. Although we

hold that the statute itself does not bar review, we nonetheless

consider ACLA’s ultra vires argument because, if valid, it

would not just open the courthouse door, but invalidate the rule

and obviate any need to remand to the district court for

consideration of the arbitrary-and-capricious challenge.

If an agency exceeds “its statutory bounds, judicial review

remains available” to curb the rogue action. SAS Inst., Inc. v.

Iancu, 138 S. Ct. 1348, 1359 (2018). To challenge agency

action on the ground that it is ultra vires, ACLA must show a

“patent violation of agency authority.” Indep. Cosmetic Mfrs.

& Distribs., Inc. v. U.S. Dep’t of Health, Educ. & Welfare, 574

F.2d 553, 555 (D.C. Cir. 1978). Ultra vires review “is intended

to be of extremely limited scope,” and it “represents a more

difficult course . . . than would review under the APA.”

Trudeau v. Fed. Trade Comm’n, 456 F.3d 178, 190 (D.C. Cir.

2006) (internal quotations omitted).

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Here, the statute says that applicable laboratory “means a

laboratory that, with respect to its revenues under this

subchapter, a majority of such revenues are from” the PFS and

CLFS. 42 U.S.C. § 1395m-1(a)(2) (emphasis added). ACLA

argues that choosing to compare a laboratory’s total revenues

from the PFS and CLFS against the “total Medicare revenues

of any entity with an NPI (of which the laboratory is often only

one component),” Appellant’s Br. 64, violates the statute’s

command that the reporting unit be the laboratory rather than a

broader entity. Again, the reporting unit matters because

comparing a hospital laboratory’s reimbursements from PFS

and CLFS to the entire hospital’s Medicare revenue (as

opposed to just the hospital laboratory’s Medicare revenue)

means that a hospital laboratory without its own, laboratory-

specific NPI will not qualify as an applicable laboratory under

the statute.

HHS did not clearly step so far outside the scope of the

task that Congress gave it as to have acted ultra vires. PAMA

does not define the term “laboratory,” and the Secretary’s

charge was to operationalize that important term despite its

ambiguity. After incorporating industry comments into the

final rule, the Secretary chose to identify laboratories by their

NPI numbers. See J.A. 563-64 (Florida Hospital Association

recommending HHS define applicable laboratory at the NPI

level rather than the TIN level); compare 80 Fed. Reg. at

59,387 (proposing use of TIN numbers), with 81 Fed. Reg. at

41,037 (deciding to use NPI numbers). Appellant’s objection

to the Secretary’s efforts, even if meritorious, does not

establish that the Secretary acted ultra vires. We leave to the

district court on remand to address in the first instance the

merits of petitioner’s arbitrary-and-capricious challenge.

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* * *

For the reasons discussed above, we reverse the district

court’s holding on subject matter jurisdiction and remand for

further proceedings consistent with this opinion.

So ordered.