International Rehabilitative Sciences Inc. v. Sebelius

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
INTERNATIONAL REHABILITATIVE 
SCIENCES INC, a Washington
corporation, DBA RS Medical,
Plaintiff-Appellee,
v. No. 11-35254
KATHLEEN SEBELIUS, in her official  D.C. No.
3:08-cv-05442-RBL
capacity as Secretary, United
States Department of Health and OPINION
Human Services; UNITED STATES
DEPARTMENT OF HEALTH AND
HUMAN SERVICES,
Defendants-Appellants.

Appeal from the United States District Court
for the Western District of Washington
Ronald B. Leighton, District Judge, Presiding
Argued and submitted
June 7, 2012—Seattle, Washington
Filed July 30, 2012
Before: Barry G. Silverman and Mary H. Murguia,
Circuit Judges, and Leslie E. Kobayashi, District Judge.*
Opinion by Judge Silverman
*The Honorable Leslie E. Kobayashi, United States District Judge for
the District of Hawaii, sitting by designation.
8529
8532 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
COUNSEL
Debra M. Parrish (argued), Parrish Law Offices, Pittsburgh,
Pennsylvania, and Renee M. Howard and Sanford E. Pitler,
Bennett Bigelow & Leedom, P.S., Seattle, Washington, for
the plaintiff-appellee.
Irene M. Solet (argued), Tony West, Jenny A. Durkan, Kerry
Keefe, and Michael S. Raab, United States Department of Jus-
tice, Washington, D.C., and William B. Schultz, Pamela Par-
ker, Janice L. Hoffman, Mark D. Polston, Janet Freeman,
Brett Bierer, and Gerard Keating, United States Department
of Health and Human Services, Washington, D.C., for the
defendants-appellants.
OPINION
SILVERMAN, Circuit Judge:
The Department of Health and Human Services, the agency
that administers Medicare, denied Medicare coverage for the
BIO-1000, a piece of durable medical equipment used to treat
osteoarthritis of the knee. In four decisions, the Medicare
Appeals Council, which is the highest level of agency adjudi-
cation, ruled that the BIO-1000 had not been shown to be
“reasonable and necessary” for the treatment at issue. The
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8533
supplier of the device challenges those decisions as arbitrary,
capricious, and not supported by substantial evidence.
Today we join the Fourth Circuit in holding that the Medi-
care Appeals Council’s coverage denials for the BIO-1000
were not arbitrary, capricious, or unsupported by substantial
evidence. See Almy v. Sebelius, 679 F.3d 297, 305 (4th Cir.
2012).
We hold that, although various ALJs in other cases had
granted coverage for the BIO-1000, those cases were at low
levels of the agency adjudication process and thus were not
binding on the Medicare Appeals Council. The Medicare
Appeals Council adequately explained its reasons for denying
coverage here.
Furthermore, the coverage denials were supported by sub-
stantial evidence. After reviewing the scientific studies sub-
mitted by the BIO-1000’s supplier, the Medicare Appeals
Council reasonably concluded that those studies failed to
show the device was more effective at alleviating knee pain
(the device’s primary asserted purpose) than a TENS device
costing 80% less. And the Medicare Appeals Council reason-
ably concluded that the studies failed to show that the device
was effective at regenerating cartilage (its secondary asserted
purpose) in humans.
We reverse the district court’s grant of summary judgment
for the BIO-1000’s supplier and remand the case to the dis-
trict court to determine in the first instance whether the sup-
plier of the device is entitled to the benefit of any of
Medicare’s “limited liability” provisions.
THE MEDICARE STATUTORY AND
ADMINISTRATIVE REGIME
Medicare is the federal health insurance program for the
elderly and disabled. Part B — the part of the Medicare pro-
8534 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
gram at issue here — is voluntary supplemental medical
insurance covering doctors’ services, outpatient care, and
durable medical equipment. 42 U.S.C. §§ 1395j, 1395k(a)(2),
1395m. It operates much like private medical insurance: Med-
icare beneficiaries receive medical treatment and the provid-
ers submit claims for government reimbursement. 42 U.S.C.
§ 1395n.
The government controls Medicare costs, among other
ways, by denying coverage claims for items or services that
are not “reasonable and necessary” for treatment. 42 U.S.C.
§ 1395y(a)(1)(A). A device is not “reasonable and necessary”
— and thus is not eligible for Medicare coverage — if it is:
• Not “safe” and “effective” — that is, if the device
has not “been proven safe and effective based on
authoritative evidence” or is not “generally
accepted in the medical community as safe and
effective for the condition for which it is used”;
• “[E]xperimental” — that is, “investigational”;
• Not “[a]ppropriate” for the individual benefi-
ciary’s needs; or
• “[S]ubstantially more costly than a medically
appropriate and realistically feasible alternative
pattern of care.”
54 Fed. Reg. 4302, 4303-04 (Jan. 30, 1989); 60 Fed. Reg.
48417, 48418 (Sept. 19, 1995); Centers for Medicare & Med-
icaid Servs., Dep’t of Health & Human Servs., Medicare Ben-
efit Policy Manual, ch. 15, § 110.1[C][2], available at .
The burden is on the claimant to show that the device is
reasonable and necessary. See, e.g., Almy v. Sebelius, 679
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8535
F.3d 297, 305 (4th Cir. 2012); Friedman v. Sec’y of Dep’t of
Health & Human Servs., 819 F.2d 42, 45 (2d Cir. 1987).
Medicare contracts with private insurance carriers to deter-
mine coverage claims in the first instance. 42 U.S.C.
§ 1395u(a); 42 C.F.R. § 405.920. If a contractor denies a
claim, the supplier may have another contractor redetermine
the claim. 42 C.F.R. § 405.940; 42 U.S.C.
§ 1395ff(a)(3)(A)-(B). If the supplier is dissatisfied with the
redetermination, it may have a qualified independent contrac-
tor reconsider the claim. 42 C.F.R § 405.960; 42 U.S.C.
§ 1395ff(b)(1)(A), (c)(3)(B). If the supplier is dissatisfied
with the qualified independent contractor’s reconsideration
decision, it may have its claim heard before an ALJ. 42 C.F.R.
§§ 405.1000 & 405.1002; 42 U.S.C. § 1395ff(d)(1)(A). If the
supplier is dissatisfied with the ALJ’s decision, it may appeal
the decision to the Medicare Appeals Council, a division of
the Department of Health and Human Services. 42 C.F.R.
§ 405.1100; 42 U.S.C. § 1395ff(d)(2). Alternatively, the Med-
icare Appeals Council may on its own motion review the
ALJ’s decision. 42 C.F.R. § 405.1110. Each of these adminis-
trative appeals applies de novo review. 42 C.F.R.
§ 405.1000(d); 42 C.F.R. § 405.1100(c). The Medicare
Appeals Council’s decision is the agency’s final decision. 42
C.F.R. § 405.1130.
If the supplier is dissatisfied with the Medicare Appeals
Council’s decision, it may challenge that decision in federal
court. 42 U.S.C. § 1395ff(b)(1)(A).
Even if a coverage claim is denied on the ground that the
items or services were not “reasonable or necessary,” Medi-
care will nevertheless pay for the items or services if the sup-
plier and the beneficiary “did not know, and could not
reasonably have been expected to know, that payment would
not be made for such items or services.” 42 U.S.C.
§ 1395pp(a). However, once Medicare indemnifies a supplier
for an unforseen claim denial under this “limited liability”
8536 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
provision, the supplier is deemed to know that Medicare will
not pay any future claims for the same or similar items or ser-
vices. 42 U.S.C. § 1395pp(b).
A supplier can shift the risk of coverage denial to the Medi-
care beneficiary by notifying the beneficiary in writing that
Medicare will likely deny coverage. 42 C.F.R. § 411.404.
These advance beneficiary notices “allow beneficiaries to
make an informed consumer decision about receiving items or
services for which they may have to pay out-of-pocket.” Med-
icare Benefit Policy Manual, ch. 15, § 110.1[C].
However, for the supplier to shift liability to the benefi-
ciary, the supplier’s notice must be sufficiently specific in
explaining why Medicare will likely deny the claim. Centers
for Medicare & Medicaid Servs., Dep’t of Health & Human
Servs., Medicare Claims Processing Manual, ch. 30,
§ 40.3.6.1. The supplier’s notice must also explain that denial
is probable, not merely possible. Id.
FACTS AND PROCEDURAL HISTORY
Plaintiff International Rehabilitative Sciences, Inc., doing
business under the name RS Medical, supplies the BIO-1000,
a piece of medical equipment that delivers electrical impulses
to the knee to treat osteoarthritis of the knee.
RS Medical charges more than $4,000 for a single-knee
BIO-1000 and more than $5,000 for a dual-knee BIO-1000.
By comparison, similar devices called “transcutaneous elec-
tric nerve stimulators,” also known as TENS units, cost less
than $800. See Centers for Medicare & Medicaid Services
Durable Medical Equipment Fee Schedule (Jan. 2012), avail-
able at .
RS Medical began filing Medicare coverage claims for the
BIO-1000 in 2004. At first, those claims were largely denied.
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8537
Over the next few years, RS Medical started to receive more
coverage approvals from initial contractors, qualified inde-
pendent contractors, and ALJs. In fact, coverage of the device
was approved many times at these lower levels of the process.
However, none of those coverage decisions reached the Medi-
care Appeals Council until now.
This case arises from more than 1000 separate claims for
Medicare coverage of the BIO-1000 made by RS Medical on
behalf of more than 400 individual beneficiaries. Each claim
was denied by a Medicare contractor upon the initial determi-
nation and redetermination, then by a qualified independent
contractor, then by an ALJ, and finally, when the claims were
consolidated, by the Medicare Appeals Council in four sepa-
rate decisions.
In each of the four decisions, the Medicare Appeals Coun-
cil concluded that RS Medical had not met its burden of
establishing that the BIO-1000 was “reasonable and neces-
sary” for treatment. RS Medical had claimed the BIO-1000
was reasonable and necessary for two purposes: (1) to allevi-
ate pain from osteoarthritis of the knee; and (2) to regenerate
knee cartilage. With respect to the first purpose, the Medicare
Appeals Council found that RS Medical had not offered reli-
able evidence to establish that the BIO-1000 was more effec-
tive at alleviating pain than TENS units costing 80% less than
the BIO-1000. Although RS Medical submitted several
studies purporting to show the BIO-1000’s effectiveness at
alleviating pain, the Medicare Appeals Council discounted
those studies because, among other methodological flaws,
they had been authored or sponsored by the BIO-1000 manu-
facturer. And with respect to the second purpose, the Medi-
care Appeals Council found that although some evidence
showed that the BIO-1000 could regenerate cartilage in rab-
bits and cows, no evidence showed that it was effective at
regenerating cartilage in humans. In sum, the Medicare
Appeals Council concluded that the medical literature did not
show that the BIO-1000 was generally accepted by the medi-
8538 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
cal community. It denied Medicare coverage for the BIO-
1000.
Further, with respect to the limited liability provisions, the
Medicare Appeals Council declined to indemnify RS Medical
for the coverage denials. It found that RS Medical “knew or
had reason to know that Medicare would not cover the
device” because “its efficacy had not been established in the
requisite peer-reviewed literature” and because “the record
does not indicate general acceptance of the device by the
medical community.”
Finally, the Medicare Appeals Council declined to shift lia-
bility from RS Medical to most of the individual Medicare
beneficiaries, with some exceptions. It found that most of the
advance beneficiary notices provided by RS Medical were
generic and thus insufficient to shift liability to the beneficia-
ries.
After the Medicare Appeals Council denied its coverage
claims, RS Medical filed this action challenging the denials as
arbitrary, capricious, and not supported by substantial evi-
dence. See 5 U.S.C. § 706.
Both parties moved for summary judgment. The district
court granted RS Medical’s motion and denied the Secretary’s
motion. Int’l Rehabilitative Scis., Inc. v. Sebelius, 737 F.
Supp. 2d 1281, 1284 (W.D. Wash. 2010). It first concluded
that the Medicare Appeals Council’s decisions were not enti-
tled to deference because they were inconsistent with many
ALJ decisions in individual cases granting Medicare coverage
for the BIO-1000 — even though those grants were at lower
levels of the adjudication process, not by the Medicare
Appeals Council. Id. at 1288-90.
The district court, explicitly proceeding de novo and with-
out any deference to the agency, compared the strength of the
evidence supporting the Medicare Appeals Council’s four
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8539
coverage denials with the strength of the evidence supporting
a number of ALJ coverage grants not at issue in this case.
First, the district court concluded that the Medicare Appeals
Council coverage denials gave no weight to the fact that the
FDA had cleared the BIO-1000 as safe and effective. Id. at
1291-92. Second, in the district court’s view, the evidence as
a whole showed the medical community’s widespread accep-
tance of the BIO-1000 for alleviating pain. Id. at 1292-93.
The district court held that the ALJ coverage grants not at
issue here were “more based on substantial evidence than the
[Medicare Appeals Council] denials at issue here.” Id. at
1293.
Having reversed the Medicare Appeals Council’s coverage
denials, the district court did not reach the limited liability
issues of whether Medicare should indemnify RS Medical on
the ground that the coverage denials were unforeseeable and
whether RS Medical’s advance beneficiary notices were suffi-
ciently specific to shift liability for the BIO-1000’s cost to the
individual Medicare beneficiaries. Id. at 1293. The district
court remanded the claims to the Medicare Appeals Council
to determine the appropriate payment amounts. Id. at 1294.
The Secretary moved to amend the district court’s judg-
ment under Federal Rule of Civil Procedure 59(e). She argued
that the district court’s opinion was wrong and that newly dis-
covered evidence showed that the Medicare Appeals Coun-
cil’s coverage denials were consistent with coverage decisions
at other levels of agency adjudication. In support of her
motion, the Secretary submitted BIO-1000 coverage decisions
from lower levels of agency adjudication over the past three
years consistently denying coverage for the BIO-1000 —
including by some of the same ALJs who had granted cover-
age for the BIO-1000 in its early years.
The district court denied the Secretary’s motion to amend
the judgment. It again found that the agency’s coverage deci-
8540 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
sions were inconsistent, and thus the Medicare Appeals Coun-
cil’s coverage denials were arbitrary.
The agency appeals.
While this appeal was pending, the Fourth Circuit decided
an almost identical case, Almy v. Sebelius, 679 F.3d 297 (4th
Cir. 2012), involving the exact same device, brought by the
device’s manufacturer. BioniCare, the BIO-1000’s manufac-
turer, brought a district court action challenging a number of
Medicare Appeals Council decisions denying coverage for the
BIO-1000 — including some of the same Medicare Appeals
Council decisions at issue here — as arbitrary, capricious, and
not supported by substantial evidence.
In Almy, the Fourth Circuit upheld the coverage denials. It
held that substantial evidence supported the coverage denials
because, as the Medicare Appeals Council explained, the
studies submitted by the BIO-1000 manufacturer suffered
from methodological flaws that weakened their persuasive-
ness, objectivity, and relevance. 679 F.3d at 305-07. The
Fourth Circuit further held that the Medicare Appeals Council
coverage denials were not impermissibly arbitrary, even
though the agency had previously granted some coverage
claims for the BIO-1000 at lower levels in the agency adjudi-
cation process, because the Medicare Appeals Council had
consistently denied coverage. Id. at 310-11.
JURISDICTION
The district court had jurisdiction under 42 U.S.C.
§ 1395ff(b)(1)(A) and 42 U.S.C. § 405(g). We have jurisdic-
tion under 28 U.S.C. § 1291.
STANDARD OF REVIEW
We review a district court’s grant of summary judgment de
novo and denial of a Rule 59(e) motion to amend judgment
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8541
for abuse of discretion. Lopez v. Smith, 203 F.3d 1122, 1131
(9th Cir. 2000) (en banc); Floyd v. Laws, 929 F.2d 1390, 1400
(9th Cir. 1991).
The Secretary’s denial of coverage will be affirmed unless
it is “arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.” 5 U.S.C. § 706. The Secretary’s
factual findings are conclusive if they are supported by “sub-
stantial evidence.” 42 U.S.C. § 405(g); see also 42 U.S.C.
§ 1395ff(b)(1)(A). “Substantial evidence” means “ ‘more than
a mere scintilla but less than a preponderance; it is such rele-
vant evidence as a reasonable mind might accept as adequate
to support a conclusion.’ ” Sandgathe v. Chater, 108 F.3d
978, 980 (9th Cir. 1997) (quoting Andrews v. Shalala, 53 F.3d
1035, 1039 (9th Cir. 1995)).
ANALYSIS
I. THE AGENCY’S COVERAGE DENIALS FOR THE
BIO-1000
The district court reversed the Medicare Appeals Council’s
coverage denials on two independent grounds. We disagree
on both.
[1] First, the district court held that the thousands of cover-
age grants by initial contractors, qualified independent con-
tractors, and ALJs rendered the Medicare Appeals Council’s
coverage denials here “arbitrary and capricious” under § 706
of the Administrative Procedure Act. But not all agency
inconsistency is impermissibly arbitrary — only
“[u]nexplained inconsistency.” Marmolejo-Campos v.
Holder, 558 F.3d 903, 914 (9th Cir. 2009) (en banc) (alter-
ation in original) (emphasis added). “[Agency] inconsistency
provides a basis for rejecting an agency’s interpretation only
in ‘rare instances, such as when an agency provides no expla-
nation at all for a change in policy, or when its explanation
is so unclear or contradictory that we are left in doubt as to
8542 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
the reason for the change in direction.’ ” Id. (emphasis added)
(citation omitted). Here, the Medicare Appeals Council
explained why it disagreed with the lower agency adjudica-
tory decisions granting coverage: the studies that those deci-
sions relied on purporting to show the BIO-1000’s
effectiveness at alleviating pain had been authored or spon-
sored by the BIO-1000 manufacturer, and the studies purport-
ing to show the BIO-1000’s effectiveness at regenerating
cartilage had been conducted on animals, not humans.
Because they explained the reasons for their disagreement, the
Medicare Appeals Council’s coverage denials were not
impermissibly arbitrary.
[2] Moreover, the district court incorrectly measured
agency inconsistency across different levels of agency adjudi-
cation. No Medicare Appeals Council decision has granted
coverage for the BIO-1000; the only coverage grants were by
contractors, qualified independent contractors, and ALJs. As
the Fourth Circuit held in this exact situation, “ ‘[e]ven if
these [decisions from lower levels of agency adjudication]
were found to evince internal inconsistency at a subordinate
level, the [agency] itself would not be acting inconsistently.’ ”
Almy v. Sebelius, 679 F.3d 297, 310 (4th Cir. 2012) (third
alteration in original) (quoting Cmty. Care Found. v. Thomp-
son, 318 F.3d 219, 227 (D.C. Cir. 2003) (holding that Secre-
tary’s denial of Medicare Part A payments was not arbitrary
and capricious even though it was inconsistent with prior
lower-level agency adjudicatory decisions)). The Fourth Cir-
cuit illustrated the district court’s error by analogy: “The deci-
sions of local contractors cannot deprive [the Secretary] of
that discretion [to determine when a device is reasonable and
necessary], any more than the diverse decisions of district
courts or courts of appeals throughout the country could bind
the Supreme Court.” Id. at 311.
RS Medical argues that the agency has regulatory tools that
could remedy these inconsistencies — in particular, it can
issue local or national coverage determinations (i.e., up-front
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8543
rules about whether a particular item is covered). See 42
U.S.C. § 1395ff(f)(1)(B), (2)(B). But while the agency may
make coverage determinations via up-front rules, it is not
required to do so; rather, the agency has discretion in whether
to make coverage determinations by up-front rulemaking or
by case-by-case adjudication. See Almy, 679 F.3d at 303-04;
see also Heckler v. Ringer, 466 U.S. 602, 617 (1984) (“The
Secretary’s decision as to whether a particular medical service
is ‘reasonable and necessary’ and the means by which she
implements her decision, whether by promulgating a gener-
ally applicable rule or by allowing individual adjudication, are
clearly discretionary decisions.”). As the Fourth Circuit noted
in Almy, “directly applicable Supreme Court precedent . . .
makes clear that the Secretary enjoys full discretion to choose
to proceed by adjudication rather than by rulemaking.” 679
F.3d at 303.
[3] We hold that the Medicare Appeals Council’s coverage
denials were not arbitrary.
Second, the district court, having found that the Medicare
Appeals Council decisions denying coverage were arbitrary,
then compared those decisions side-by-side against the lower-
level agency decisions granting coverage and concluded that
the coverage grants were “more based on substantial evidence
than the [Medicare Appeals Council] denials at issue here.”
737 F. Supp. 2d at 1293; see also id. at 1291.
[4] As a preliminary matter, the district court misapplied
the “substantial evidence” standard of review. That standard
requires the district court to determine whether the agency
decision on direct review is supported by substantial evi-
dence. It does not give the district court license to compare
the agency decision on direct review with other agency deci-
sions not on review and determine which is supported by
more substantial evidence. That would be tantamount to de
novo review, which is not the standard. See 42 U.S.C.
8544 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
§ 405(g); Sandgathe v. Chater, 108 F.3d 978, 980 (9th Cir.
1997).
The Medicare Appeals Council held that RS Medical had
not met its burden of showing that the BIO-1000 was “reason-
able and necessary” because the studies it submitted purport-
ing to show the BIO-1000’s effectiveness suffered from
methodological flaws. Among other flaws, the studies RS
Medical submitted allegedly showing the BIO-1000’s effec-
tiveness at alleviating pain had been authored or sponsored
by the BIO-1000 manufacturer, thus bringing their objectivity
into question. And the studies RS Medical submitted purport-
ing to show the BIO-1000’s effectiveness at regenerating car-
tilage had been conducted on rabbits and cows, not humans,
thus lessening their relevance.
[5] The district court held that the Medicare Appeals
Council’s decisions “gave no weight to the FDA’s clearance
of the BIO-1000 for the purpose of treating symptoms of
osteoarthritis.” 737 F. Supp. 2d at 1291. FDA clearance, how-
ever, is necessary, but not sufficient, for Medicare coverage.
68 Fed. Reg. 55,634, 55,636 (Sept. 26, 2003). FDA review
and Medicare coverage review have different purposes. Id.FDA review seeks to determine whether a device is “safe and
effective” such that it can be marketed to the general public.
By contrast, Medicare coverage review seeks to determine
whether the device is “reasonable and necessary” for treat-
ment such that the device is worth the government’s money.
Medicare Benefit Policy Manual, ch. 15, § 110.1[C][2]. To be
“reasonable and necessary” for treatment, a device must be
“safe and effective,” but other considerations are also relevant
— like whether there are less costly but equally effective
devices available. Id. As the Fourth Circuit held in Almy,
“[w]hile FDA approval may . . . inform the Secretary’s deci-
sion as to whether a device is ‘reasonable and necessary,’ it
cannot tie the Secretary’s hands.” 679 F.3d at 308.
[6] Additionally, the type of FDA clearance is relevant to
whether Medicare will cover a device. Section 510(k) clear-
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8545
ance — the type of clearance given to the BIO-1000 — is a
less rigorous type of FDA review. See 21 U.S.C.
§ 360c(f)(1)(A). It requires the provider to show only that the
device is “substantially equivalent” to (that is, as safe and as
effective as) a device legally on the market before 1976, when
the FDA began regulating medical devices. See Riegel v.
Medtronic, Inc., 552 U.S. 312, 317 (2008). In effect, Section
510(k) clearance allows a new device to piggy-back off the
approval of a grandfathered device — here, a TENS unit. By
contrast, Section 515 premarket approval is a much more rig-
orous safety review in which the FDA examines all studies
and investigations of the device’s safety and effectiveness. Id.
at 317-18. Thus, the fact that the BIO-1000 received only the
less rigorous 510(k) FDA clearance further undercuts the dis-
trict court’s holding that the Medicare Appeals Council gave
it insufficient weight.
The district court also held that the Medicare Appeals
Council’s coverage denials were not supported by substantial
evidence because they overlooked evidence showing “the
medical community’s widespread acceptance of the BIO-1000
as a reasonable treatment for osteoarthritis.” 737 F. Supp. 2d
at 1292-93. In particular, the district court concluded that the
Medicare Appeals Council improperly discounted the studies
published in peer-reviewed journals purporting to show the
BIO-1000’s effectiveness at alleviating knee pain on the
ground that those studies had been authored or sponsored by
the BIO-1000 manufacturer and failed to consider that many
other insurers cover the BIO-1000. Id. at 1293.
[7] With respect to the studies published in peer-reviewed
journals, Medicare’s own guidance manual explains — as the
Medicare Appeals Council held here — that “limited case
studies distributed by sponsors with financial interest in the
outcome[ ] are not sufficient evidence of general acceptance
by the medical community.”1 Centers for Medicare & Medi-
1
RS Medical argues that this regulation does not apply because the
studies it submitted were merely “authored” — not “distributed” — by the
8546 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
caid Servs., Dep’t of Health and Human Servs., Medicare
Program Integrity Manual § 13.7.1. Additionally, the Medi-
care Appeals Council decisions adopted or approved the rea-
soning of the underlying ALJ decisions denying coverage,
each of which detailed additional methodological flaws in the
studies — i.e., the studies were not double-blind or random.
Thus, the Medicare Appeals Council provided adequate rea-
sons for discounting the studies authored or sponsored by the
BIO-1000 manufacturer. As the Fourth Circuit explained in
Almy: “It is not our office to tender an independent judgment
on the value and validity of the various scientific studies sub-
mitted. We ask only whether the Secretary’s assessment was
a reasonable one, and we are satisfied that it was.” 679 F.3d
at 305-06.
[8] With respect to other insurers’ coverage of the BIO-
1000, the district court erred in holding that that fact alone
established the medical community’s general acceptance of
the BIO-1000. The Medicare guidance manual explains that
“[a]cceptance by individual health care providers, or even a
limited group of health care providers, normally does not indi-
cate general acceptance by the medical community.” Medi-
care Program Integrity Manual § 13.7.1. Rather, whether a
device is generally accepted by the medical community
depends on, in decreasing order of importance, “[s]cientific
data or research studies published in peer-reviewed medical
journals,” “[c]onsensus of expert medical opinion (i.e., recog-
nized authorities in the field),” and “[m]edical opinion
derived from consultations with medical associations or other
health care experts.” Id. Consistent with those standards, the
BIO-1000’s sponsors. But as the Fourth Circuit explained in Almy: “Given
the substantial deference that we owe the Secretary’s reasonable interpre-
tations of her own regulations . . . we cannot conclude that her actions
were unreasonable. It is a maxim of evidence that a party’s interest in a
potential outcome can affect his objectivity, and the [guidance manual]
regulation is clearly directed at ensuring that coverage decisions rest on an
objective and disinterested foundation.” 679 F.3d at 306 (citation omitted).
INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS 8547
Medicare Appeals Council reasonably concluded that neither
research studies nor expert medical consensus established the
medical community’s general acceptance of the BIO-1000.
RS Medical argues that the fact that the agency had
assigned a Healthcare Common Procedure Coding System
billing code and fee schedule for the BIO-1000 showed that
the agency had determined that the device was covered by
Medicare. But the fact that an item receives a billing code or
fee schedule does not mean it is covered by Medicare, as the
billing code and fee schedule manuals caution. Rather, the
purpose of those codes and schedules is to promote uniform
reporting and statistical data collection. They are used not
only by Medicare, but also by private insurers and state Med-
icaid programs. As the Fourth Circuit held in Almy, the fact
that the BIO-1000 had received a billing code and fee sched-
ule does not undermine the substantial evidence supporting
the Medicare Appeals Council’s coverage denials. 679 F.3d at307 n.3.
[9] In sum, we hold that the district court erred in finding
that there was not substantial evidence supporting the Medi-
care Appeals Council’s coverage denials for the BIO-1000 on
the ground that the medical literature did not establish the
medical community’s general acceptance of the device. We
agree with the Fourth Circuit:
Using the appropriate standard of review and burden
of proof, the Secretary’s determination that [the
BIO-1000’s supplier] did not establish that the BIO-
1000 was “safe and effective” and “not experimental
or investigational” was in fact supported by substan-
tial evidence. . . . The [Medicare Appeals Council]
reviewed the studies submitted by [the BIO-1000’s
supplier] in support of the BIO-1000 and identified
numerous deficiencies that deprived them of persua-
sive value.
8548 INTERNATIONAL REHABILITATIVE SCIENCES v. SEBELIUS
Almy, 679 F.3d at 305-06. Thus, we reverse the district court’s
grant of summary judgment in favor of RS Medical.
II. INDEMNIFICATION AND SHIFTING LIABILITY
TO BENEFICIARIES
[10] Because the district court reversed the Medicare
Appeals Council’s coverage denials, it did not reach the issues
of whether substantial evidence supported the Medicare
Appeals Council’s decision not to indemnify RS Medical for
the coverage denials under the “limited liability” provision on
the ground that the denials were foreseeable and whether sub-
stantial evidence supported the Medicare Appeals Council’s
conclusions about which of the panoply of advance benefi-
ciary notices in the record were sufficiently specific to shift
liability to individual beneficiaries and which were too
generic. 737 F. Supp. 2d at 1293-94; 42 U.S.C. § 1395pp. The
district court should determine these issues in the first
instance on remand.
REVERSED AND REMANDED.