The New York Times reports that a Federal Court in the District of Columbia had blocked the Centers for Medicare and Medicaid Services (CMS) from enforcing a Bush Administration plan to use the least expensive treatments for certain medical conditions.

According to the order, dated October 16, 2008 and signed by U.S. District Judge Henry H. Kennedy, Jr., CMS is "permanently enjoined from implementing or enforcing the April 2008 local coverage determinations for DuoNeb or any local coverage determination for DuoNeb that bases reimbursement on a least costly alternative standard."

Dey, L.P., manufacturer of DuoNeb, brought the lawsuit in conjunction with Ilene Hays, a Medicare beneficiary, claiming that defendants the Department of Health and Human Services, CMS, and four Medicare administrative contractors unlawfully limited the reimbursement rate under the Medicare Act (the "Act") for the inhalation drug DuoNeb. (Plaintiff Dey, L.P. was dismissed for lack of standing). In Judge Kennedy's opinion, he stated that the key issue was the interpretation of 42 U.S.C. Section 1395y(a) of the Medicare Act.
Section 1395y(a) bars payment for items or services that are not "reasonable and necessary": "no payment may be made . . . for any expenses incurred for items or services - which . . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member." The plaintiffs argued that the term reasonable and necessary modifies "items and services." The defendants argued that it modifies "expenses." The determination of the language was important, as the defendants argued that their authority to set payment rates under section 1395y(a) derived from Congress's directive barring payments of unreasonable and unnecessary expenses. Judge Kennedy agreed that a natural reading of the language "items and services" was the term modified.

Judge Kennedy also determined that Congress's intent was that decisions about payment rates may not be made under Section 1395y(a) but under separate reimbursement provisions in the Medicare Act, in this case section 1395w-3a. To interpret otherwise, the Judge said, and read the provision as barring expenses "would give the Secretary enormous discretion under section 1395y(a) to determine the payment amount for every item and service covered under the Act without reference to the payment provisions of the Act. This flies in the face of the detailed statutory provisions, including section 1395w-3a, which set up explicit formulas for how much a beneficiary or provider will be paid for particular items and services. If the Secretary has broad discretion to determine what expenses are reasonable and necessary under section 1395y(a), the Secretary may re-write these formulas to her liking whenever she believes they provide for an unreasonable or unnecessary expense simply by stating that any payment of expenses above her desired payment amount are barred as unreasonable or unnecessary under section 1395y(a)."

According to the New York Times, Peter L. Ashkenaz, spokesperson for CMS, commented "We are disappointed with the ruling and continue to believe that our policy is supported by the statute; we are still considering our options and next steps." The Times also mentioned that other pharmaceutical companies and advocacy groups, including Sepracor and Men's Health Network, were pleased with the decision.

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