Warder v. Shalala

Decision Date05 January 1998
Docket NumberNo. 97-2047,97-2047
Citation149 F.3d 73
PartiesAnn WARDER, et al., Plaintiffs, Appellees, v. Donna E. SHALALA, Secretary of the Department of Health and Human Services, and Nancy Ann Min DeParle, Administrator of the Health Care Financing Administration, Defendants, Appellants. . Heard
CourtU.S. Court of Appeals — First Circuit

Clifford M. Pierce, Assistant Regional Counsel, Department of Health and Human Services, with whom Frank W. Hunger, Assistant Attorney General, Department of Justice, Harriet S. Rabb, General Counsel, and Nancy S. Nemon, Chief Counsel, Region I, Department of Health and Human Services, were on brief for appellants.

James P. Kelly with whom Patrick M. Connolly, Kelly Law Firm, Craig E. Stewart, Anne Robbins and Palmer & Dodge LLP were on brief for appellees.

Before TORRUELLA, Chief Judge, CAMPBELL, Senior Circuit Judge, and LYNCH, Circuit Judge.

CAMPBELL, Senior Circuit Judge.

This appeal relates to the classification, for Medicare Part B reimbursement purposes, of medical equipment made for persons suffering from severe musculoskeletal problems. Produced by Appellees OrthoConcepts and used by Appellee Warder, the equipment consists of braces, fitted to the individual patient, on a wheeled base. The district court upheld OrthoConcepts' challenge to an administrative ruling ("the Ruling" or "HCFAR 96-1") from the Health Care Financing Administration ("HCFA") that classifies this equipment as "durable medical equipment" rather than as "braces." The former classification limits Medicare reimbursement to devices used at home, precluding reimbursement for such devices when used in certain hospital and institutional settings.

Holding that HCFAR 96-1 was a substantive, or legislative, rule requiring notice and comment, the court ruled it to be invalid because notice and comment procedures had not been followed prior to its issuance. The court also found that the equipment in dispute was not "durable medical equipment," and enjoined HCFA from treating it as such.

We disagree. We hold that HCFAR 96-1 is an interpretive rule, and was not invalidated by HCFA's failure to have adopted notice and comment procedures. We vacate the injunction on the ground that HCFA's interpretation was a permissible one.

BACKGROUND
1. Statutory and Regulatory Background
A. Part B of the Medicare Act

The Medicare Act, 42 U.S.C. § 1395 et seq., establishes a national health insurance program for the elderly and the disabled. Congress authorized Appellant Secretary of Health and Human Services to implement the Medicare statute by issuing both substantive regulations and interpretive rules. See 42 U.S.C. § 1395hh. The Secretary has in turn delegated this authority to the HCFA Administrator.

Part B of the Medicare Act, 42 U.S.C. § 1395j et seq., establishes a voluntary supplemental insurance program. Eligible individuals enrolled in the program pay a monthly premium that, along with congressionally appropriated funds, finances physicians' and other health services. See id. § 1395j. Part B has been referred to as "a private medical insurance program that is subsidized in major part by the Federal Government." Schweiker v. McClure, 456 U.S. 188, 190, 102 S.Ct. 1665, 72 L.Ed.2d 1 (1982).

Part B benefits are administered by private insurance carriers under contract with HCFA. See 42 U.S.C. § 1395u. HCFA reimburses a carrier for the costs of administering claims, and the carriers act as HCFA's agents. See id. § 1395u(a); 42 C.F.R. § 421.5(b). The carrier bears the initial responsibility for determining whether an item or service billed to the Part B program is covered and, if so, the amount to be paid. See 42 U.S.C. § 1395u.

B. Part B Coverage of DME and Braces

Medicare Part B provides coverage for "medical and other health services," 42 U.S.C. § 1395x(s), that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member," id. § 1395y(a)(1)(A). The statute expressly covers braces, including "leg, arm, back, and neck braces." Id. § 1395x(s)(9).

Ordinarily, coverage will extend to any piece of equipment that is reasonable and No similar restriction relates to "braces." See 42 U.S.C. § 1395x(s)(9). Hence if a piece of medical equipment used in a hospital or SNF is a "brace," it is reimbursable--but not if deemed to be DME.

                necessary for the treatment of an eligible patient regardless of the place where it is used.  However, Part B reimburses devices classified as "durable medical equipment" ("DME") only when provided at the patient's "home" or other "institution used as [the patient's] home," and not in a hospital or skilled nursing facility ("SNF").  42 U.S.C. § 1395x(n) (citing §§ 1395x(e)(1) (defining hospital), 1395i-3(a)(1) (defining SNF)). 1  In other words, DME is reimbursable only when used in a patient's home, with "home" being defined to exclude hospitals and SNFs
                
C. DME and Braces Defined

The medical device here, intended for persons with severe musculoskeletal failure, includes a set of connected braces attached to a wheeled base. See infra. While various provisions define braces and DME, no single provision concisely differentiates the two, leaving it open which category is implicated when, as here, a brace-like device is used as part of a wheeled item that might be classified as DME.

The principal statutory definition of DME states that "[DME] includes iron lungs, oxygen tents, hospital beds, and wheelchairs." 42 U.S.C. § 1395x(s)(6) (emphasis supplied). Elsewhere the statute includes special payment provisions for certain types of DME, including "items requiring frequent and substantial servicing," id. § 1395m(a)(3), and equipment customized to an individual patient's needs, see id. § 1395m(a)(4). However, neither of these provisions can be read to expand § 1395x(s)(6)'s definition of DME, because both are expressly limited to a subset of DME. See id. § 1395m(13) (defining "covered item[s]" under § 1395m to be DME "as defined in section 1395x(n)").

In 1990, Congress amended § 1395m(a)(4) to add a provision--which ultimately, by its own terms, was superseded by a HCFA regulation--expressly providing that customized wheelchairs were DME. P.L. 101-508, § 4152(c)(4)(B). 2 The amendment provided that it would become effective on January 1, 1992, unless HCFA developed its own criteria for the treatment of customized wheelchairs as DME. In December, 1991, HCFA addressed customized wheelchairs in a regulation that substantially tracked the language of the amendment, providing that a wheelchair is DME if "uniquely constructed or substantially modified for a specific beneficiary" and "so different from another item used for the same purpose that the two items cannot be grouped together for pricing purposes." 42 C.F.R. § 414.224. In effect, Congress, and subsequently HCFA, treated as DME any wheelchair modified in light of an individual patient's disability, per a physician's instructions.

The regulatory definition of DME focuses not on examples, but rather on qualitative criteria, including the equipment's durability:

equipment, furnished by a supplier or a home health agency that--

(1) Can withstand repeated use;

(2) Is primarily and customarily used to serve a medical purpose;

(3) Generally is not useful to an individual in the absence of an illness or injury; and

(4) Is appropriate for use in the home [citing 42 C.F.R. § 410.38, which in turn

cites statutory provisions defining "home" to exclude hospitals and SNFs].

42 C.F.R. § 414.202.

The manual HCFA prepares for its carriers repeats the regulatory criteria. See Medicare Carrier's Manual ("MCM ") § 2000.1. Another provision in the manual goes farther, explaining that DME includes "supplies and accessories" that are "necessary for the effective use of [DME]." MCM, § 2100.5.

The statutory definition of "brace" is ostensive, listing the sorts of braces that are covered. Id. § 1395x(s)(9) (defining orthotics as "leg, arm, back, and neck braces, and artificial legs, arms, and eyes, including requirements if required because of a change in the patient's physical condition"). The accompanying regulation, 42 C.F.R. § 414.202, tracks the statutory language.

2. The OrthoConcepts Product

Due to illness, injury, and in some cases old age, thousands of Medicare beneficiaries suffer from musculoskeletal failure so severe as to render them incapable of moving or supporting their own limbs. These catastrophically crippled patients are vulnerable to numerous painful conditions. One of the most serious is contractures, a condition in which muscles become rigid and resistant to elongation following a long period of disuse. See Dorland's Illustrated Medical Dictionary 373 (28th ed.1994). Other complications include the development of pressure sores, circulatory problems, and infections.

To manage the condition of patients with grave musculoskeletal failure, OrthoConcepts designed what it has marketed as the "OrthoConcepts Seating System." The Seating System consists of a set of connected braces--the number and type depending on the patient's condition--attached to a wheeled base. The patient sits, or reclines, on the Seating System, and the component braces maintain the patient in a position designed to reduce the weight borne by weaker extremities and to prevent contractures. Since 1989, OrthoConcepts has supplied the Seating System to more than 2700 patients.

3. HCFA's Classification of the OrthoConcepts Seating System

On December 7, 1989, OrthoConcepts informed a regional HCFA office that OrthoConcepts would soon begin marketing the Seating System nationwide. OrthoConcepts' letter inquired about the Medicare coverage status of the Seating System and asked HCFA to establish a new billing code (known as a "L code," a standardized billing classification for "orthotics," or braces) that would allow the Seating System to be...

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