Settlement Reached to End Medicare's "Improvement Standard"

In early 2011, the Center for Medicare Advocacy and the Medicare Advocacy Project of Vermont Legal Aid approached Wilson Sonsini Goodrich & Rosati for assistance in litigating Jimmo v. Sebelius, a federal class action lawsuit filed in the District of Vermont alleging the existence of an "improvement standard" used to make Medicare coverage determinations—a covert and illegal "rule of thumb" that required the expectation of improvement in a beneficiary's condition as a condition of coverage.

The use of this improper standard resulted in the termination, reduction, or outright denial of vital coverage for healthcare or therapy services for thousands of beneficiaries who were deemed "chronic," "medically stable," or who needed "maintenance services only." The Jimmo plaintiffs are Medicare beneficiaries, or institutions that represent such individuals, who had their coverage terminated, reduced, or denied due to the application of the "improvement standard." The plaintiffs seek declaratory, injunctive, and mandamus relief prohibiting the application of the "improvement standard" in making Medicare coverage decisions.

Defendant Kathleen Sebelius, the Secretary of the Department of Health and Human Services (HHS), moved to dismiss for failure to state a claim. On October 25, 2011, Chief Judge Christina Reiss denied the Secretary's motion, finding that the plaintiffs had alleged sufficient facts to support their claim that illegal presumptions and rules of thumb were being used in Medicare coverage determinations. Thereafter, the WSGR team, led by partners David Berger and Matt Reed, prepared to quickly and aggressively pursue discovery from the Secretary. Facing considerable discovery obligations, however, the Secretary quickly expressed a desire to negotiate a settlement.

The parties then engaged in settlement discussions over a period of many months. Pending approval by Chief Judge Reiss, a settlement was reached in October 2012 that includes the below terms. Specifically, the Centers for Medicare and Medicaid services will:

  • revise relevant portions of the Medicare Benefit Policy Manual with input from plaintiffs' counsel in an effort to eradicate potential use of the improper "improvement standard" among providers, contractors, and adjudicators;
  • engage in a nationwide educational campaign with input from plaintiffs' counsel, utilizing interactive forums as well as the broad dissemination of written materials to inform healthcare providers, contractors, and adjudicators on the Medicare Benefit Policy Manual revisions and the appropriate standards for Medicare coverage determinations;
  • allow class members who received or will receive a final and non-appealable denial up to the date of the end of the educational campaign (which will last up to one year after approval of the settlement agreement) a re-review of their denied claim;
  • carry out an ongoing review of a random sample of Medicare coverage denials to ensure full and permanent compliance with the appropriate standards;
  • meet biannually with plaintiffs' counsel to discuss implementation of the settlement agreement over the course of the next two years;
  • consent to jurisdiction by Chief Judge Reiss to enforce the terms of the settlement agreement for a period of at least two years following the end of the educational campaign; and
  • pay plaintiffs' counsel reasonable attorneys' fees under the Equal Justice Act for their work on the case.

As noted above, the settlement now is awaiting the approval of Chief Judge Reiss.

In addition to David Berger and Matt Reed, the Wilson Sonsini Goodrich & Rosati team members who were involved in the matter include Lisa Davis, Crystal Gaudette, Luke Liss, Evan Seite, Lydia Chao, and Denise Aki Valles.

For more information, please see this New York Times article, this New York Times editorial, or the proposed settlement agreement.