District Court to HHS: Failure to Consider FDA Approval in Coverage Decision is Arbitrary and Capricious

August 10, 2010

By Carrie S. Martin

On July 28, a district court in the State of Washington granted a motion for summary judgment in favor of Plaintiff which sought coverage of Medicare claims for a medical device.  International Rehabilitative Sciences, Inc. v. Sebelius, No. C08-5442-RBL (W.D. Wash. Jul. 28, 2010).  At issue were four denials of coverage by the Medicare Appeals Council (the Appeals Council), the highest level of administrative appeal, of the Bionicare Stimulator System, Model 1000 (BIO-1000).  FDA cleared BIO-100 as a Class II medical device in July 1997 for the treatment of osteoarthritis of the knee. 

Medicare Part B pays for outpatient care and durable medical equipment, like BIO-1000, unless the item or service is “not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member,” among other exclusions.  42 U.S.C. § 1395y(a)(1)(A).  Initial coverage decisions for a particular item or service are governed by “national coverage determinations” issued by Health and Human Services (“HHS”), “local coverage determinations” issued by a local Medicare contractor if no national coverage determination exists, or by regional contractors if neither a national nor local determination exists.  Coverage and payment of BIO-1000 was governed by regional contractors.  One can appeal a coverage decision through an administrative chain, with the Appeals Council being the final arbiter.

In upholding the denial of the four claims at issue, the Appeals Council concluded that Plaintiff failed to show conclusively that the device was not “experimental or investigational,” and hence not “reasonable and necessary” for the treatment of osteoarthritis.  According to an HHS Medicare Manual, an item is not “reasonable and necessary” if it is “experimental or investigational.”  In addition, the item must be “safe and effective” and “appropriate.”  Accepted proof of “reasonable and necessary” is “authoritative evidence” or general acceptance of the service in the medical community as safe and effective for the condition for which it is used. 

In reviewing the denial of the four claims, the district court noted that the Appeals Council “discounted the FDA’s approval of the BIO-1000” as evidence of “reasonable and necessary.”  The district court pointed to a statement by HHS in 2003 that said, in making national coverage decisions, “CMS adopts FDA determinations of safety and effectiveness.”  68 Fed. Reg. 55,634, 55,636 (Sept. 26, 2003).  According to the district court, the Appeals Council’s denials either considered FDA clearance simply a prerequisite for Medicare coverage or did not consider FDA’s clearance at all.  Although the district court admitted that HHS is entitled to substantial deference in coverage decisions, the court concluded that the Appeals Council’s failure to “give FDA approval any weight at all” was arbitrary and capricious.

The district court did not cite any judicial decisions to support its conclusion, but industry may want to consider this decision as an example of how courts may handle similar cases in the future.