Hays v. Sebelius

In 2008 independent contractors working for Department of Health and Human Services Secretary Kathleen Sebelius (the department) (defendant) announced a change in Medicare Part B coverage for the drug DuoNeb. The change was spurred by the discovery that DuoNeb was a combination of two component drugs that could be separately administered at a lower cost. In support of the decision, the department relied on 42 U.S.C. § 1395y(a), entitled “Items or services specifically excluded.” This section within the act authorizing the Medicare program (the Medicare Act), provided that Medicare payment could not be made “for any expenses incurred for items or services . . . not reasonable and necessary for a diagnosis or treatment of illness or injury.” The department also relied on the least-costly-alternative policy it had adopted, under which treatments that had less costly alternatives were only covered up to the cost of the alternative. In response to the change, Ilene Hays (plaintiff), a Medicare Part B enrollee who was prescribed DuoNeb, sued the department in federal district court. Hays argued that the Medicare Act required the department to use the statutory formula provided by Congress in covering a drug cost. Hays further argued that the department had improperly interpreted § 1395y because the phrase “reasonable and necessary” modified “items and services” and not “expenses” and, therefore, the department misapplied the statute in determining the expense of DuoNeb was not reasonable and necessary. The department argued that § 1395y was ambiguous and its interpretation was entitled to deference. The district court returned a verdict in favor of Hays. The department appealed.