Almy v. Sebelius, No. 10-2241

Decided: April 26, 2012

The Secretary of Health and Human Services (hereinafter “the Secretary”) administers the Medicare statute, 42 U.S.C. § 1395.  Medicare Part B extends coverage to certain types of durable medical equipment (DME), though coverage is not guaranteed if the equipment is not “reasonable and necessary.”  The Secretary has discretion to determine whether a device is covered by: (1) making a national coverage determination (NCD); (2) allowing private insurance carriers who contract with the Secretary to issue local coverage determinations (LCD); or (3) allowing contractors to make individual determinations.

The BioniCare Stimulator System (hereinafter “BIO-1000”) treats osteoarthritis.  BioniCare sought FDA approval under § 510(k), which allows a device to be marketed because it is “substantially equivalent to another device” already on the market, in part by proving that the device is as safe and effective as the already-marketed device.  The FDA approved the BIO-1000 as being substantially equivalent to the Transcutaenous Electric Nerve Stimulator (TENS).  The Secretary determined that the BIO-1000 is not reasonable and necessary and denied coverage based on BioniCare’s inability to demonstrate that the device is safe and effective.  Plaintiff is the Chapter 7 trustee for BioniCare’s bankruptcy estate and seeks reversal of the denial of coverage. Both parties moved for summary judgment and the District Court for the District of Maryland granted the Secretary’s motion in full on September 3, 2010.  This appeal followed.

Factual findings of the Secretary are conclusive if supported by substantial evidence: such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.  Judicial review of the Secretary’s decisions is limited by the Administrative Procedure Act (APA) to assessing whether the decision was “arbitrary, capricious, an abuse of discretion, … otherwise not in accordance with law, … [or] without observance of procedure required by law.”  There is a presumption in favor of upholding agency action if there is a rational connection between the facts found and the choice made.

On appeal, BioniCare raises three issues. First, BioniCare disputes the use of the adjudication process, arguing an NCD or LCD should have been issued for the BIO-1000 because the Secretary’s decisions were based on the safety and effectiveness of the device generally, rather than the medical necessity of the device for a particular patient.  This argument ignores directly applicable Supreme Court precedent, which makes clear that the Secretary has discretion to proceed by individual adjudication rather than by general rulemaking.  SEC v. Chenery Corp., 332 U.S. 194 (1947).  The Supreme Court expressly rejected BioniCare’s argument, stating that “the means by which [the Secretary] implements her decision, whether by promulgating a generally applicable rule or by allowing individual adjudication, [is] clearly [a] discretionary decision.” Heckler v. Ringer, 466 U.S. 602, 617 (1984).

Second, BioniCare argues that the Secretary’s decisions were not supported by substantial evidence, as required by the Medicare statute and the APA.  BioniCare alleges that the Secretary erroneously relied on MPIM § 13.7.1, which discusses standards for assessing the relevant evidence applicable to LCDs.  However, the same criteria govern individual adjudications pursuant to MPIM § 13.3 (contractors should use the standard for LCDs outlined in § 13.5.1 for individual adjudications).  Section 13.3 incorporates by reference the substantive criteria outlined in § 13.5.1.  Section 13.7.1 addresses how to demonstrate compliance with § 13.5.1 (safety and effectiveness can be shown through “published authoritative evidence” such as “definitive randomized clinical trials” or “general acceptance by the medical community”).  BioniCare further asserts that it has made a prima facie case for coverage, thus shifting the burden to the Secretary to produce affirmative evidence to deny coverage.  This proposition is simply incorrect, as Friedman v. Sec’y of Dept. of Health and Hum. Servs. blatantly states that “a claimant … has the burden of proving entitlement to Medicare benefits.”  819 F.2d 42, 45 (2d Cir. 1987).  BioniCare claims it produced adequate evidence to justify coverage.  However, BioniCare did not establish that the product is safe and effective, as all of the studies submitted in support of the product’s safety were deficient in some regard.  The decision that BioniCare’s studies were not credible is within the Secretary’s discretion and will not be disturbed on appeal as long as the decision passes the low threshold of “minimal standards of rationality.”

Finally, BioniCare alleges a variety of procedural errors at various stages of decision making, all of which are rooted in the arbitrary and capricious standard.  BioniCare alleges the Secretary failed to give adequate consideration to the FDA’s approval of the BIO-1000 under the 510(k) process.  However, approval under 510(k) does not require that the product has undergone any formal safety review.  Furthermore, FDA approval alone does not entitle a device to coverage, as the standards for safety and effectiveness used by the FDA and the Secretary differ.  BioniCare also argues that the intermediate review conducted by a Qualified Independent Contractor failed to comply with regulations requiring input from a “panel of physicians or other appropriate health care professionals.”  The district court agreed that such input is required, but found that BioniCare did not present sufficient evidence that the requirement was not satisfied.  The final procedural error alleged by BioniCare is that the Secretary’s decisions reach a different result from other decisions at other stages of the review process and thus are arbitrary and capricious. The district court held that lower level decisions do not have binding precedential effect on the Secretary, in line with the decisions of other circuits.  Because the Secretary reviews decisions de novo, BioniCare’s argument that the Secretary must defer to previous decisions is invalid.

The Medicare statute is extremely complex, but that does not permit courts to abandon their reviewing role.  The absence of judicial oversight would risk unsupported and unexplained agency decisions.  After reviewing BioniCare’s claims, the Fourth Circuit is convinced that the Secretary proceeded in accordance with the law and the district court’s decision to grant summary judgment to the Secretary is affirmed.

Full Opinion

-Michelle Theret

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