Nerd Note: Lab Wins Legal Argument that LCDs Violate Statute; But Loses in Federal Appeals Court

 

Agendia Vs Azar; LCDs Ruled Invalid without notice & comment under APA; but Reversed at Appeals Court

Agendia, a molecular lab in California, has disputed denials of claims in 2012 and 2013 under an early MOLDX LCD and in a period when California was directly under Palmetto MAC LCDs.  

Agendia used constitutional arguments against LCDs.   They won at the federal court level in 2019 but the decision in their favor was reversed at the appeals level in July 2021.

Note - I am not an attorney and I am providing my best "English language" summary of the cases.

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The case was delayed due to ALJ backlog from 2014 to 2018.  An ALJ supported payment in 2018, finding the claims were "reasonable and necessary" despite the position of the MAC and QIC.   But it didn't end there. 

The Department Appeals Council overruled, saying the ALJ in this case had not clearly explained why he was overriding the LCD. (The judge is supposed to "grant deference" to LCDs and MAC medical directors, although he has the right to do overrule them, with justification.)

Agendia appealed to federal district course.  HERE.   Agendia v Azar, 10/29/2019.   Agendia argued that 

1. LCDs are an illegal delegation of responsibility from CMS to a private entity.  This is a constitutional issue, what the federal government can delegate.
2. LCDs violate the Administrative Procedures Act.  This is a statutory issue.
3. LCDs were arbitrary and capricious.  (Arbitrary is a judicial concept related to implementation of APA and other issues).

The district court ruled:

1. LCDs are not an illegal delegation, as CMS continues to supervise MACs and LCD claim decisions can be overturned (even if "deference" is paid to the LCD) and LCDs can be invalidated under a beneficiary's LCD challenge.
2. LCDs do violate the administrative procedures act.  They set operational CMS policy.  They may set CMS's initial policy.  Regardless of whether LCDs have a public comment period of sorts, there is no statutory basis for this to be different than APA notice and comment rulemaking.  (There IS, however, a separate statutory comment provided for NCDs.*)  
3. The judge need not address #3 because he has decided the case on #2.

For a discussion of the above district court ruling, Baker Donelson, here.

The judge remanded back to CMS for Department Appeals Board review, but instead, CMS appealed the case in federal appeals court.  

A video hearing is online from January 16, 2021.   YouTube, HERE.  (Autotranscript, here.) The appeals case was decided on July 16, 2021.   It determined that the federal court decision was incorrect, e.g. LCDs do not violate the APA.   HERE.  The decision was that the LCDs "do not establish or change a substantive legal standard" and therefore did not implicate APA.  One judge dissented.

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As discussed several times in the appellate case, the 21st Century Cures Act, which was passed in December 2016 before these cases, does create an explicit comment period framework for LCDs, so the 2019 judge's argument that there was no such explicit pathway, granted by Congress, separate from APA, would be moot today.

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For a Reuters article on the Appeals court case, July 2021, here.   

See back story on a similar, but prior, legal case supported by California Clinical Lab Association - May 2015 here (and see links to prior stories in April 2014, July 2014).  The prior case was eventually halted for "lack of standing," so a judgement on the issues was not reached.  There was no question in the current case that Agendia, having submitted claims, had standing.

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Separately, Agendia was involved in a corporate integrity agreement related to the 14 day rule - here.

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There are indexes for ALJ decisions, MAC (Medicare Appeals Council) decisions, and DAB (Departmental Appeals Board) decisions (here), but I wasn't able to find either the original 2018 ALJ decision for Agendia nor the 2019 MAC decision rescinding it.  What are linked above are, the federal district court case and the subsequent federal appeals case. Along the way I found a new 2018 guideline for appointing ALJ judges (here).

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* Since it is Congress that created the APA, it is Congress which can create alternatives to the APA for certain federal procedures, here, the NCD.