Hays v. Sebelius
2009 WL 4912383, 2009 U.S. App. LEXIS 28157, 589 F.3d 1279 (2009)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The Medicare Act's 'reasonable and necessary' provision for coverage applies to 'items or services,' not 'expenses.' Therefore, the Secretary of Health and Human Services must make a binary decision to either cover a drug at its full statutorily-prescribed reimbursement rate or not cover it at all, and cannot partially reimburse it based on the price of a less costly alternative.
Facts:
- Ilene Hays, a Medicare Part B beneficiary, suffers from Chronic Obstructive Pulmonary Disease.
- Her doctor prescribed DuoNeb, an inhalation drug that combines albuterol sulfate and ipratropium bromide in a single dose for her treatment.
- For approximately four years, Medicare reimbursed Hays for DuoNeb at the statutorily mandated rate of 106% of the drug's average sales price.
- In 2008, four regional Medicare contractors, acting under guidance from the Secretary of Health and Human Services, implemented a 'least costly alternative' policy.
- The contractors determined that the medical necessity of the combined DuoNeb dose over separate doses of its component drugs was not established.
- Pursuant to the new policy, the contractors began limiting reimbursement for DuoNeb to the lower statutory allowance for its two component drugs administered separately.
Procedural Posture:
- Ilene Hays sued the Secretary of Health and Human Services in the U.S. District Court for the District of Columbia, challenging the new reimbursement policy.
- The district court granted summary judgment in favor of Hays, finding the policy invalid under the Medicare Act.
- The Secretary of Health and Human Services (appellant) appealed the district court's decision to the U.S. Court of Appeals for the D.C. Circuit, with Hays as the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the Medicare Act, which excludes payment for 'items or services' that are not 'reasonable and necessary,' permit the Secretary of Health and Human Services to partially reimburse a covered drug by limiting payment to the amount of its least costly medically appropriate alternative?
Opinions:
Majority - Tatel
No. The Medicare Act does not permit the Secretary to partially reimburse a covered drug based on the price of its least costly alternative; the statute unambiguously requires a binary coverage decision based on whether the 'item or service' itself is reasonable and necessary. The court reasoned that based on grammatical structure (the Rule of the Last Antecedent), the phrase 'reasonable and necessary' directly modifies 'items or services,' not the more remote word 'expenses.' This reading is reinforced by the section's title ('Items or services specifically excluded') and the logical context that items and services, not expenses, are used for diagnosis and treatment. Furthermore, the Secretary's policy creates an impermissible 'end-run' around the Act's mandatory and highly specific reimbursement formulas, which Congress would not have intended to be so easily ignored.
Concurring - Randolph
No. The court's opinion correctly concludes that the statute is unambiguous and forecloses the Secretary's policy. However, even if the statute were ambiguous, there would be a substantial question as to whether the court should grant Chevron deference. The 'least costly alternative' policy was applied to DuoNeb not by a formal determination of the Secretary, but by private contractors exercising discretion granted by the Secretary. It is unclear whether Congress authorized the Secretary to delegate such law-interpreting functions to private entities, raising constitutional and administrative law concerns that are unnecessary to resolve in this case due to the statute's clarity.
Analysis:
This decision significantly curtails the ability of the Department of Health and Human Services to use cost-effectiveness as a basis for reducing reimbursement for specific drugs under the 'reasonable and necessary' clause. It establishes that coverage decisions for items under Medicare Part B are binary—either fully covered at the statutory rate or not covered at all. The ruling reinforces a textualist approach to statutory interpretation and protects the specific, mandatory reimbursement formulas Congress has enacted from being undermined by administrative policy. Future attempts by Medicare to control costs through similar 'least costly alternative' policies will likely require new legislation from Congress rather than administrative reinterpretation.
Unlock the full brief for Hays v. Sebelius