Opacity and cost effectiveness analysis in Medicare coverage decisions: health policy encounters administrative law

Medicare is the public health insurance program for elderly and disabled Americans. Established in 1965, today it is the primary health insurer for more than 40 million people. Like all insurance programs, Medicare must determine what benefits to cover. In the Medicare statute, Congress established coverage for broad categories of care--hospitalization, office visits and prescription drugs--and broad categories that were excluded, such as vision and dental care. Beyond these broad categories, Congress left the agency administering Medicare--now known as the Center for Medicare and Medicaid Services (CMS)--to determine whether certain treatments are "reasonable and necessary" and thus eligible for Medicare coverage.Two "facts" about Medicare coverage determinations are well established in the health policy literature. First, CMS does not have criteria by which it makes coverage decisions. Second, CMS does not conduct cost effectiveness analysis in making these determinations. Although CMS approves coverage of most treatments it is asked to evaluate--99 percent of the time in one study--it does deny coverage of some procedures and devices. Therefore, some criteria for denying coverage must exist, even if they are not published or otherwise formalized. This article demonstrates that, as both a legal and policy matter, these explanations are inadequate.