Agendia Inc. v. Becerra

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AGENDIA, INC., Plaintiff, v. XAVIER BECERRA, Secretary, United States Department of Health and Human Services, Defendant.

Civil Action No. 22-3242 (JDB)

United States District Court, District of Columbia

March 29, 2024

MEMORANDUM OPINION

JOHN D. BATES UNITED STATES DISTRICT JUDGE

Agendia Inc. (“Agendia”) is a clinical laboratory that provides molecular tests used in the diagnosis and treatment of breast cancer. From 2012 through 2015, Agendia was denied insurance coverage when it provided two of those tests-BluePrint and TargetPrint-to Medicare beneficiaries. Agendia appealed those denials within the U.S. Department of Health and Human Services (“HHS”) but was foiled repeatedly by an HHS regulation requiring agency adjudicators to give “substantial deference” to a coverage determination developed by private Medicare contractors.

In 2019, Agendia sought judicial review in federal court in California, challenging the “substantial deference” scheme as unconstitutional and contrary to the Medicare statute. While Agendia prevailed in the district court, that decision was reversed by the Ninth Circuit. Agendia subsequently filed this lawsuit against HHS Secretary Xavier Becerra (the “Secretary”) seeking judicial review of five further administrative decisions denying coverage for BluePrint and TargetPrint tests, again raising statutory and constitutional challenges to the substantial deference scheme. The Secretary argues that Agendia's lawsuit is barred by claim preclusion and issue preclusion and alternatively fails on the merits.

The Court concludes that Agendia's legal challenges to the substantial deference scheme are barred by the earlier litigation, but that its claims concerning the basis for the administrative decisions are not. However, because those decisions are supported by substantial evidence, the Court will enter judgment for the Secretary.

Background

I. Statutory Background

Medicare is a federal health insurance program for people sixty-five or older and younger people with qualifying disabilities. 42 U.S.C. §§ 1395 et seq. While Medicare Part A pays for inpatient hospital services and other institutional care, id. § 1395c-i6, Medicare Part B covers outpatient services and diagnostic tests id. §§ 1395j-1395w-6. Under both Parts, Medicare only reimburses medical services and items “reasonable and necessary” for the treatment of beneficiaries. Id. § 1395y(a)(1)(A).

After providing service to a Medicare beneficiary, a medical provider submits a claim for reimbursement to a private entity administering Medicare under contract with HHS. The Medicare administrative contractor makes an initial determination as to whether the service is covered. 42 C.F.R. § 405.920; see also 42 U.S.C. § 1395kk-1(a)(4)(A). If the contractor denies the claim, the provider can appeal. 42 C.F.R. § 405.904; see generally 42 U.S.C. § 1395ff.

The Medicare administrative appeals process has four levels: (1) redetermination by the contractor that originally denied the claim; (2) review by a different contractor (known as a “qualified independent contractor”); (3) a hearing before an administrative law judge (“ALJ”); and (4) review by the Medicare Appeals Council (“the Council”). 42 C.F.R. § 405.904(a)(2). If a provider exhausts its administrative appeals, or the appeals are not decided within statutory time limits, the provider can seek judicial review in a federal district court. 42 U.S.C. §§ 405(g), 1395ff(b)(1)(A).

To maintain consistency among administrative determinations, Congress has authorized the issuance of binding regulations and non-binding guidance. As relevant here, the Secretary may, after a unique notice-and-comment process, issue national coverage determinations, which are legally binding “with respect to whether or not a particular item or service is covered nationally.” Id. § 1395ff(f)(1)(B); see also 42 C.F.R. §§ 400.202. These determinations bind all levels of the administrative review process. See 42 C.F.R. § 405.1060(a)(4).

Absent such a policy, a Medicare administrative contractor may issue local coverage determinations (“LCD”) governing its front-line adjudication. 42 U.S.C. §§ 1395kk-1(a)(4), 1395ff(f)(2)(B). An LCD states the contractor's policy as to whether a specific service is “reasonable and necessary” under Medicare and, therefore, whether the contractor will reimburse the service. Id. Unlike national coverage determinations, LCDs are not binding on any subsequent administrative review. However, under HHS regulations, qualified independent contractors, ALJs, and the Council must give “substantial deference” to applicable LCDs. 42 C.F.R. §§ 405.968(b)(2)-(3), 405.1062(a)-(b). “If an ALJ or attorney adjudicator or Council declines to follow a policy in a particular case, the ALJ or attorney adjudicator or Council decision must explain the reasons why the policy was not followed.” Id. § 405.1062(b).

Local and national coverage determinations can be challenged facially before an ALJ. See 42 U.S.C. § 1395ff(f). But only Medicare beneficiaries “who are in need of the items or services that are the subject of the coverage determination” have standing to raise such challenges. Id. § 1395ff(f)(5). Providers may only appeal coverage denials on a claim-by-claim basis. In such appeals, the agency adjudicators “will give substantial deference to [LCDs] if they are applicable to a particular case.” 42 C.F.R. § 405.1062(a). Any decision to “disregard such policy applies only to the specific claim being considered and does not have precedential effect.” Id. § 405.1062(b).

II. Factual Background

Agendia is a clinical laboratory that provides molecular diagnostic testing to patients with breast cancer. Compl. for Judicial Review [ECF No. 1] (“Compl.”) ¶ 1. The laboratory's tests identify the genetic and molecular profile of a breast cancer tumor, providing information relevant to the patient's prognosis and the physician's assessment of treatment options. Id. Principally at issue here are two of Agendia's tests: BluePrint and TargetPrint. From 2012 to 2015, Agendia provided hundreds of these tests to Medicare beneficiaries and submitted claims for reimbursement to its assigned contractor-first Palmetto GBA (“Palmetto”), then Noridian Healthcare Solutions, LLC (“Noridian”). See id. ¶¶ 2-3.

Both contractors relied on the Molecular Diagnostic Services (“MolDX”) Program, developed by Palmetto, to “identify and establish coverage and reimbursement for molecular diagnostic tests.” See Admin. R. (“A.R.”) 1:362 (J.A. 88) (Noridian Position Paper); A.R. 5:53839 (J.A. 857-58).^[1]The MolDX program deploys subject matter experts to perform technical assessments of published data regarding the tests. See A.R. 1:362-63 (J.A. 88-89). If a test does not “demonstrate analytical and clinical validity” and “clinical utility,” MolDX considers it “investigational” and not “reasonable and necessary” to support Medicare coverage. See A.R. 1:363 (J.A. 89). In August 2012, MolDX issued a policy article concluding, after a technical assessment, that “there is insufficient evidence to support reasonable and necessary criteria for Medicare reimbursement” for BluePrint. Mem. of P. & A. in Supp. of Def.'s Cross-Mot. for Summ. J. & Opp'n to Pl.'s Mot. for Summ. J., (“Def.'s Cross-Mot. & Opp'n”), Ex. C [ECF No. 22-4] at *3. MolDX did not publish an evaluation of the TargetPrint test. See Def.'s Cross-Mot. & Opp'n [ECF No. 22-1] at 8. Another breast cancer typing test offered by Agendia- MammaPrint-is specifically covered under an LCD. See Def.'s Cross-Mot. & Opp'n, Ex. D [ECF No. 22-5] at *5.

During the relevant periods, Palmetto and Noridian issued LCDs indicating they would not cover molecular diagnostic tests that were not authorized by a national coverage determination or by MolDX. See Def.'s Cross-Mot. & Opp'n, Ex. A [ECF No. 22-2] (Palmetto LCD 32288); id., Ex. D (Noridian LCD L33541). Because neither BluePrint nor TargetPrint was approved by MolDX or a national coverage determination, the contractors denied Agendia's claims for reimbursement. See A.R. 1:622 (J.A. 328).

As noted above, a provider can only challenge coverage denials on a claim-by-claim basis. However, providers can bundle appeals together into tranches comprising dozens of claims for the same service or services. Here, Agendia filed “multiple, separate, bundled appeals” for denials of coverage for BluePrint and TargetPrint tests. Pl.'s Opp'n to Def.'s Cross-Mot. & Reply in Supp. of Mot. for Summ. J. [ECF No. 24] (“Pl.'s Reply &amp Opp'n”) at 5. Those tranches were reviewed first on reconsideration by the Medicare administrative contractor, then on review by the qualified independent contractor, and finally at hearing before different ALJs-a process that took several years. At hearings before ALJ Fuller, ALJ Conway, and ALJ Smibert, Agendia presented testimony from a medical oncologist who described how the BluePrint and TargetPrint tests were used to diagnose and develop treatment plans for a sample set of beneficiaries whose claims were, nonetheless, denied. See, e.g., A.R. 1:181-83 (J.A. 63-65). Agendia also submitted in some cases medical articles that it claimed supported the use of its tests. See id. at 4:8436-50 (J.A. 768-82). ALJ Fuller, ALJ Conway, and ALJ Smibert considered the evidence but also gave “substantial deference” to the relevant LCD and ultimately decided that the BluePrint and TargetPrint tests at issue were not reasonable or necessary for the beneficiaries. See A.R. 1:180 (J.A. 62) (ALJ Fuller I); A.R. 2:180 (J.A. 495) (ALJ Fuller II); A.R. 3:79 (J.A. 614) (ALJ Conway); A.R. 4:54 (J.A.667) (ALJ Smibert). Agendia sought review of those decisions from the Council, but the administrative body never took up their claims. See A.R. 1:1 (J.A. 1); ...