United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 5, 2009 Decided December 22, 2009
No. 08-5508
ILENE HAYS,
APPELLEE
v.
KATHLEEN SEBELIUS, SECRETARY OF THE UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL.,
APPELLANTS
Appeal from the United States District Court
for the District of Columbia
(No. 1:08-cv-01032-HHK)
Samantha L. Chaifetz, Attorney, U.S. Department of
Justice, argued the cause for appellants. On the briefs were
Mark B. Stern and Christopher C. Fonzone, Attorneys.
Stuart M. Gerson argued the cause for appellee. With
him on the brief was Robert E. Wanerman.
Peter D. Keisler and Patrick Morrisey were on the brief
for amicus curiae Sepracor Inc. in support of appellee.
Before: TATEL and KAVANAUGH, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
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Opinion for the Court filed by Circuit Judge TATEL.
Concurring opinion filed by Senior Circuit Judge
RANDOLPH.
TATEL, Circuit Judge: Appellee, a Medicare Part B
beneficiary, challenges a decision by a regional Medicare
contractor to reimburse for a particular drug only up to the
price of its least costly alternative. The district court held that
the Medicare Act unambiguously forecloses that
determination and requires instead that Medicare pay for
covered items or services at a statutorily prescribed rate.
Agreeing with the district court, we affirm.
I.
Medicare Part B is a public health insurance program that
provides the disabled and elderly with outpatient items and
services, including durable medical equipment and certain
prescription medications. The threshold for Medicare Part B
coverage appears in 42 U.S.C. § 1395y(a)(1)(A), which states
that “no payment may be made . . . for any expenses incurred
for items or services which . . . are not reasonable and
necessary for the diagnosis or treatment of illness or injury or
to improve the functioning of a malformed body member.”
The Secretary of Health and Human Services administers
the Medicare Act and may delegate certain functions to
contractors, including the development of local coverage
determinations. 42 U.S.C. § 1395kk-1(a)(4). 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
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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.
This case arose when Medicare contractors applied the
least costly alternative policy to DuoNeb, an inhalation drug
used to treat Chronic Obstructive Pulmonary Disease.
DuoNeb provides a combination of albuterol sulfate and
ipratropium bromide in one dose and can be slightly more
expensive than separate doses of the two component drugs.
Appellee Ilene Hays is a Medicare Part B beneficiary
suffering from Chronic Obstructive Pulmonary Disease who
has used DuoNeb for approximately four years. During that
time, Medicare, pursuant to a statutory formula, provided
reimbursement for DuoNeb at 106% of the drug’s average
sales price. 42 U.S.C. §§ 1395w-3a(b)(1), 1395u(o)(1)(G)(ii).
In 2008, four Medicare contractors announced that the
medical necessity of administering the two drugs in a
combined dose, as compared to separate doses, had not been
established. See NHIC (Region A), LCD for Nebulizers,
L11499 (Apr. 10, 2008). Thus, pursuant to the least costly
alternative policy, payment for the combination drug “[would]
be based on the allowance for the least costly medically
appropriate alternative,” the two component drugs as
administered separately. Id. Hays challenged this decision in
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the United States District Court for the District of Columbia
pursuant to a provision of the statute that allows beneficiaries
to proceed without exhausting administrative remedies where
“there are no material issues of fact in dispute, and the only
issue of law is . . . that a regulation, determination, or ruling
by the Secretary is invalid.” 42 U.S.C. § 1395ff(f)(3). Hays
argued that section 1395y(a)’s “reasonable and necessary”
standard modifies “items and services.” Accordingly, she
contended, the Secretary may determine only whether
DuoNeb is reasonable and necessary; if it is, Medicare must
reimburse based on the 106% statutory formula. See 42
U.S.C. § 1395w-3a. The district court agreed with Hays and
granted her motion for summary judgment. Hays v. Leavitt,
583 F. Supp. 2d 62, 69, 72 (D.D.C. 2008). The Secretary
appeals, and our review is de novo. See, e.g., Transitional
Hosps. Corp. of La., Inc. v. Shalala, 222 F.3d 1019, 1023
(D.C. Cir. 2000) (reviewing de novo district court’s grant of
summary judgment to plaintiffs challenging validity of
Medicare regulations).
II.
The Secretary argues that section 1395y(a) is ambiguous
and that we should defer to her reasonable interpretation of
the statute. See Chevron U.S.A. Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837 (1984). Several features of the
Medicare statute, however, convince us that it unambiguously
forecloses the Secretary’s interpretation.
In relevant part, section 1395y provides:
(a) Items or services specifically excluded.
Notwithstanding any other provision of this
subchapter, no payment may be made . . . for any
expenses incurred for items or services--
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(1)(A) which, except for items and services
described in a succeeding subparagraph or additional
preventive services . . . , are not reasonable and
necessary for the diagnosis or treatment of illness or
injury or to improve the functioning of a malformed
body member[.]
The dispute in this case centers on whether “reasonable and
necessary” modifies “expenses” (as the Secretary argues), or
“items and services” (as Hays contends). If the Secretary is
correct, then Medicare may, as it has here, partially cover an
item or service, declining to reimburse expenses associated
with the marginal difference in price between a prescribed
item or service and its least costly and medically appropriate
alternative. If Hays and the district court are correct, then the
Secretary may make only a binary coverage decision, namely
to reimburse at the full statutory rate or not at all.
We agree with Hays and the district court. As they point
out, only a dependent clause separates “reasonable and
necessary” from the phrase “items or services.” See
§ 1395y(a)(1) (“for any expenses incurred for items or
services—which, . . . , are not reasonable and necessary . . .”).
“Expenses,” by contrast, appears earlier in the sentence.
“Ordinarily, qualifying phrases are to be applied to the words
or phrase immediately preceding and are not to be construed
as extending to others more remote.” United States v.
Pritchett, 470 F.2d 455, 459 (D.C. Cir. 1972). To be sure,
this “Rule of the Last Antecedent” “is not an absolute and can
assuredly be overcome by other indicia of meaning.”
Barnhart v. Thomas, 540 U.S. 20, 26 (2003); see also United
States v. Villanueva-Sotelo, 515 F.3d 1234, 1238 (D.C. Cir.
2008). Here, however, section 1395y contains no indication
that the rule is inapplicable. Quite to the contrary, not only is
the phrase “items or services” much nearer to the phrase
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“reasonable and necessary,” but subsection (1)(A), which
introduces the “reasonable and necessary” standard, is set off
from the introductory language and nowhere mentions
“expenses.”
Several other characteristics of section 1395y(a) reinforce
this conclusion. First, subsection (1)(A) prohibits payment
for expenses incurred for items or services “which, except for
items and services described in a succeeding subparagraph
. . . , are not reasonable and necessary . . . .” 42 U.S.C.
§ 1395y(a)(1)(A). By defining the scope of the word
“which,” this language provides powerful evidence that
“reasonable and necessary” applies to “items and services.”
Moreover, the “succeeding subparagraph[s]” to which
subsection (1)(A) refers discuss coverage of specific items
and services including “hospice care,” § 1395y(a)(1)(C),
“screening mammography,” § 1395y(a)(1)(F), “home health
services,” § 1395y(a)(1)(I), and “ultrasound screening,”
§ 1395y(a)(1)(N).
Second, to be covered something—either expenses or
items and services—must be “reasonable and necessary for
the diagnosis or treatment of illness or injury or to improve
the functioning of a malformed body member.” 42 U.S.C.
§ 1395y(a)(1)(A). Items and services diagnose, treat, and
improve; expenses do not.
Finally, section 1395y(a) is entitled “Items or services
specifically excluded.” 42 U.S.C. §1395y(a). Although “the
title of a statute and the heading of a section cannot limit the
plain meaning of the text,” they remain “tools available for
the resolution of a doubt” about statutory meaning. Bhd. of
R.R. Trainmen v. Baltimore & Ohio R.R. Co., 331 U.S. 519,
528–29 (1947). Here, the title, which says nothing about
expenses, confirms the obvious: that items or services, not
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expenses, must be reasonable and necessary to qualify for
Medicare coverage.
Our conclusion finds support elsewhere in the Medicare
Act, specifically its mandatory reimbursement formulas.
Section 1395w-3a provides that for multiple source drugs like
DuoNeb “the amount of payment . . . is” 106% of the average
sales price, as determined under the statutory formula. 42
U.S.C. § 1395w-3a(b)(1) (emphasis added). The statutory
formula is in turn based on the volume-weighted average of
the average sales prices of drugs within the same Healthcare
Common Procedure Coding System (HCPCS) billing and
payment code. 42 U.S.C. § 1395w-3a(b)(6). DuoNeb’s
HCPCS code includes neither component drug.
The Secretary insists that the least costly alternative
policy comports with the Medicare Act’s mandatory
reimbursement formulas because payment under that policy is
based on the statutory rate as applied to an item or service’s
least costly alternative. But this argument would permit an
end-run around the statute. The statutory formula requires the
Secretary to reimburse a particular drug at 106% of the
average sales price for drugs within its billing and payment
code. 42 U.S.C. § 1395w-3a(b)(1). By reimbursing DuoNeb
at 106% of the average sales price of its two component
drugs—which have different billing and payment codes—the
Secretary would fundamentally alter the reimbursement
scheme. Like the district court, we think it quite unlikely that
“Congress, having minutely detailed the reimbursement rates
for covered items and services, intended that the Secretary
could ignore these formulas whenever she determined that the
expense of an item or service was not reasonable or
necessary.” Hays, 583 F. Supp. 2d at 71.
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To be sure, Congress could have written the Medicare
Act to authorize the least costly alternative policy. For
example, if the statute read, “no payment may be made . . . for
any expenses which are incurred for items and services and
which are not reasonable and necessary for the diagnosis or
treatment of illness or injury,” then the phrase “reasonable
and necessary” would indeed modify “expenses.” And if the
reimbursement formulas were either discretionary or based on
the cost of an item or service’s therapeutic equivalents, the
Secretary would have authority to refuse payment for the
difference in cost between a prescribed item or service and its
least costly alternative. But this is not the statute Congress
wrote. As written, the 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.
III.
Amicus Sepracor argues that the statute also prohibits the
Secretary from considering cost in making the initial coverage
determination. But we need not consider that issue. Even if
the Secretary may consider cost in determining whether an
item or service is “reasonable and necessary,” it does not
follow that she has authority to partially cover an item or
service based on the price of its least costly alternative.
For the foregoing reasons, we affirm.
So ordered.
RANDOLPH, Senior Circuit Judge, concurring: Although I
join the court’s opinion, one feature of this case, unusual in
administrative law, prompts me to add a few words. Invoking
Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), the
Secretary asked us to defer to the interpretation of the statute
embodied in the local coverage determination of a private
contractor. The court rightly declines on the ground that the
statute – 42 U.S.C. § 1395y(a)(1)(A) – clearly forecloses
application of the least costly alternative policy to DuoNeb. Slip
Op. at 4. If the statute had not been so clear, one may wonder
whether deference of the Chevron variety would have been due.
No decision of the Secretary applied the least costly alternative
policy to this product. That was the doing of four private
contractors the Secretary hired to administer the program.
While the Secretary issued guidance instructing the contractors
to employ the policy with respect to durable medical equipment,
the guidance gave the contractors “discretion to apply this
principle to payment for non-DME [durable medical equipment]
services as well.” Ctrs. for Medicare and Medicaid Servs.,
Medicare Program Integrity Manual § 13.4.A (Rev. 71, Apr. 9,
2004). DuoNeb is not durable medical equipment and so fell
within the scope of the contractors’ discretion. The Secretary at
one time considered issuing a nationwide opinion regarding the
status of DuoNeb but ultimately declined, leaving the issue to
the contractors. Ctrs. for Medicare and Medicaid Servs.,
Decision Memo for Nebulized Beta Adrenergic Agonist Therapy
for Lung Diseases, CAG-00354N (Sept. 10, 2007).
Given these circumstances, there is a substantial question
whether, in requesting deference, the Secretary was actually
asking us to defer to a private contractor’s determination of the
meaning of the statue as applied to DuoNeb. It is not apparent
why the rationale of Chevron would support the Secretary’s
request. See 467 U.S. at 844-45, 865-66. Still less is it clear
that Congress authorized the Secretary to delegate lawmaking
functions to private contractors, see 42 U.S.C. §§ 1395u(a),
1395kk-1, or could do so consistently with the Constitution. As
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I have said, the court’s disposition of the case renders
consideration of these issues unnecessary.