Proposed DHHS Settlement: Medicare Home Health, Skilled Nursing Service, and Therapy Service Coverage

by Manatt, Phelps & Phillips, LLP

[authors: Wendy L. Krasner and  Annemarie V. Wouters]

In a proposed settlement to a nationwide class action lawsuit, the Department of Health and Human Services ("DHHS") has agreed to remove the unlawful "rule of thumb" implemented through Medicare's administrative review process that denies coverage for skilled nursing services, home health services, or therapy services in cases where the beneficiary needs "maintenance services only," has "plateaued" or is "chronic, "medically stable," or not improving.  This covert rule of thumb or clandestine policy is often referred to as the "Improvement Standard."  Under the agreement, Medicare will pay for these services if they are needed "to maintain the patient's current condition or prevent or slow further deterioration," regardless of whether the patient's condition is expected to improve.

Details of the settlement are not yet final, awaiting approval of Christina C. Reiss, the chief judge of the U.S. District Court in Vermont.  In early 2014, the Centers for Medicare & Medicaid Services (CMS) will undertake a campaign to educate responsible parties about the settlement.  The settlement will allow certain members of a class of about 10,000 beneficiaries to have their claims reviewed under the revised standard from the date the lawsuit was filed in January 2011 until the education campaign is completed.  Some have expressed concern that the settlement and the more expansive coverage may prove to be expensive, but no cost estimates have been published.

In January 2011, the Center for Medicare Advocacy and co-counsel from Vermont Legal Aid filed a class action lawsuit against Kathleen Sebelius, Secretary of DHHS, aimed to end the use of the illegal "Improvement Standard" to deny Medicare coverage. The complaint notes that the "Improvement Standard" was not implemented through proper rulemaking, yet has been in effect for over 30 years.  The lawsuit was brought by six individual Medicare beneficiaries and seven national organizations (National Committee to Preserve Social Security and Medicare, National MS Society, Parkinson's Action Network, Paralyzed Veterans of America, American Academy of Physical Medicine and Rehabilitation, Alzheimer's Association, and United Cerebral Palsy).  "The crux of the amended complaint was an allegation that the Secretary has adopted an unlawful and clandestine standard to determine whether Medicare beneficiaries are entitled to coverage, resulting in the wrongful termination, reduction, and denial of Medicare coverage for beneficiaries with medical conditions that are not expected to improve."  As suggested by the list of plaintiffs, the negative impact caused by the improvement standard is felt most severely by Medicare beneficiaries diagnosed with chronic conditions, such as multiple sclerosis (MS), amyotrophic lateral sclerosis  (ALS), Parkinson's disease, other neurological diseases, spinal cord injuries, diabetes, chronic heart failure, dementia and Alzheimer's disease, and stroke.

In their arguments, the plaintiffs stated that there is no overarching "Improvement Standard" in the Medicare statute and alleged that the Secretary "imposes a covert rule of thumb that operates as an additional and illegal condition of coverage and results in the termination, reduction, or denial of coverage for thousands of Medicare beneficiaries annually."  The statute requires that Medicare payment is precluded for items and services that "are not reasonable and necessary for the diagnosis or treatment of illness or injury to improve the functioning of a malformed body member."  Although the law does use the term "improve," it is used only in reference to improving the functioning of a malformed body member.  To support the argument, the plaintiffs cited various Medicare regulations which demonstrate that the "Improvement Standard" is not required for home health services, skilled nursing services and therapy services.  However, Medicare manuals and local coverage determinations - which Medicare Contractor employees use to make decisions - are not always consistent with the regulations.  Since DHHS had chosen not to revise its manuals or coverage determinations to date, the plaintiffs elected to pursue litigation as the most effective approach to removing the use of the "Improvement Standard" to guide coverage decisions.

If you have any questions, please do not hesitate to contact Annemarie Wouters at or Wendy Krasner at

To read the complaint (Jimmo et al v. Health and Human Services Secretary, No. 11-cv-00017, (D. Vt, filed Jan. 18, 2011), click here.

To read the Opinion and Order Denying in Part and Granting in Part Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction and Denying Defendant's Motion to Dismiss for Failure to State a Claim (October 25, 2011), click here.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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