Hays v. Sebelius

In Hays v. Sebelius, 2009 U.S. App. LEXIS 28157 (D.C. Cir. Dec. 22, 2009), the Court of Appeals for the D.C. Circuit held in favor of a challenge to a Medicare carrier ruling that had restricted reimbursement to use of an inexpensive medication rather than a more expensive alternative. Specifically, the Medicare carrier declined "to reimburse expenses associated with the marginal difference in price between a prescribed item or service and its least costly and medically appropriate alternative."

The Court explained:

The Medicare Act defines local coverage determinations as decisions "whether or not a particular item or service is covered" in the contractor's geographic area "in accordance with section 1395y(a)(1)(A)." 42 U.S.C. § 1395ff(f)(2)(B). The Secretary has instructed contractors that when determining whether a treatment is "reasonable and necessary" under section 1395y(a)(1)(A), they may apply the so-called least costly alternative policy. Ctrs. for Medicare and Medicaid Servs., Medicare Program Integrity Manual § 13.4.A (Rev. 71, Apr. 9, 2004). Under that policy, Medicare provides reimbursement for treatments only up to the price of their "reasonably feasible and medically appropriate" least costly alternatives. Ctrs. for Medicare and Medicaid Servs., Medicare Benefit Policy Manual § 110.1.C.3 (Rev. 93, July 25, 2008). Application of the policy is discretionary with regard to prescription drugs--the subject of this case--but mandatory with regard to durable medical equipment. See Medicare Program Integrity Manual § 13.4.A.

Id. at *2 - *3.

The Court invalidated this policy, holding that:

[T]he [Medicare] statute unambiguously authorizes the Secretary to make only a binary choice: either an item or service is reasonable and necessary, in which case it may be covered at the statutory rate, or it is unreasonable or unnecessary, in which case it may not be covered at all. Nothing in the statute authorizes the least costly alternative policy.

Id. at *10 - *11 (emphasis added).