Court KOs Medicare Cost Cutting

November 11, 2008
Special Feature

In trying to save some cash, Medicare officials went beyond their legal authority, according to a recent decision by a Federal District Court judge in Washington, D.C.

In trying to save some cash, Medicare officials went beyond their legal authority, according to a recent decision by a Federal District Court judge in Washington, D.C.

Under judicial scrutiny was a CMS policy of using the “least costly alternative” from among a variety of treatments as a basis for setting reimbursement rates. According to a decision by Judge Henry H. Kennedy Jr, the policy would give the Department of Health and Human Services a vast amount of power to set payments for virtually every covered item or service covered under Medicare. The judge added that, under the law, only Congress has the right to set payment rates.

When the Medicare law was passed in 1965, it barred payment for items or services that are not “reasonable and necessary” for diagnosis or treatment. HHS officials argued that they have the right to extend the “reasonable and necessary” standard to the cost of an item or service. In rejecting that argument, the judge noted that Congress has gone to “great lengths” to establish payment rates and never intended to give Medicare officials the right to change them.

The case before the court addressed Medicare payments for DuoNeb, an inhalation drug used to treat chronic obstructive pulmonary disease. The judge found that Medicare and some of its contractors had unlawfully limited payment for the drug. While consumer advocates and pharmaceutical companies applauded the decision, federal officials say it will make it harder to control rapidly rising Medicare costs.