Federal Court Says Bush Administration Policy To Pay Only For Least Costly Alternative Not Permitted Under Medicare Law

Main Category: Medicare / Medicaid / SCHIP
Also Included In: Litigation / Medical Malpractice
Article Date: 05 Nov 2008 - 11:00 PST

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U.S. District Court Judge Henry Kennedy last month -- as part of a test case on a Bush administration directive that limits Medicare payments to the least costly medications for specific conditions -- blocked the payment policy because CMS does not have the authority to redefine the reimbursement rates set by Congress, the New York Times reports. According to the Times, CMS officials are reviewing the Oct. 16 ruling of the case, which involved Medicare payment for DuoNeb, an inhalant treatment for chronic obstructive pulmonary disease and bronchitis manufactured by Mylan-subsidiary Dey.

In his ruling, Kennedy said that CMS and some of its contractors violated federal law by limiting payments to "the least costly alternative," adding that the administration's position would give the HHS secretary "enormous discretion" to decide the amount that is paid for services and items covered under Medicare without consideration for the detailed formulas set by Congress. He said, "This flies in the face of the detailed statutory provisions."

Under the 1965 Medicare law, payments for services and products that are "not reasonable and necessary for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member" generally are prohibited. If an item is covered, the payment rate is specified in other parts of the law, the Times reports.

The Bush administration argued that Medicare officials should have the authority to determine whether the cost associated with a specific item was "reasonable and necessary." However, Kennedy said that argument "does not make sense" because of congressional efforts to establish the payment rates. CMS spokesperson Peter Ashkenaz on Monday said, "We are disappointed with the ruling and continue to believe that our policy is supported by the statute," adding, "We are still considering our options and next steps." Some federal health officials also said the ruling would pose problems to efforts to reduce Medicare costs.

According to the Times, similar legal disputes with the government over payments for other medications have been raised, such as the COPD and asthma treatment Xopenex manufactured by Sepracor. Sepracor in a friend-of-the-court brief said that Congress had decided a payment rate for the medication at 106% of the average sales price. "Congress consciously chose to entrust the amount of reimbursement to the market, not to a government agency or its contractors," the company said. Patrick Morrisey, a lawyer for Sepracor, said, "If you extend the agency's logic to its natural conclusion, Congress would never need to pass any payment laws and policies" (Pear, New York Times, 11/4).

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