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Department of Health and Human Services
Medicare Appeals Council
Fallon Community Health Plan (Appellant)

Managed Care Organization Benefits



Fallon Community Health Plan (Contractor)


The Administrative Law Judge (ALJ) issued a decision favorable to the beneficiary on December 28, 2001. On February 25, 2002, Fallon Community Health Plan (Fallon), a Medicare + Choice organization (M+CO), asked the Medicare Appeals Council to review this action.

On November 18, 2002, we granted the M+CO's request for review to determine whether the beneficiary's right to appeal the M+CO's refusal to provide him with a new prosthesis survived his disenrollment from the M+C plan, and, if so, whether the M+CO is required to provide him with either the prosthesis he requested or a replacement for his current one. For the reasons given below, we conclude that the beneficiary's right to pursue his appeal was not extinguished by his disenrollment from the plan and that further proceedings are necessary to determine the exact relief to which he is entitled.

I. The "Disenrollment" Issue

In March 2000, while he was enrolled in the M+CO, the beneficiary, who has an above the knee amputation of the right leg, notified the plan that he was having difficulty with his current prosthesis and requested that it be upgraded. The beneficiary's request was denied initially in May 2000, and on reconsideration, on July 10, 2000. Thereafter, in a letter dated July 20, 2000, the M+CO informed the beneficiary that he would be disenrolled from the M+CO effective January 1, 2001, because the M+CO was terminating its participation in the Medicare managed care program in the county in which the beneficiary resided. Exh. 25.

The beneficiary requested a hearing before an ALJ in September 2000. During the first of two hearings, the M+CO's representative argued that it was not legally obligated to provide any further services to the beneficiary, including the requested prosthesis, because the beneficiary=s enrollment in the M+CO had terminated on December 31, 2000. The beneficiary's counsel contended, however, that the M+CO was required to provide the requested prosthesis even though he was no longer enrolled in the M+CO because he had requested the prosthesis (and filed his subsequent appeals) while he was still enrolled.

After concluding that the beneficiary's disenrollment did not preclude him from further pursuing his appeal, the ALJ found that the M+CO was required to provide the beneficiary with the prosthesis he had requested. We granted review in this case on November 18, 2002, to consider whether the beneficiary's disenrollment had rendered his appeal moot. Because we concluded that the effect of a beneficiary's disenrollment from an M+CO presented a broad procedural issue affecting the public interest, we notified the parties that we were requesting written argument on that issue and, in addition, a position paper from the Centers for Medicare and Medicaid Services (CMS) through its Office of General Counsel. We further indicated that we would afford both parties the opportunity to respond to CMS's submission.

In its position paper submitted January 24, 2003, (hereafter "CMS paper"), CMS states that if a Medicare beneficiary requests a service while he is enrolled in the M+CO, his "subsequent (voluntary or involuntary) disenrollment from an M+C plan should not divest the beneficiary of the rights (a) to appeal an adverse coverage determination and, (b) if successful, to receive coverage of the item or service from the M+C organization." CMS paper at 1. CMS's principal basis for this conclusion is that the M+CO's obligation to provide a service, if the conditions for coverage are met, arises at the time of an enrollee's request for the service, and is not extinguished thereafter if the enrollee disenrolls, either voluntarily or involuntarily, from the plan. CMS paper at 4-5.

CMS further notes that both the Medicare statute and the contract the Department enters into with an M+CO require the government to pay Medicare funds to the M+CO each month, in advance, for each of its Medicare enrollees. � 1853(a)(1)(A) of the Social Security Act (Act), 42 U.S.C. � 1395w-23(a)(1)(A). (This method of reimbursement is often referred to as "capitated payment.") In return for the capitated payments, the M+CO pays for or furnishes covered services to each of its Medicare enrollees. � 1852(a)(1) of the Act, 42 U.S.C. �1395w-22(a)(1). Hence, the M+CO becomes legally obligated to provide or pay for all Medicare covered services requested and needed in that month by a beneficiary enrolled in the plan.

CMS concludes that when an M+CO improperly denies a request for services by an enrolled beneficiary, the M+CO has "effectively breach[ed] its obligations under the contract for the month in question." CMS paper at 4. Accordingly, "[i]t is immaterial whether the M+C organization still has a current obligation to the enrollee if it is established on reconsideration or appeal that a denial that occurred when the M+C organization did have such an obligation was improper." Id. The fact that there may be delays in the processing of the enrollee's request or subsequent appeals does not obviate the M+CO's legal obligation to provide or pay for all Medicare covered services for enrollees for which it has already received payment during the month the request was made.

CMS also reads the statute as providing a beneficiary such as Mr. Salmon with the right to continue his appeal even after he has disenrolled. Pursuant to �1851(a)(1)(B) of the Act, a Medicare beneficiary is "entitled" to "receive" covered benefits through "enrollment in an M+C plan." CMS maintains that the above provision "is best read to establish that a beneficiary is 'entitled' to, and should therefore 'receive' the item or service that the beneficiary would have received had the [M+CO] properly rendered a favorable decision when the beneficiary was enrolled in the [M+CO] and requested the item or service." (1)

Finally, CMS asserts that a contrary holding:

could create perverse incentives to permit M+C

plans to avoid paying for services by denying them when they anticipate. . . that a beneficiary might subsequently disenroll (whether voluntarily or involuntarily). Such incentives would be antithetical to the goal of ensuring that beneficiaries receive the benefits to which they were entitled under the statute and could also undermine achievement of the statutory and policy goal that the M+C Program not discriminate against M+C eligible individuals based on certain health status-related factors.

(CMS paper at 5; citation omitted.)

In a brief submitted February 27, 2003, the beneficiary's representative agreed with the above position. In addition, she argued that CMS's regulations at 42 C.F.R. part 422 concerning required services and effectuation of appeal decisions support the beneficiary's position. Salmon brief at 3-4. However, because none of cited regulations address directly the effect of a beneficiary's disenrollment, we find more persuasive CMS' argument that none of the part 422 regulations conflict with its position.

After requesting an extension of time to reply to CMS's position paper, the M+CO filed its brief on March 17, 2003. The brief frames the question before the Council as whether the M+CO "should be responsible for the cost of an enrollee's prosthesis when the beneficiary disenrolled due to a 'coverage area termination.'" Fallon brief at 2. In addressing this question, however, the M+CO deals only with the general issue of how an M+CO's withdrawal from a geographic area, and the resulting involuntary disenrollment of its enrollees who reside in that area, affects the M+CO's obligation to provide services to a beneficiary after the effective date of the disenrollment.

Ths is not the question before us. Neither CMS nor the beneficiary's representative suggest that the M+CO would be required to provide any services to the beneficiary that were initially requested after December 31, 2000, his last date of enrollment in the plan. Rather, the question before us is whether the M+CO is required to provide, or reimburse the beneficiary for, a medical item or service that he requested while he was enrolled in the M+CO and which 1) the M+CO denied on substantive grounds and 2) which is subsequently determined on appeal, after the beneficiary has disenrolled, to be an item or service that the beneficiary was entitled to receive from the M+CO when he requested it. We find no merit in the M+CO's conclusion that an adverse ruling in this case would require it to provide to or reimburse a former enrollee for out of area emergency services sought after the beneficiary disenrolled.

The M+CO also contends that it is no longer responsible because the contract between it and the beneficiary prohibits the introduction of any other terms and conditions not specifically stated in the contract ("the parole evidence rule"). (2) Fallon brief at 3-4. Whether or not the parole evidence rule would apply to any non-Medicare related contractual obligations between the M+CO and the beneficiary is irrelevant to the case before us. As noted by CMS, this case involves the M+CO's obligations under the Medicare statute, its implementing regulations, and its contractual relationship with the Department. As indicated in CMS's paper, the Medicare statute, regulations and, therefore, the the M+CO's contract with the Department, require it to provide or reimburse an enrollee for services that the M+CO has improperly denied.

For the reasons described in CMS's position paper, we find that in this case the M+CO's obligation to provide Medicare covered services to the beneficiary arose on or about March 2, 2000, when the beneficiary's plan physician filed a request for referral for a new prosthesis on behalf of the beneficiary. We further find that the fact that the beneficiary was subsequently involuntarily disenrolled does not release the M+CO from potential liability for, as to be determined on remand: 1) providing the item requested; 2) providing a replacement for his current prosthesis; or 3) reimbursing him for the cost of a prosthesis already obtained, to the extent that the item is determined medically reasonable and necessary.

II. The Coverage Issue

A. The Scope of the Beneficiary's Request

The administrative record reveals that throughout these proceedings the beneficiary has identified problems with his current prosthesis and has requested an upgrade or, in the alternative, a repair/replacement. The case essentially began on August 24, 1999, when the beneficiary visited his new primary care physician, Dr. Bradshaw. Exh. 11. During this and a subsequent visit in October 1999, Dr. Bradshaw noted that the prosthesis was bothering the beneficiary at the hip junction and he needed to have the prosthesis refurbished. Exh. 11.

On March 2, 2000, the beneficiary sent a fax to Dr. Bradshaw requesting an upgraded prosthesis, noting the problems he was having with his current prosthesis and providing information regarding the specific equipment he was requesting, a computerized prosthesis known as a "C-Leg." Exh. 10. The beneficiary explained that he needed the C-Leg because his current prosthesis was not compatible with his functional level. On April 16, 2000, Dr. Bradshaw referred the beneficiary's request to the M+CO and enclosed the beneficiary's March 2, 2000, fax. Exh. 10. The referral sheet indicated, however, that the beneficiary's request needed to be reviewed, noting that Dr. Bradshaw thought that the requested prosthesis was a little more than the beneficiary needed.

By letter dated May 8, 2000, the M+CO denied the beneficiary=s request for "a C-leg Prosthesis in excess of $1,500.00" because it was not a covered benefit. Exh. 1. The beneficiary subsequently appealed this determination. In its response to the appeal, the M+CO submitted to the Center for Health Dispute Resolution (CHDR) an "Appeals Summary/Chronology of Events." The summary stated that "[a]t this time the [M+CO] does not provide coverage of the C-Leg prosthesis. The [M+CO] does provide coverage for standard leg prosthesis and socket replacement when prescribed by a Fallon provider and authorized by the [plan]." Exh. 9.

On July 10, 2000, CHDR upheld the M+CO's denial, stating that "the M+CO is not required to authorize or pay for a computerized prosthesis as requested by Mr. Salmon." Exh. 7 at 2. CHDR's determination did not, however, address specifically whether the beneficiary should be provided with a replacement for all or part of his current prosthesis. Later in the appeal, the beneficiary renewed his request for at least a replacement of his current prosthesis.

After considering all of the evidence described above, the Council finds that if it is established on remand that the beneficiary does not meet the requirements for a C-Leg, the M+CO should be required to replace all or part of the beneficiary's current prosthesis, as appropriate. This finding is consistent not only with the content of the beneficiary's original request to his primary care physician, but also with section 5107 of the Medicare Carriers Manual, which the M+CO has relied on in its appeal. The manual instruction provides, in pertinent part, that:

The payment amount for a given service or item, whether rented or purchased, must be consistent with what is reasonable and medically necessary to serve the intended purpose. Additional expenses for 'deluxe' features or items which are rented or purchased for aesthetic reasons or added convenience do not meet the reasonableness test. Thus, where a service or item is medically necessary and covered under the Medicare program, and the patient wishes to obtain such deluxe features, the payment is based upon the payment amount for the kind of service or item normally used to meet the intended purpose (i.e., the standard item.) Usually this is the least costly item.

In the context of a pre-service appeal, we interpret this instruction as requiring the M+CO to provide the least costly item if the "deluxe" item does not meet the reasonableness test.

B. The Medical Necessity Issue

In his decision issued December 28, 2001, the ALJ held that the C-Leg "should be covered" by the M+CO because the prosthesis was medically reasonable and necessary for the beneficiary and was prescribed by an M+CO provider. Concerning the latter question, the record reveals that although Dr. Bradshaw submitted the beneficiary's request for the C-leg to the M+CO, there is no actual physician order for the C-leg in the record or a statement by Dr. Bradshaw that he considered the C-leg medically reasonable and necessary for Mr. Salmon.

However, the lack of a physician order does not, by itself, defeat a M+CO enrollee's request for services. 42 C.F.R. � 422.101(a) provides, with certain exceptions not relevant here, that an M+CO must provide or pay for all Medicare covered services that are available to beneficiaries residing in the geographic area covered by the M+C plan. This requirement cannot be defeated solely by the failure of a plan physician to order a Medicare covered item requested by an enrollee.

We find, however, that the present record does not contain sufficient medical evidence or independent medical testimony to make a determination regarding the reasonableness and necessity of the C-leg or other upgraded prosthesis for this beneficiary. First, the record does not contain any medical evidence, aside from the testimony of the beneficiary's prosthetist, that details Mr. Salmon's level of functioning. As explained below, this information is necessary to determine the type of prosthesis that is medically reasonable and necessary for him.

Second, the medical expert testimony and interrogatory responses obtained by the ALJ are not clear enough to resolve the medical necessity issue. Neither medical expert was apparently aware of the local medical review policy (LMRP) applicable in this case. Also, the interrogatory directed to Dr. Mendelsohn only required him to state whether the medical evidence supported the beneficiary's allegations concerning his problems with his current prosthesis, not the type of prosthesis he needed. Exh. 38 at 3. Because the form of the interrogatory prompted a response that could support supplying the beneficiary with either the C-Leg or just a replacement, both parties' representatives argued that the medical expert's response upheld their respective positions. Exhs. 39 and 40.

Finally, the record is incomplete because the ALJ did not consider the contentions of the beneficiary's previous representative that the LMRP established by the Durable Medical Equipment Regional Carrier (DMERC) supported the beneficiary's request for a C-Leg. (3) Exh. 32 at 3, fn.1. He stated that the medical director for the DMERC had confirmed that the DMERC did not "exclude the C-LEG device as a matter of routine;" rather, its policy was to cover it if a patient met certain functional and motivational tests. The beneficiary's counsel did not, however, submit evidence of the DMERC's policy nor did the ALJ obtain it. Further, the beneficiary's need for a prosthesis was not evaluated pursuant to the LMRP criteria.


During the period at issue, 42 C.F.R. � 422.101(b)(2)(1999), redesignated � 422.101(b)(3)(2000), required Fallon to follow LMRPs issued by Tricenturion, the Durable Medical Equipment Regional Carrier for Massachusetts (DMERC A), when considering requests for prostheses by enrollees in Mr. Salmon's geographic area. See also, 65 Fed. Reg 40170, 40207 (June 29, 2000)(MCOs must follow all "relevant local medical review policies"). DMERC A has issued a detailed LMRP concerning lower limb prostheses. The original policy's effective date was for services performed on or after March 1, 1995 with revisions as late as April 1, 2003.

The basic policy articulated in the LMRP is that a lower limb prosthesis will be covered when a patient: 1) will reach or maintain a defined functional state within a reasonable period of time; and 2) is motivated to ambulate.

The policy further states that a determination of medical necessity for certain components/additions to the prosthesis is based on the patient's potential functional abilities. Potential functional ability is based on the reasonable expectations of the prosthetist and treating physician considering factors including, but not limited to:

a) The patient's past history (including prior prosthetic use if applicable): and

b) The patient's current condition including the status of the residual limb and the nature of other medical problems; and

c) The patient's desire to ambulate.

The LMRP further provides that clinical assessments of patient rehabilitation potential must be based on the following classification levels:

Level 0: Does not have the ability or potential to ambulate or transfer safely with or without assistance and a prosthesis does not enhance their quality of life or mobility.

Level 1: Has the ability or potential to use a prosthesis for transfers or ambulation on level surfaces at fixed cadence. Typical of the limited and unlimited household ambulator.

Level 2: Has the ability or potential for ambulation with the ability to traverse low level environmental barriers such as curbs, stairs or uneven surfaces. Typical of the limited community ambulator.

Level 3: Has the ability or potential for ambulation with variable cadence. Typical of the community ambulator who has to ability to traverse most environmental barriers and may have vocational, therapeutic, or exercise activity beyond simple locomotion.

Level 4: Has the ability or potential for prosthetic ambulation that exceeds basic ambulation skills, exhibiting high impact, stress, or energy levels. Typical of the prosthetic demands of the child, active adult, or athlete.

The LMRP also requires that the beneficiary's records must document the patient's current functional capabilities and his/her expected functional potential, including an explanation for the difference, if that is the case.

The LMRP also includes billing codes for various types of prostheses. It is not readily apparent, however, which of the listed codes, if any, pertains to the C-Leg, whether the C-Leg is covered by the LMRP, and, if so, which of the listed functional levels must be achieved or expected to support an individual's request for coverage.

III. Proceedings on remand

For the reasons described above, we conclude that additional proceedings are necessary to resolve Mr. Salmon's request for a prosthesis. Therefore, we are remanding the case to an Administrative Law Judge for further development. On remand, the ALJ shall:

  • Obtain from the beneficiary and his treating sources, including his prosthetist, medical documentation of his medical condition(s) relevant to determining coverage of lower limb prostheses under the LMRP.

  • Obtain sufficient information from DMERC A to determine whether the DMERC covers the C-Leg and, if so, which of the functional levels listed in the LMRP a beneficiary must obtain or be expected to obtain in order to qualify for the C-Leg.

  • Obtain information concerning the condition of the beneficiary's current prosthesis in order to determine whether all of part of it would need to be replaced if the beneficiary does not qualify for the C-Leg.

  • Offer the parties an opportunity for a supplemental hearing. Depending upon their response, the ALJ shall obtain through oral testimony or written interrogatories input from an independent medical expert to assist the ALJ in determining whether the C-Leg is medically necessary for the beneficiary, consistent with the terms of the LMRP. If contact with DMERC A reveals that its LMRP does not address coverage of the C-Leg specifically, the ALJ shall ask the medical expert to use the principles outlined in the LMRP as a guideline for determining whether the C-Leg is medically reasonable and necessary for the beneficiary.

Upon completion of the proceedings, the ALJ shall issue a decision concerning whether the M+CO is responsible for providing (or, if applicable, reimbursing) the beneficiary with a C-Leg or a replacement of all or part of his current prosthesis.

The ALJ may take any further action not inconsistent with this order.


October 16, 2003



M. Susan Wiley
Administrative Appeals Judge

Thomas E. Herrmann
Administrative Appeals Judge


1. CMS also concludes that this position is consistent with, if not mandated by, the plain language of the regulations. CMS paper at 5.

2 The record does not contain a complete copy of the M+CO contract with the beneficiary. On remand, the ALJ is instructed to obtain a complete copy and enter it into evidence.

3. Mr. Salmon obtained his current representative after the M+CO filed its request for review.