International Rehabilitative Sciences v. Sebelius

Deference is given to the highest level of agency adjudication in regards to whether a new device is considered “reasonable and necessary” as to be covered under Medicare, if the adjudication is not arbitrary or capricious.

The Department of Health and Human Services denied Medicare coverage for a device known as BIO-1000. The Medicare Appeals Council ("Council") ruled that the BIO-1000 was not “reasonable and necessary” for the treatment of osteoarthritis of the knee. The device supplier challenged the Council’s decision as “arbitrary, capricious and not supported by substantial evidence.” The district court granted summary judgment for the supplier and the agency appealed. The supplier, RS Medical, had claimed to the Council that the device was reasonable and necessary to alleviate pain from osteoarthritis and to regenerate knee cartilage. The Council’s coverage denial was not “arbitrary and capricious” because the thousands of coverage grants by initial contractors and ALJ’s were not binding on the Council. Additionally, the Council had neither previously granted coverage, nor changed policy regarding coverage so as to not be arbitrary. The Council, unlike the lower decision-makers, also disagreed with findings presented that had been authored by the device manufacturer. The District Court had also misapplied the “substantial evidence” standard of review by comparing the agency decision on review with other decisions not on review to determine which was supported by more substantial evidence. There were other devices readily available that were just as effective as the BIO-1000 that cost significantly less, which provided an acceptable evidence for the Council’s decision. Additionally, there was no evidence to show that the device was effective in humans or that it had gained general acceptance in the medical community, which also supported the Council’s determination. Thus, the district erred in finding that was there was not substantial evidence supporting the Council’s coverage denials for the device. REVERSED AND REMANDED.