Authority of Medicare to Limit Coverage of FDA-Approved ProductsLegal and Policy Considerations

Importance  When the US Food and Drug Administration (FDA) approves a drug or medical device on the basis of limited clinical evidence, the Centers for Medicare & Medicaid Services (CMS) must decide whether the therapy is “reasonable and necessary” for coverage among Medicare beneficiaries. However, the legal underpinnings of CMS’s authority to shape coverage of FDA-regulated products under Medicare Part B are controversial. To clarify this area, we reviewed relevant legal precedents on CMS’s approaches to limit coverage and recent decisions Medicare has issued affecting coverage for FDA-regulated products.

Observations  The CMS continues to exercise considerable legal discretion to limit coverage of FDA-authorized products to only uses it determines are reasonable and necessary for patients with Medicare. Courts have upheld this discretion repeatedly, emphasizing the difference between Medicare’s coverage criteria and the FDA’s review standards. As more new drugs and devices come to market without solid evidence of efficacy on clinical outcomes, or have narrow benefit-risk considerations, CMS may increasingly rely on forms of limited or conditional coverage, including coverage with evidence development (CED), which provides reimbursement only in the context of a clinical trial or registry.

Conclusions and Relevance  The ability of CMS to condition or limit coverage of FDA-approved products is a commonsense necessity for this crucial taxpayer-funded program. Although courts have thus far deferred to the authority of CMS to make such decisions on the basis of its clear statutory discretion and public health expertise, Congress may want to act to reaffirm statutory language giving CMS sufficient flexibility to craft coverage determinations that reflect the evidence for a product’s use.