Int'l Rehabilitative Scis. Inc. v. Sebelius

Decision Date30 July 2012
Docket NumberNo. 11–35254.,11–35254.
Citation12 Cal. Daily Op. Serv. 8472,688 F.3d 994,2012 Daily Journal D.A.R. 10392
PartiesINTERNATIONAL REHABILITATIVE SCIENCES INC., a Washington corporation, DBA RS Medical, Plaintiff–Appellee, v. Kathleen SEBELIUS, in her official capacity as Secretary, United States Department of Health and Human Services; United States Department of Health and Human Services, Defendants–Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

OPINION TEXT STARTS HERE

Debra M. Parrish (argued), Parrish Law Offices, Pittsburgh, PA, and Renee M. Howard and Sanford E. Pitler, Bennett Bigelow & Leedom, P.S., Seattle, WA, for the plaintiff-appellee.

Irene M. Solet (argued), Tony West, Jenny A. Durkan, Kerry Keefe, and Michael S. Raab, United States Department of Justice, Washington, D.C., and William B. Schultz, Pamela Parker, Janice L. Hoffman, Mark D. Polston, Janet Freeman, Brett Bierer, and Gerard Keating, United States Department of Health and Human Services, Washington, D.C., for the defendants-appellants.

Appeal from the United States District Court for the Western District of Washington, Ronald B. Leighton, District Judge, Presiding. D.C. No. 3:08–cv–05442–RBL.

Before: BARRY G. SILVERMAN and MARY H. MURGUIA, Circuit Judges, and LESLIE E. KOBAYASHI, District Judge.*

OPINION

SILVERMAN, Circuit Judge:

The Department of Health and Human Services, the agency that administers Medicare, denied Medicare coverage for the BIO–1000, a piece of durable medical equipment used to treat osteoarthritis of the knee. In four decisions, the Medicare Appeals Council, which is the highest level of agency adjudication, ruled that the BIO–1000 had not been shown to be “reasonable and necessary” for the treatment at issue. The supplier of the device challenges those decisions as arbitrary, capricious, and not supported by substantial evidence.

Today we join the Fourth Circuit in holding that the Medicare Appeals Council's coverage denials for the BIO–1000 were not arbitrary, capricious, or unsupported by substantial evidence. See Almy v. Sebelius, 679 F.3d 297, 305 (4th Cir.2012).

We hold that, although various ALJs in other cases had granted coverage for the BIO–1000, those cases were at low levels of the agency adjudication process and thus were not binding on the Medicare Appeals Council. The Medicare Appeals Council adequately explained its reasons for denying coverage here.

Furthermore, the coverage denials were supported by substantial evidence. After reviewing the scientific studies submitted by the BIO–1000's supplier, the Medicare Appeals Council reasonably concluded that those studies failed to show the device was more effective at alleviating knee pain (the device's primary asserted purpose) than a TENS device costing 80% less. And the Medicare Appeals Council reasonably concluded that the studies failed to show that the device was effective at regenerating cartilage (its secondary asserted purpose) in humans.

We reverse the district court's grant of summary judgment for the BIO–1000's supplier and remand the case to the district court to determine in the first instance whether the supplier of the device is entitled to the benefit of any of Medicare's “limited liability” provisions.

THE MEDICARE STATUTORY AND ADMINISTRATIVE REGIME

Medicare is the federal health insurance program for the elderly and disabled. Part B—the part of the Medicare program at issue here—is voluntary supplemental medical insurance covering doctors' services, outpatient care, and durable medical equipment. 42 U.S.C. §§ 1395j, 1395k(a)(2), 1395m. It operates much like private medical insurance: Medicare beneficiaries receive medical treatment and the providers submit claims for government reimbursement. 42 U.S.C. § 1395n.

The government controls Medicare costs, among other ways, by denying coverage claims for items or services that are not “reasonable and necessary” for treatment. 42 U.S.C. § 1395y(a)(1)(A). A device is not “reasonable and necessary”—and thus is not eligible for Medicare coverage—if it is:

• Not “safe” and “effective”—that is, if the device has not “been proven safe and effective based on authoritative evidence” or is not “generally accepted in the medical community as safe and effective for the condition for which it is used”;

[E]xperimental”—that is, “investigational”;

• Not [a]ppropriate” for the individual beneficiary's needs; or

[S]ubstantially more costly than a medically appropriate and realistically feasible alternative pattern of care.”

54 Fed.Reg. 4302, 4303–04 (Jan. 30, 1989); 60 Fed.Reg. 48417, 48418 (Sept. 19, 1995); Centers for Medicare & Medicaid Servs., Dep't of Health & Human Servs., Medicare Benefit Policy Manual, ch. 15, § 110.1[C][2], available at .

The burden is on the claimant to show that the device is reasonable and necessary. See, e.g., Almy v. Sebelius, 679 F.3d 297, 305 (4th Cir.2012); Friedman v. Sec'y of Dep't of Health & Human Servs., 819 F.2d 42, 45 (2d Cir.1987).

Medicare contracts with private insurance carriers to determine coverage claims in the first instance. 42 U.S.C. § 1395u(a); 42 C.F.R. § 405.920. If a contractor denies a claim, the supplier may have another contractor redetermine the claim. 42 C.F.R. § 405.940; 42 U.S.C. § 1395ff(a)(3)(A)(B). If the supplier is dissatisfied with the redetermination, it may have a qualified independent contractor reconsider the claim. 42 C.F.R. § 405.960; 42 U.S.C. § 1395ff(b)(1)(A), (c)(3)(B). If the supplier is dissatisfied with the qualified independent contractor's reconsideration decision, it may have its claim heard before an ALJ. 42 C.F.R. §§ 405.1000 & 405.1002; 42 U.S.C. § 1395ff(d)(1)(A). If the supplier is dissatisfied with the ALJ's decision, it may appeal the decision to the Medicare Appeals Council, a division of the Department of Health and Human Services. 42 C.F.R. § 405.1100; 42 U.S.C. § 1395ff(d)(2). Alternatively, the Medicare Appeals Council may on its own motion review the ALJ's decision. 42 C.F.R. § 405.1110. Each of these administrative appeals applies de novo review. 42 C.F.R. § 405.1000(d); 42 C.F.R. § 405.1100(c). The Medicare Appeals Council's decision is the agency's final decision. 42 C.F.R. § 405.1130.

If the supplier is dissatisfied with the Medicare Appeals Council's decision, it may challenge that decision in federal court. 42 U.S.C. § 1395ff(b)(1)(A).

Even if a coverage claim is denied on the ground that the items or services were not “reasonable or necessary,” Medicare will nevertheless pay for the items or services if the supplier and the beneficiary “did not know, and could not reasonably have been expected to know, that payment would not be made for such items or services.” 42 U.S.C. § 1395pp(a). However, once Medicare indemnifies a supplier for an unforeseen claim denial under this “limited liability” provision, the supplier is deemed to know that Medicare will not pay any future claims for the same or similar items or services. 42 U.S.C. § 1395pp(b).

A supplier can shift the risk of coverage denial to the Medicare beneficiary by notifying the beneficiary in writing that Medicare will likely deny coverage. 42 C.F.R. § 411.404. These advance beneficiary notices “allow beneficiaries to make an informed consumer decision about receiving items or services for which they may have to pay out-of-pocket.” Medicare Benefit Policy Manual, ch. 15, § 110.1[C].

However, for the supplier to shift liability to the beneficiary, the supplier's notice must be sufficiently specific in explaining why Medicare will likely deny the claim. Centers for Medicare & Medicaid Servs., Dep't of Health & Human Servs., Medicare Claims Processing Manual, ch. 30, § 40.3.6.1. The supplier's notice must also explain that denial is probable, not merely possible. Id.

FACTS AND PROCEDURAL HISTORY

Plaintiff International Rehabilitative Sciences, Inc., doing business under the name RS Medical, supplies the BIO–1000, a piece of medical equipment that delivers electrical impulses to the knee to treat osteoarthritis of the knee.

RS Medical charges more than $4,000 for a single-knee BIO–1000 and more than $5,000 for a dual-knee BIO–1000. By comparison, similar devices called “transcutaneous electric nerve stimulators,” also known as TENS units, cost less than $800. See Centers for Medicare & Medicaid Services Durable Medical Equipment Fee Schedule (Jan.2012), available at DMEPOSFee Sched/ DMEPOS– Fee– Schedule– Items/ CMS 1254095. html>.

RS Medical began filing Medicare coverage claims for the BIO–1000 in 2004. At first, those claims were largely denied. Over the next few years, RS Medical started to receive more coverage approvals from initial contractors, qualified independent contractors, and ALJs. In fact, coverage of the device was approved many times at these lower levels of the process. However, none of those coverage decisions reached the Medicare Appeals Council until now.

This case arises from more than 1000 separate claims for Medicare coverage of the BIO–1000 made by RS Medical on behalf of more than 400 individual beneficiaries. Each claim was denied by a Medicare contractor upon the initial determination and redetermination, then by a qualified independent contractor, then by an ALJ, and finally, when the claims were consolidated, by the Medicare Appeals Council in four separate decisions.

In each of the four decisions, the Medicare Appeals Council concluded that RS Medical had not met its burden of establishing that the BIO–1000 was “reasonable and necessary” for treatment. RS Medical had claimed the BIO–1000 was reasonable and necessary for two purposes: (1) to alleviate pain from osteoarthritis of the knee; and (2) to regenerate knee cartilage. With respect to the first purpose, the Medicare Appeals Council found that RS Medical had not offered reliable evidence to establish that the BIO–1000 was more effective at alleviating pain than TENS units costing 80% less than the BIO–1000. Although RS Medical...

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