By Jeffrey H. Brochin, J.D.
Medicare Act did not unconstitutionally delegate regulatory authority to Medicare Administrative Contractors (MACs) for issuing local coverage determinations, because those contractors acted subordinately to HHS officials.
A federal appeals court in California has reversed the district court’s decision granting summary judgment in favor of Agendia, Inc. (Agendia or Provider), a provider of molecular diagnostic tests, after determining that MACs are not required to extend a notice and comment period when issuing local coverage determinations. The appeals court held that the Medicare Act’s notice-and-comment provision – 42 U.S.C. § 1395hh – did not apply to local coverage determinations because such determinations did not establish or change a substantive legal standard, and the district court erred in interpreting the statute otherwise (Agendia, Inc. v. Becerra, July 16, 2021, Friedland, CJ).
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. 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. Agendia’s claims for reimbursement were denied based on a local coverage determination.
Local coverage determinations. HHS reimburses medical providers for the cost of items and services that are deemed ‘reasonable and necessary’ for the treatment of beneficiaries, and HHS employs private contractors (MACs) to process providers’ claims for reimbursement. To promote consistency in initial determinations, a contractor can issue a ‘local coverage determination,’ which specifies whether or under what conditions that MAC will approve reimbursement for a set of items or services.
Not ‘reasonable and necessary’. 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. However, the MAC assigned to adjudicate claims in Agendia’s region denied payment based on a local coverage determination that the MAC had previously issued. Under that local coverage determination, certain molecular diagnostic tests—including those Agendia provided—were not considered reasonable and necessary.
Agendia administratively appealed, and after judicial review, the district court agreed with Agendia that the denial of reimbursement was improper because it was issued without notice and opportunity for comment. HHS brought the instant appeal from that ruling.
§1395hh notice and opportunity for comment. 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. The main issue before the appeals court therefore was about what procedures are required before a MAC may issue a local coverage determination. In addition, 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.
Standard not established or changed. Interestingly, the parties were in agreement that local coverage determinations have never undergone the § 1395hh notice-and-comment process, but Agendia’s interpretation of that fact was that this procedural error made all local coverage determinations invalid because claims for reimbursement rested on those very local coverage determinations. The appeals court disagreed that such notice-and-comment process was necessary, holding that local coverage determinations are not subject to the § 1395hh notice-and-comment process because such determinations do not ‘establish or change’ a substantive legal standard. The only standard implicated in the instant case was that an item or service must be ‘reasonable and necessary’ in order for a provider to have a right to payment. The appeals court accordingly reversed the district court as to the necessity for a notice-and-comment process.
Not unconstitutional. The appeals court next addressed Agendia’s argument that local coverage determinations were unconstitutional because they resulted from a delegation of regulatory power to private entities, namely, the MACs. However, the appeals court rejected that argument, finding that the statutory and regulatory scheme was constitutional because the contractors function subordinately to the Secretary of HHS, and, HHS retains the relevant decision-making power: although HHS regulations provide that local coverage determinations are entitled to ‘substantial deference,’ the regulations also provide that ALJs and the Council can refuse to apply a local coverage determination in any claim appeal if they adequately explain their reasons for departing from it.
Based on the foregoing, the appeals court reversed the district court’s grant of summary judgment in favor of Agendia.
In a dissenting opinion, Circuit Judge Block noted that Agendia has been trying to secure agency approval for its BluePrint and TargetPrint tests for almost a decade, and that it almost succeeded in 2018 when an ALJ issued a detailed decision that was fully favorable to Agendia. However, the Medicare Appeals Council decided, on its own motion, to review and reverse the ALJ’s decision, holding that the favorable decision must be reversed because it was ‘inconsistent with the LCDs in effect during the dates at issue,’ and there was no reason not to apply substantial deference to the LCDs. Therefore, the Council’s own statements reflect that an ALJ can be reversed for failing to follow an LCD, and therefore LCDs significantly alter the nature of appellate review in Medicare cases.
The case is No. 19-56516.
Attorneys: Bridget A. Gordon (Hooper, Lundy & Bookman, Inc.) for Agendia, Inc. Grace Y. Park, Office of the U.S. Attorney, for Xavier Becerra.
Companies: Agendia, Inc.
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