Agendia, Inc. v. Becerra, __ F.4th __, 2021 WL 3011982 (9th Cir. July 16, 2021)

Medicare’s notice-and-comment provision does not apply to local coverage determinations.

The Department of Health and Human Services reimburses medical providers for the cost of items and services that are “reasonable and necessary” for the treatment of Medicare beneficiaries. HHS employs private Medicare administrative contractors (MACs) to process providers’ claims and make initial reimbursement determinations. To promote consistency, MACs may issue “local coverage determinations” that specify whether and when certain items or services will be reimbursed.

Agendia submitted claims for reimbursement for molecular diagnostic tests, which a MAC denied based on a local coverage determination that such tests were not reasonable and necessary. Agendia sued the HHS, arguing that the denial was improper because the local coverage determination had been issued without notice and opportunity for comment, in violation of the Medicare Act, 42 U.S.C. § 1395hh. Agendia also argued that the Medicare Act and its implementing regulations unconstitutionally delegate regulatory authority by permitting MACs to issue local coverage determinations. The district court rejected Agendia’s constitutional challenge, but agreed with its statutory argument, ruling that local coverage determinations require notice and comment opportunities. The district court granted summary judgment for Agendia because no such opportunities had been provided. The HHS appealed.

The Ninth Circuit reversed in a split decision. The majority held that local coverage determinations are not subject to the § 1395hh notice-and-comment process because they do not “establish[] or change[] a substantive legal standard,” the statutory trigger for the notice-and-comment process. The Medicare Act addresses whether an item or service is “reasonable and necessary,” and a local coverage determination does not establish or change that standard. Although HHS officials must consider the local coverage determination, it is not binding. A local coverage determination is therefore valid without undergoing the § 1395hh notice-and-comment process. The majority also rejected Agendia’s unconstitutional delegation argument because local coverage determinations are not binding and MACs function subordinately to the HHS officials implementing Medicare.

The dissenting judge would have held that local coverage determinations are subject to the Medicare Act’s notice and comment provision and urged the U.S. Supreme Court to address this “important and unresolved issue.”

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.