Opinion ID: 805482
Heading Depth: 2
Heading Rank: 1

Heading: the agency’s coverage denials for the

Text: BIO-1000 The district court reversed the Medicare Appeals Council’s coverage denials on two independent grounds. We disagree on both. [1] First, the district court held that the thousands of coverage grants by initial contractors, qualified independent contractors, and ALJs rendered the Medicare Appeals Council’s coverage denials here “arbitrary and capricious” under § 706 of the Administrative Procedure Act. But not all agency inconsistency is impermissibly arbitrary — only “[u]nexplained inconsistency.” Marmolejo-Campos v. Holder, 558 F.3d 903, 914 (9th Cir. 2009) (en banc) (alteration in original) (emphasis added). “[Agency] inconsistency provides a basis for rejecting an agency’s interpretation only in ‘rare instances, such as when an agency provides no explanation at all for a change in policy, or when its explanation is so unclear or contradictory that we are left in doubt as to 8542 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS the reason for the change in direction.’ ” Id. (emphasis added) (citation omitted). Here, the Medicare Appeals Council explained why it disagreed with the lower agency adjudicatory decisions granting coverage: the studies that those decisions relied on purporting to show the BIO-1000’s effectiveness at alleviating pain had been authored or sponsored by the BIO-1000 manufacturer, and the studies purporting to show the BIO-1000’s effectiveness at regenerating cartilage had been conducted on animals, not humans. Because they explained the reasons for their disagreement, the Medicare Appeals Council’s coverage denials were not impermissibly arbitrary. [2] Moreover, the district court incorrectly measured agency inconsistency across different levels of agency adjudication. No Medicare Appeals Council decision has granted coverage for the BIO-1000; the only coverage grants were by contractors, qualified independent contractors, and ALJs. As the Fourth Circuit held in this exact situation, “ ‘[e]ven if these [decisions from lower levels of agency adjudication] were found to evince internal inconsistency at a subordinate level, the [agency] itself would not be acting inconsistently.’ ” Almy v. Sebelius, 679 F.3d 297, 310 (4th Cir. 2012) (third alteration in original) (quoting Cmty. Care Found. v. Thompson, 318 F.3d 219, 227 (D.C. Cir. 2003) (holding that Secretary’s denial of Medicare Part A payments was not arbitrary and capricious even though it was inconsistent with prior lower-level agency adjudicatory decisions)). The Fourth Circuit illustrated the district court’s error by analogy: “The decisions of local contractors cannot deprive [the Secretary] of that discretion [to determine when a device is reasonable and necessary], any more than the diverse decisions of district courts or courts of appeals throughout the country could bind the Supreme Court.” Id. at 311. RS Medical argues that the agency has regulatory tools that could remedy these inconsistencies — in particular, it can issue local or national coverage determinations (i.e., up-front INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8543 rules about whether a particular item is covered). See 42 U.S.C. § 1395ff(f)(1)(B), (2)(B). But while the agency may make coverage determinations via up-front rules, it is not required to do so; rather, the agency has discretion in whether to make coverage determinations by up-front rulemaking or by case-by-case adjudication. See Almy, 679 F.3d at 303-04; see also Heckler v. Ringer, 466 U.S. 602, 617 (1984) (“The Secretary’s decision as to whether a particular medical service is ‘reasonable and necessary’ and the means by which she implements her decision, whether by promulgating a generally applicable rule or by allowing individual adjudication, are clearly discretionary decisions.”). As the Fourth Circuit noted in Almy, “directly applicable Supreme Court precedent . . . makes clear that the Secretary enjoys full discretion to choose to proceed by adjudication rather than by rulemaking.” 679 F.3d at 303. [3] We hold that the Medicare Appeals Council’s coverage denials were not arbitrary. Second, the district court, having found that the Medicare Appeals Council decisions denying coverage were arbitrary, then compared those decisions side-by-side against the lowerlevel agency decisions granting coverage and concluded that the coverage grants were “more based on substantial evidence than the [Medicare Appeals Council] denials at issue here.” 737 F. Supp. 2d at 1293; see also id. at 1291. [4] As a preliminary matter, the district court misapplied the “substantial evidence” standard of review. That standard requires the district court to determine whether the agency decision on direct review is supported by substantial evidence. It does not give the district court license to compare the agency decision on direct review with other agency decisions not on review and determine which is supported by more substantial evidence. That would be tantamount to de novo review, which is not the standard. See 42 U.S.C. 8544 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS § 405(g); Sandgathe v. Chater, 108 F.3d 978, 980 (9th Cir. 1997). The Medicare Appeals Council held that RS Medical had not met its burden of showing that the BIO-1000 was “reasonable and necessary” because the studies it submitted purporting to show the BIO-1000’s effectiveness suffered from methodological flaws. Among other flaws, the studies RS Medical submitted allegedly showing the BIO-1000’s effectiveness at alleviating pain had been authored or sponsored by the BIO-1000 manufacturer, thus bringing their objectivity into question. And the studies RS Medical submitted purporting to show the BIO-1000’s effectiveness at regenerating cartilage had been conducted on rabbits and cows, not humans, thus lessening their relevance. [5] The district court held that the Medicare Appeals Council’s decisions “gave no weight to the FDA’s clearance of the BIO-1000 for the purpose of treating symptoms of osteoarthritis.” 737 F. Supp. 2d at 1291. FDA clearance, however, is necessary, but not sufficient, for Medicare coverage. 68 Fed. Reg. 55,634, 55,636 (Sept. 26, 2003). FDA review and Medicare coverage review have different purposes. Id. FDA review seeks to determine whether a device is “safe and effective” such that it can be marketed to the general public. By contrast, Medicare coverage review seeks to determine whether the device is “reasonable and necessary” for treatment such that the device is worth the government’s money. Medicare Benefit Policy Manual, ch. 15, § 110.1[C][2]. To be “reasonable and necessary” for treatment, a device must be “safe and effective,” but other considerations are also relevant — like whether there are less costly but equally effective devices available. Id. As the Fourth Circuit held in Almy, “[w]hile FDA approval may . . . inform the Secretary’s decision as to whether a device is ‘reasonable and necessary,’ it cannot tie the Secretary’s hands.” 679 F.3d at 308. [6] Additionally, the type of FDA clearance is relevant to whether Medicare will cover a device. Section 510(k) clear- INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8545 ance — the type of clearance given to the BIO-1000 — is a less rigorous type of FDA review. See 21 U.S.C. § 360c(f)(1)(A). It requires the provider to show only that the device is “substantially equivalent” to (that is, as safe and as effective as) a device legally on the market before 1976, when the FDA began regulating medical devices. See Riegel v. Medtronic, Inc., 552 U.S. 312, 317 (2008). In effect, Section 510(k) clearance allows a new device to piggy-back off the approval of a grandfathered device — here, a TENS unit. By contrast, Section 515 premarket approval is a much more rigorous safety review in which the FDA examines all studies and investigations of the device’s safety and effectiveness. Id. at 317-18. Thus, the fact that the BIO-1000 received only the less rigorous 510(k) FDA clearance further undercuts the district court’s holding that the Medicare Appeals Council gave it insufficient weight. The district court also held that the Medicare Appeals Council’s coverage denials were not supported by substantial evidence because they overlooked evidence showing “the medical community’s widespread acceptance of the BIO-1000 as a reasonable treatment for osteoarthritis.” 737 F. Supp. 2d at 1292-93. In particular, the district court concluded that the Medicare Appeals Council improperly discounted the studies published in peer-reviewed journals purporting to show the BIO-1000’s effectiveness at alleviating knee pain on the ground that those studies had been authored or sponsored by the BIO-1000 manufacturer and failed to consider that many other insurers cover the BIO-1000. Id. at 1293. [7] With respect to the studies published in peer-reviewed journals, Medicare’s own guidance manual explains — as the Medicare Appeals Council held here — that “limited case studies distributed by sponsors with financial interest in the outcome[ ] are not sufficient evidence of general acceptance by the medical community.”1 Centers for Medicare & Medi- 1 RS Medical argues that this regulation does not apply because the studies it submitted were merely “authored” — not “distributed” — by the 8546 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS caid Servs., Dep’t of Health and Human Servs., Medicare Program Integrity Manual § 13.7.1. Additionally, the Medicare Appeals Council decisions adopted or approved the reasoning of the underlying ALJ decisions denying coverage, each of which detailed additional methodological flaws in the studies — i.e., the studies were not double-blind or random. Thus, the Medicare Appeals Council provided adequate reasons for discounting the studies authored or sponsored by the BIO-1000 manufacturer. As the Fourth Circuit explained in Almy: “It is not our office to tender an independent judgment on the value and validity of the various scientific studies submitted. We ask only whether the Secretary’s assessment was a reasonable one, and we are satisfied that it was.” 679 F.3d at 305-06. [8] With respect to other insurers’ coverage of the BIO1000, the district court erred in holding that that fact alone established the medical community’s general acceptance of the BIO-1000. The Medicare guidance manual explains that “[a]cceptance by individual health care providers, or even a limited group of health care providers, normally does not indicate general acceptance by the medical community.” Medicare Program Integrity Manual § 13.7.1. Rather, whether a device is generally accepted by the medical community depends on, in decreasing order of importance, “[s]cientific data or research studies published in peer-reviewed medical journals,” “[c]onsensus of expert medical opinion (i.e., recognized authorities in the field),” and “[m]edical opinion derived from consultations with medical associations or other health care experts.” Id. Consistent with those standards, the BIO-1000’s sponsors. But as the Fourth Circuit explained in Almy: “Given the substantial deference that we owe the Secretary’s reasonable interpretations of her own regulations . . . we cannot conclude that her actions were unreasonable. It is a maxim of evidence that a party’s interest in a potential outcome can affect his objectivity, and the [guidance manual] regulation is clearly directed at ensuring that coverage decisions rest on an objective and disinterested foundation.” 679 F.3d at 306 (citation omitted). INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8547 Medicare Appeals Council reasonably concluded that neither research studies nor expert medical consensus established the medical community’s general acceptance of the BIO-1000. RS Medical argues that the fact that the agency had assigned a Healthcare Common Procedure Coding System billing code and fee schedule for the BIO-1000 showed that the agency had determined that the device was covered by Medicare. But the fact that an item receives a billing code or fee schedule does not mean it is covered by Medicare, as the billing code and fee schedule manuals caution. Rather, the purpose of those codes and schedules is to promote uniform reporting and statistical data collection. They are used not only by Medicare, but also by private insurers and state Medicaid programs. As the Fourth Circuit held in Almy, the fact that the BIO-1000 had received a billing code and fee schedule does not undermine the substantial evidence supporting the Medicare Appeals Council’s coverage denials. 679 F.3d at 307 n.3. [9] In sum, we hold that the district court erred in finding that there was not substantial evidence supporting the Medicare Appeals Council’s coverage denials for the BIO-1000 on the ground that the medical literature did not establish the medical community’s general acceptance of the device. We agree with the Fourth Circuit: Using the appropriate standard of review and burden of proof, the Secretary’s determination that [the BIO-1000’s supplier] did not establish that the BIO1000 was “safe and effective” and “not experimental or investigational” was in fact supported by substantial evidence. . . . The [Medicare Appeals Council] reviewed the studies submitted by [the BIO-1000’s supplier] in support of the BIO-1000 and identified numerous deficiencies that deprived them of persuasive value. 8548 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS Almy, 679 F.3d at 305-06. Thus, we reverse the district court’s grant of summary judgment in favor of RS Medical.