Business Law

Sensory NueroStimulation v. Azar, __ F.3d __, 2020 WL 6110132 (9th Cir. Oct. 16, 2020)

Manufacturer must find a proxy (Medicare beneficiary) to exhaust administrative channels before seeking judicial review of Medicare product coverage decision.

The Centers for Medicare and Medicaid Services (CMS) may make a “national coverage determination” (NCD) regarding whether Medicare will pay for “durable medical equipment.” Either the manufacturer or a Medicare beneficiary may seek an NCD determination. But only a beneficiary has the right to appeal CMS’s ruling to an Appeals Board of the Department of Health and Human Services (the agency that houses CMS), whose decision is administratively final and subject to judicial review. At the same time, the Medicare statute, 42 U.S.C. § 405(h), eliminates federal question jurisdiction over lawsuits seeking to “recover on any claim arising under” Medicare. This is known as the “channeling requirement,” since beneficiaries must first exhaust available administrative channels before seeking judicial review. However, this requirement is not enforced if it would foreclose all review.

Sensory Neurostimulation, Inc., sought an NCD for Relaxis, a prescription leg massage. CMS determined that it was a “personal comfort item” that did not qualify for NCD status. Sensory sued, and the Government moved to dismiss the claim, arguing the district court lacked subject matter jurisdiction because Sensory failed comply with section 405(h)’s channeling requirement. The district court dismissed the lawsuit, ruling that Sensory’s claim “arose under” the Medicare statute (so it had to comply with the channeling requirement); that enforcing the requirement did not result in “no review at all”; and that no exception obviated Sensory’s requirement to exhaust administrative remedies. Sensory appealed.

The Ninth Circuit affirmed. Sensory’s claim “arose under” the Medicare statute because, if successful, it might lead to Medicare paying for Relaxis devices. In addition, applying the channeling requirement did not foreclose all review. Sensory simply needed to recruit a proxy—a Medicare beneficiary with standing to seek a final administrative NCD decision subject to judicial review, which would give the agency an opportunity to “correct its own errors” and produce an administrative record that would aid judicial review.

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.

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