POLICY UPDATE: Least Costly Alternative Ruling
by Kevin Johnson, ZERO's SVP of Public Policy | 04.29.2010
LATEST NEWS
On April 19, 2010, the Centers for Medicare and Medicaid
Services issued direction for contractors to stop using Least Costly
Alternative (LCA) practices – which were only being applied to prostate cancer
drugs – as had been previously ordered in Hays v.
Sebelius, No. 08-5508, 2009 WL 4912383
(D.C. Cir. Dec. 22, 2009) by the United States Court of Appeals for the
District of Columbia and upheld by the United States Court of Appeals for the
District of Columbia Circuit.
As of April 28, 2010, only two of
the thirteen contractors have posted information about the change in policy on
their website. Three others are
expected to comply soon.
BACKGROUND:
On December 22, 2009, the United
States Court of Appeals for the District of Columbia Circuit issued a decision
confirming the distinction between Medicare coverage and reimbursement by
ruling that the Medicare statute precludes the Secretary of the Department of
Health and Human Services ("Secretary") from issuing a coverage
determination that sets the reimbursement rate for a covered drug based on the
"least costly alternative." Hays v. Sebelius, No. 08-5508 (D.C. Cir.,
Dec, 22, 2009). This decision limits the Secretary's discretion to determine
reimbursement rates for covered pharmaceuticals, and potentially affects any
administrative proposal to limit reimbursement for medical devices, supplies,
and procedures as well.
In this case, a Medicare
beneficiary challenged local coverage determinations that set the Medicare
reimbursement rate for a nebulizer drug based on the "least costly
alternative" policy in the Medicare Program Integrity Manual instead of
using the formula in the Medicare Statute,[1] which directs the Secretary to
set the reimbursement for such drugs at 106 percent of the average sales price
for that drug as reported quarterly to the Secretary.[2] The District Court
rejected the Secretary's argument that the coverage provision in the Medicare
Statute that refers to items and services that are "reasonable and
necessary" also authorized her to make determinations setting
reimbursement up to the "least costly alternative" for that item or
service.[3]
Although the Secretary appealed
and repeated the arguments raised before the District Court, the D.C. Circuit
agreed with the District Court's decision. It held that Medicare coverage
determinations cannot incorporate reimbursement rates. The Court determined
that (1) the "reasonable and necessary" standard in the Medicare
statute was unambiguous and that it could not defer to the Secretary's
interpretation;[4] (2) nothing in the statute authorizes the "least costly
alternative" policy; and (3) once an item or service is covered because it
is reasonable and necessary, it must be reimbursed as specified elsewhere in
the Medicare statute. The Court relied on several factors to reach its
conclusion. First, the Court explained that the phrase "reasonable and
necessary" in the statute refers to "items and services" and not
to expenses. Second, the Court noted that while "items and services"
can be "reasonable and necessary for the diagnosis or treatment of illness
or injury," expenses cannot. Third, the Court found that the title of the
statute, which refers to "items and services specifically excluded"
confirmed that items and services must be reasonable and necessary to qualify
for Medicare coverage, not expenses.
The Court also agreed that the
distinction between the portions of the Medicare statute that address coverage
and reimbursement was consistent with the separate statutory reimbursement
formula in Section 1395w-3a that requires that Medicare reimbursement for
multiple source drugs covered under Part B be set at 106 percent of the average
sales price for that drug using a volume-weighted average. The Court concluded
that this set of formulas is so detailed that the Secretary could neither
ignore the formula nor exercise any discretion to impose a different
reimbursement rate or methodology. As a result, the Court observed that if it
accepted the Secretary's argument that reimbursement could be based on 106
percent of the "least costly alternative" for a specific drug, this
"would permit an end-run around the statute."
This decision reaffirms the basic
distinction between coverage, which is a binary decision based on whether an
item or service is reasonable and necessary, and reimbursement for that item or
service, which is determined based on methodologies contained in other sections
of the Medicare statute. This decision also limits the Secretary's discretion
when making coverage determinations by foreclosing any consideration of the
reimbursement for the particular item or service, which is consistent with the
Secretary's own regulations.[5]
 12-22-09 DC Circuit Opinion on LCA
Copyright ZERO 2010
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