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Department of Health and Human Services
Medicare Appeals Council
Blue Shield of California

Managed Care Benefits  



Blue Shield of California


The Administrative Law Judge issued a decision in this case on July 9, 2001. The appellant, Blue Shield of California, has asked the Medicare Appeals Council to review that decision. Pursuant to 20 CFR 404.967 and 404.970, the Council grants the request for review and reverses the July 9, 2001 decision. In granting the request for review, the Council considered the record that was before the Administrative Law Judge, including the testimony given at the June 20, 2001 hearing. The Council also considered the material attached to the appellant's request for review. Some of this material constitutes new and material evidence and is hereby entered into the record as Exhibits AC-2 and AC-3. In addition, we have designated the request for review as Exhibit AC-1, and have entered into the record (as Exhibits AC-4 through AC-7) other correspondence between the parties. The Council has sent copies of Exhibits AC-1 through AC-3 to the enrollee, XXX. Finally, the Council considered XXX's response to its May 20, 2002 Proffer of Evidence and Notice of Proposed Decision.

The issue in this case is whether the appellant, a Medicare managed care organization, must reimburse XXX for Viagra medication he purchased during his enrollment in the appellant's Blue Shield 65 Plus plan. XXX enrolled in this plan on April 1, 2000; he disenrolled from the plan on April 30, 2001.

A Medicare managed care organization (MCO) must offer its enrollees all the benefits covered by Medicare. 42 CFR 422.101. At its discretion the MCO may offer additional (or "supplemental") benefits beyond the ones covered by Medicare. 42 CFR 422.102.

Medicare does not cover self-administered drugs.(1) 42 CFR 410.29. Viagra is a self-administered drug. Viagra is therefore not covered by Medicare and need not be provided by a managed care organization as a plan benefit. However, during the period of XXX's enrollment, the Blue Shield 65 Plus plan offered certain brand-name and generic prescription drugs, including Viagra, as a supplemental benefit.

The plan's prescription drug benefits are described in two publications that were furnished to enrollees -- Your Pharmacy Benefits and Your Drug Formulary. These publications indicate that coverage of Viagra was subject to certain conditions. One condition was that the enrollee's physician had to obtain "prior authorization" so that the plan could verify that the drug was medically necessary. (Exh. AC-3 at 8, 19). Second, the plan did not cover Viagra unless the enrollee had a particular medical condition. Page eight of Your Pharmacy Benefits states that "[m]edications for the treatment of sexual dysfunction" were excluded from coverage "unless for treatment of an organically based condition." (Exh. AC-2 at 8).

An internal plan document entitled "Prior Authorization Criteria for Viagra" sets out the criteria for determining whether the enrollee has an "organically based condition." (Exh. 5). The document indicates that, as of March 2000, the plan would cover Viagra if the enrollee had erectile dysfunction caused by (1) a specified underlying condition (such as vascular disease or diabetes), or (2) a drug that could not be discontinued or switched.

On June 9, 2000, the plan's pharmacy committee denied XXX's request to authorize payment for Viagra on the ground that there was no documentation of an underlying medical condition that had caused his erectile dysfunction. (See Exhs. 1 & 4). Shortly afterward, the plan's grievance and appeals department asked XXX's physician, Dr. ***, to complete a "Physician Statement of Medical Necessity." (Exh. 3 at 5). Dr. *** completed the statement but did not indicate that XXX had one of the required medical conditions for coverage. (Id.).

At the hearing before the Administrative Law Judge, XXX testified that he started taking Viagra prior to his enrollment in Blue Shield 65 Plus; that he enrolled in that plan believing that Viagra was a covered drug; and that he could not reasonably have been expected to understand that Viagra would not be covered based on his reading of plan literature.

The Administrative Law Judge found that XXX did not have an "underlying qualifying condition" for coverage of the drug. However, based on XXX's testimony that "that he relied upon coverage [of Viagra] when selecting [Blue Shield 65 Plus]," the Administrative Law Judge decided that the appellant was required to reimburse XXX for up to six Viagra pills per month "for the period commencing with his enrollment in the Blue Shield 65 Plus plan through and including 30 days from the date of this decision."

We conclude that these coverage findings are based on errors of law. First, the Administrative Law Judge cited no legal authority or principle to justify his conclusion that XXX is entitled to benefits despite his failure to satisfy applicable coverage criteria. The only apparent basis for this conclusion is XXX's subjective belief about coverage. The decision does not discuss whether this belief was reasonable under the circumstances. Nor does it identify the legal reasons why a Medicare managed care organization should conform to a person's reasonable belief about the scope of coverage. Second, the decision requires the appellant to pay for Viagra purchased after the date of XXX's disenrollment. However, nothing in the statute or regulations requires a managed care plan to pay for services obtained by the patient after disenrollment. A managed care plan's obligations to provide benefits extends only to "enrollees" -- that is, persons currently enrolled.(2) 42 CFR 422.100.

In asserting that his enrollment and subsequent expenditures for Viagra were induced by statements that it was a covered benefit, XXX is attempting to state a claim of equitable estoppel. In general, the doctrine of equitable estoppel may not be applied against the federal government -- or a contractor acting as its agent -- in a case involving a claim for monetary benefits. In other words, the doctrine may not be used to prevent a federal government agency from applying statutory benefit eligibility criteria, even when the agency or contractor has given the person seeking benefits misleading or erroneous information that affects his ability to obtain the benefits. See Office of Personnel Management v. Richmond, 496 U.S. 414 (1990). We have yet to decide whether this general rule should be applied to disputes involving benefits, like the supplemental drug benefits offered the appellant, that are unavailable under the Medicare Act. However, we find no need to address that issue because the facts would not justify equitable relief in any event.

The traditional requirements for estoppel are (1) a misrepresentation of fact by the government or its agent, (2) reasonable reliance by the person to whom the misrepresentation was made, and (3) harm or detriment to that person caused by his reliance on the misrepresentation. Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 59 (1984). In this case, XXX is, in essence, claiming that he should not be subject to the "prior authorization" and other prerequisites for coverage because Blue Shield 65 Plus made an unconditional promise in its literature to cover the drug, or that it misrepresented the scope of coverage. However, the plan brochures described above clearly indicate that coverage of Viagra was subject to conditions. Your Drug Formulary informed XXX, on pages five and nineteen, that he needed prior medical authorization for Viagra, and that there was additional information about drug benefits in Your Pharmacy Benefits. (Exh. AC-3). Your Pharmacy Benefits states on pages six and eight that certain medications (including Viagra) required prior authorization, that a prescription drug may be excluded from coverage even if pre-authorized, and that medication for the treatment of sexual dysfunction are not covered "unless for treatment of an organically based condition." (Exh. AC-2). Given this information, which was available upon enrollment, XXX could not have reasonably believed that Blue Shield 65 Plus would allow payment for Viagra without his meeting certain conditions. (3)

In addition, we note that the initial coverage denial, dated June 9, 2000, informed XXX that coverage of Viagra depended upon whether he had a specified medical condition. Thus, even if he was misled by the plan brochures, any estoppel claim would be valid only for the period between April 1, 2000 (the date of his enrollment) and June 9, 2000. No relief would be warranted with respect to Viagra that he purchased after June 9, 2000 because, as of that date, he was on notice of the plan's coverage conditions.

In short, we find that XXX's belief that the MCO would provide Viagra to him unconditionally was not reasonable. Even if it was, he has not established that he suffered any financial harm or other detriment as a result of his enrollment in Blue Shield 65 Plus.


It is the decision of the Medicare Appeals Council that the appellant is not obligated to reimburse XXX for Viagra medication he purchased between April 1, 2001 and April 30, 2001 because he did not qualify for coverage of this medication under the Blue Shield 65 Plus plan. In addition, the appellant is not obligated to reimburse XXX for Viagra purchased after April 30, 2001 because he ceased to be an enrollee of Blue Shield 65 Plus after that date.


Date: June 20, 2002


M. Susan Wiley
Administrative Appeals Judge

Leslie Weyn
Administrative Appeals Judge


1. There are exceptions to this general rule, but they are inapplicable to this case.

2. An enrollee is a person who has "elected" a particular Medicare+Choice plan. 42 CFR 422.2. A person who voluntarily disenrolls from a plan has either (1) changed his election -- that is, elected a different Medicare+Choice plan, or (2) submitted a signed and written request for disenrollment. 42 CFR 422.66. A person who requests disenrollment remains enrolled until the "effective date" of disenrollment. See 42 CFR 422.66(b)(3)(iii)(A).

3. Although the plan brochures did not define the term "organically based condition," this limitation should have alerted Mr. Howell to the possibility that the drug might not be covered given his particular medical circumstances.