Agendia, Inc. v. Becerra

• Decision Date: 16 July 2021
• Docket Number: 20-55041,Nos. 19-56516,s. 19-56516
• Citation: 4 F.4th 896
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: AGENDIA, INC., Plaintiff-Appellee/ Cross-Appellant, v. Xavier BECERRA, Secretary of U.S. Department of Health and Human Services, Defendant-Appellant/ Cross-Appellee.

4 F.4th 896

AGENDIA, INC., Plaintiff-Appellee/ Cross-Appellant,

v.Xavier BECERRA, Secretary of U.S. Department of Health and Human Services, Defendant-Appellant/ Cross-Appellee.

Nos. 19-56516

20-55041

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 15, 2021 Pasadena, California

Filed July 16, 2021

Stephanie R. Marcus (argued) and Michael S. Raab, Appellate Staff; Nicola T. Hanna, United States Attorney; Ethan P. Davis, Acting Assistant Attorney General; Civil Division, United States Department of Justice, Washington, D.C.; for Defendant-Appellant/Cross-Appellee.

Patric Hooper (argued), Hooper Lundy & Bookman PC, Los Angeles, California, for Plaintiff-Appellee/Cross-Appellant.

Before: Michelle T. Friedland and Mark J. Bennett, Circuit Judges, and Frederic Block,^* District Judge.

Dissent by Judge Block

OPINION

FRIEDLAND, Circuit Judge:

Through the Medicare health insurance program, the Department of Health and Human Services ("HHS") reimburses medical providers for the cost of items and services that are "reasonable and necessary" for the treatment of beneficiaries. HHS employs private contractors to process providers’ claims for reimbursement, including by making initial determinations as to whether the items or services for which reimbursement is sought are reasonable and necessary. To promote consistency in initial determinations, a contractor can issue a "local coverage determination," which specifies whether or under what conditions that contractor will approve reimbursement for some set of items or services.

Plaintiff Agendia, Inc. ("Agendia") submitted claims for reimbursement for its diagnostic tests, which were denied based on a local coverage determination. Agendia contends that the denial was improper because the local coverage determination was issued without notice and opportunity for comment in violation of a provision of the Medicare Act—specifically, 42 U.S.C. § 1395hh. We hold that § 1395hh ’s notice-and-comment requirement does not apply to local coverage determinations, and that the district court erred in interpreting the statute otherwise.

In the alternative, Agendia suggests that the Medicare Act and its implementing regulations have unconstitutionally delegated regulatory authority to Medicare contractors by permitting them to issue local coverage determinations. We hold that, because those contractors act subordinately to the HHS officials implementing Medicare, there is no unconstitutional delegation.

I.

A.

For background, we begin with a summary of the Medicare reimbursement process. Medicare Parts A and B cover only medical items and services that are "reasonable and necessary" for the treatment of beneficiaries. 42 U.S.C. § 1395y(a)(1)(A). Medical providers submit their claims for reimbursement to a Medicare administrative contractor ("MAC"), a private entity that processes claims in a geographic region assigned by HHS. The MAC makes an initial determination as to whether an item or service qualifies for reimbursement in that geographic region. 42 C.F.R. § 405.920 ; see also 42 U.S.C. § 1395kk-1(a)(4)(A). A provider that is dissatisfied with the initial determination can file an administrative appeal. 42 C.F.R. § 405.904.

The administrative appeals process consists of up to four steps: (1) a redetermination by the MAC that originally denied the claim; (2) a review by a different contractor (known as a "qualified independent contractor"); (3) a hearing before an Administrative Law Judge ("ALJ"); and finally, (4) review by the Medicare Appeals Council ("the Council"), an adjudicatory body within HHS. Id. § 405.904(a)(2), (b). A provider that exhausts its administrative appeals can seek judicial review in a federal district court. 42 U.S.C. §§ 405(g), 1395ff(b)(1)(A).

Congress has authorized two mechanisms to promote consistency in these adjudications: national coverage determinations and local coverage determinations. National coverage determinations are decisions by the Secretary of Health and Human Services ("the Secretary"¹ ) as to whether a particular item or service will be covered by Medicare on a nationwide basis. 42 C.F.R. § 405.1060(a)(1) ; see also 42 U.S.C. § 1395y(l )(6)(A). National coverage determinations bind HHS at all levels of claims adjudication. 42 C.F.R. § 405.1060(a)(4). Before issuing a national coverage determination, the Secretary must follow a unique notice-and-comment process that the Medicare Act requires only for those determinations. See 42 U.S.C. § 1395y(l )(3). Specifically, the Secretary must publish a draft version of the national coverage determination online and allow a public comment period of thirty days. Id. § 1395y(l )(3)(A)–(B) ; see also id. § 1395y(a) ("In making a national coverage determination ... the Secretary shall ensure consistent with subsection (l ) that the public is afforded notice and opportunity to comment.").

Local coverage determinations, by contrast, are issued by MACs. See id. § 1395kk-1(a)(1), (4). A local coverage determination governs only the issuing MAC's claims adjudications. Id. § 1395ff(f)(2)(B). Unlike a national coverage determination, a local coverage determination is not binding at the higher levels of administrative review conducted by the qualified independent contractor, an ALJ, or the Council. Id. § 1395ff(c)(3)(B)(ii)(II) ; 42 C.F.R. §§ 405.968(b)(2)–(3), 405.1062(a) – (b). Still, qualified independent contractors, ALJs, and the Council all owe "substantial deference" to a relevant local coverage determination and, if they decline to apply that determination, must explain their reasons. 42 C.F.R. §§ 405.968(b)(2)–(3), 405.1062(a) – (b). The primary dispute before us is about what procedures are required before a MAC may issue a local coverage determination.

B.

Agendia is a clinical laboratory that furnishes molecular diagnostic tests to doctors treating breast cancer

patients. After Agendia provided such tests for eighty-six Medicare beneficiaries in 2012 and 2013, it sought reimbursement from HHS. The MAC assigned to adjudicate claims in Agendia's region denied payment based on a local coverage determination the MAC had previously issued. Under that local coverage determination, certain molecular diagnostic tests—including those Agendia provided—were not reasonable and necessary.

Agendia administratively appealed. The qualified independent contractor that reviewed Agendia's claims agreed that payment should be denied. The reviewing ALJ, however, reversed, concluding that the diagnostic tests were reasonable and necessary, notwithstanding the local coverage determination. On its own motion, the Council overturned the ALJ's decision, holding that the tests were not in fact reasonable and necessary. The Council explained that there was "no reason to not apply substantial deference" to the relevant local coverage determination.

Agendia then sued the Secretary in federal district court, asserting that the denial of its reimbursement claims was improper because the process for issuing the relevant local coverage determination was unlawful for two reasons.² First, Agendia argued that a provision of the Medicare Act, 42 U.S.C. § 1395hh, requires that a local coverage determination undergo a notice-and-comment process before being adopted. Second, Agendia argued that the portions of the Medicare Act and its implementing regulations that authorize MACs to issue local coverage determinations unconstitutionally delegate regulatory authority to private entities.

The district court rejected Agendia's constitutional challenge but agreed with Agendia's statutory argument, concluding that § 1395hh requires local coverage determinations to undergo notice and comment. Because no such process had occurred, the district court granted summary judgment for Agendia and remanded to the Council to reevaluate the claims for reimbursement without relying on the local coverage determination. The Secretary appealed.³

II.

Although the district court remanded this case, the grant of summary judgment is a final order subject to appellate review under 28 U.S.C. § 1291 because it "terminated the civil action challenging the Secretary's final determination" denying Agendia's claims for reimbursement. Sullivan v. Finkelstein , 496 U.S. 617, 625, 110 S.Ct. 2658, 110 L.Ed.2d 563 (1990). We review de novo a grant of summary judgment. Kaiser Found. Hosps. v. Sebelius , 649 F.3d 1153, 1157 (9th Cir. 2011).

III.

A.

We first turn to Agendia's principal argument that the process for adopting local coverage determinations requires notice and comment.

The Medicare Act requires the Secretary to follow a notice-and-comment procedure for any "rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing ... the payment for services." 42 U.S.C. § 1395hh(a)(2). This process consists of "notice of the proposed regulation in the Federal Register and a period of not less than 60 days for public comment thereon." Id. § 1395hh(b)(1). (As discussed above, national coverage determinations have a separate notice-and-comment process that requires that a draft be posted online with thirty days for public comment. Id. § 1395y(l )(3)(A)–(B).) Agendia argues that the more formal notice-and-comment process contained in § 1395hh(b)(1) is required for local coverage determinations. For clarity, we will refer to that process as the " § 1395hh notice-and-comment process."

The parties agree that local coverage determinations have never undergone the § 1395hh notice-and-comment process. Agendia contends that this procedural error makes all local coverage determinations invalid. Because the Council's denial of Agendia's claims for reimbursement rested on a local coverage determination, Agendia insists that denial was improper.

We hold that local coverage determinations are not subject to the § 1395hh notice-and-comment process because such determinations do not "establish[ ]...