                                                                                          February 10 2015


                                          DA 14-0312
                                                                                          Case Number: DA 14-0312

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2015 MT 37



LISA BAILEY,

              Petitioner and Appellant,

         v.

MONTANA DEPARTMENT OF PUBLIC
HEALTH AND HUMAN SERVICES,

              Respondent and Appellee.



APPEAL FROM:           District Court of the First Judicial District,
                       In and For the County of Lewis and Clark, Cause No. ADV 2013-541
                       Honorable Mike Menahan, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       Jessica L. Millward, Montana Legal Services Association, Billings,
                       Montana

                For Appellee:

                       Susan Callaghan, Office of Legal Affairs, Department of Public Health
                       and Human Services, Helena, Montana



                                                  Submitted on Briefs: October 29, 2014
                                                             Decided: February 10, 2015


Filed:

                       __________________________________________
                                         Clerk
Justice Laurie McKinnon delivered the Opinion of the Court.

¶1     Lisa Bailey, through her physician, requested Medicaid authorization for gastric

bypass surgery.    The Montana Department of Public Health and Human Services

(Department) denied her request. The decision was affirmed through administrative

proceedings, and Bailey requested judicial review. The First Judicial District Court,

Lewis and Clark County, also affirmed the Department’s decision denying authorization

for the procedure. Bailey appeals and asks that the Department be required to conduct a

determination of medical necessity for the procedure.

¶2     The issue presented for review is whether an administrative rule excluding from

coverage under the Montana Medicaid program all invasive procedures undertaken for

the purpose of weight reduction, including gastric bypass surgery, is unreasonable and

contrary to federal law.

                  FACTUAL AND PROCEDURAL BACKGROUND

¶3     The parties have stipulated to the facts summarized here. Bailey is a 51-year-old

mother of three sons, the youngest of whom is eight years old. Bailey is approximately

five feet, three inches tall, and weighs 445 pounds. Her body mass index is over 60 and

she is considered morbidly obese. Bailey qualifies for the Montana Medicaid program as

categorically needy because she is legally blind. Bailey has been legally blind in her

right eye since birth. In 2004, she was hit in her left eye with a paintball, which caused

her eyesight to degenerate further. In 1990, a car she was in was hit by a train, causing

long-term injuries to her ribs, knees, and back. In 2000, both her legs were broken in a

fall, and she received pins and screws in both legs. Her ankles sometimes “lock up,”


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leaving her unable to walk for days. In April 2012, Bailey underwent spinal surgery.

Bailey has medical conditions including hypertension; diabetes mellitus type 2;

edema/venous insufficiency; advancing osteoarthritis of the shoulders, hips, and knees;

arthritis of the spine and a disc bulge pressing on her spinal cord; atypical chest pain;

hypoventilation syndrome/asthma; obstructive sleep apnea; hypothyroidism; and

significant restless leg syndrome.

¶4     Bailey has attempted to lose weight by participating in the Weight Watchers and

Take Off Pounds Sensibly programs. She also participated in a year-long weight loss

study through the Missoula Community Medical Center. She had some success using

diet pills, which were later taken off the market. In 2011, she lost fifty pounds due to a

low-carbohydrate diet and exercise.    Bailey’s many injuries and medical conditions,

however, limit her exercise ability. Her three physicians, Dr. Elena Furrow, Dr. Joseph

Knapp, and Dr. Timothy Richards, have each written letters to the Department stating

that Bailey is a good candidate for gastric bypass surgery. Dr. Furrow stated that if

Bailey underwent gastric bypass or other bariatric surgery, “she would most likely have

improvement and even complete resolution” of her chronic medical conditions. Dr.

Knapp stated that Bailey’s “major medical factor is her weight,” and “absent aggressive

management of her weight, she will become more complicated from a health care

standpoint, and become more problematic for medical management.” Dr. Richards stated

that gastric bypass surgery “would subsequently help all of her other medical problems.”

None of the physicians specifically stated that gastric bypass surgery was necessary or

the only means by which Bailey’s condition could be improved.


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¶5     On April 28, 2011, Dr. Richards asked the Department to authorize gastric bypass

surgery for Bailey.    The request was denied because gastric bypass surgery is a

non-covered service under Department administrative rules.         Bailey requested an

administrative hearing, at which she argued that the Department’s blanket exclusion of

gastric bypass surgery from Medicaid coverage was unreasonable and contrary to federal

law. Hearing Officer James L. Keil determined that the Department’s basis for excluding

gastric bypass surgery was rational and reasonable, because it was based on fiscal

necessity.   Keil also determined that although the Department had excluded certain

treatments, it had not “singled out obesity as a non-covered condition” or discriminated

on the basis of obesity. The Board of Public Assistance adopted the decision of the

Hearing Officer, and Bailey requested judicial review in the District Court. The District

Court affirmed the Department’s decision to deny authorization for gastric bypass

surgery, also concluding that the basis for the exclusion was reasonable. The District

Court observed that Bailey had presented no evidence showing that all possible

treatments for obesity were excluded from the Montana Medicaid program.           Bailey

appeals.

                             STANDARDS OF REVIEW

¶6     We review a district court’s decision on judicial review of an agency decision to

determine whether the findings of fact are clearly erroneous and whether the conclusions

of law are correct. Blue Cross & Blue Shield of Mont. v. Mont. State Auditor, 2009 MT

318, ¶ 9, 352 Mont. 423, 218 P.3d 475.




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                                       DISCUSSION

¶7     Whether an administrative rule excluding all invasive procedures undertaken for
       the purpose of weight reduction, including gastric bypass surgery, from coverage
       under the Montana Medicaid program is unreasonable and contrary to
       federal law.

¶8     Title XIX of the Social Security Act provides for grants to states for medical

assistance programs, with the stated objective of “enabling each State, as far as

practicable under the conditions in such State, to furnish . . . medical assistance on behalf

of families with dependent children and of aged, blind, or disabled individuals, whose

income and resources are insufficient to meet the costs of necessary medical

services . . . .” 42 U.S.C. § 1396-1 (2012). State participation in the program, known as

Medicaid, is voluntary. Wilder v. Va. Hosp. Assn., 496 U.S. 498, 502, 110 S. Ct. 2510,

2513 (1990). If a state chooses to participate, however, it must comply with federal

requirements. Wilder, 496 U.S. at 502, 110 S. Ct. at 2513. A participating state must

provide “categorically” needy individuals with financial assistance in obtaining medical

treatment within certain service areas.1 Beal v. Doe, 432 U.S. 438, 440, 97 S. Ct. 2366,

2368-69 (1977). Categorically needy persons include those with dependent children and

the aged, blind, and disabled. 42 U.S.C. § 1396a(a)(10)(A) (2012); Beal, 432 U.S. at 440

n. 1, 97 S. Ct. at 2368 n. 1. The mandatory service areas, within which a participating

state must provide financial assistance, include inpatient hospital services, outpatient

hospital services, laboratory and x-ray services, nursing facility services, and services
1
  Participating states may also choose, but are not required, to extend coverage to “medically”
needy persons, who do not fall within the federally-specified categories, but are financially
unable to obtain adequate medical care. Beal, 432 U.S. at 440 n.1, 97 S. Ct. at 2368 n. 1;
Lankford, 451 F.3d at 504. The provision of services to medically needy persons is not at issue
in this case.


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furnished by a physician, nurse midwife, or nurse practitioner. Beal, 432 U.S. at 440 n. 2,

97 S. Ct. at 2369 n.2; Lankford v. Sherman, 451 F.3d 496, 504 (8th Cir. 2006).

¶9     Although these service areas are described as mandatory, a state is not required to

provide funding for all medical treatment falling within those categories. Beal, 432 U.S.

at 441, 97 S. Ct. at 2369. States must establish “reasonable standards . . . for determining

. . . the extent of medical assistance under the plan which . . . are consistent with the

objectives” of Title XIX. 42 U.S.C. § 1396a(a)(17) (2012); Beal, 432 U.S. at 441, 444,

97 S. Ct. at 2369, 2377. States are afforded “broad discretion” in determining the scope

of medical assistance to be provided. Beal, 432 U.S. at 444, 97 S. Ct. at 2371. While

“serious statutory questions might be presented” if a state Medicaid program were to

exclude medically necessary treatments, it is well within a state’s discretion to exclude

“unnecessary—though perhaps desirable—medical services.” Beal, 432 U.S. at 445,

97 S. Ct. at 2371. A state may not “arbitrarily deny or reduce the amount, duration, or

scope of a required service . . . solely because of the diagnosis, type of illness, or

condition,” but may “place appropriate limits on a service based on such criteria as

medical necessity or on utilization control procedures.” 42 C.F.R. § 440.230 (2014).

¶10    Montana is a Medicaid participant, and the Montana Medicaid program is

administered by the Department. Section 53-6-101(1), MCA. The Montana Medicaid

program serves the “purpose of providing necessary medical services to eligible persons

who have need for medical assistance.” Section 53-6-101(1), MCA. The Legislature has

adopted the following statutory provisions guiding the Department’s administration of the

program:


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      (2) The department and the legislature shall consider the following funding
      principles when considering changes in medicaid policy that either increase
      or reduce services:

      (a) protecting those persons who are most vulnerable and most in need, as
      defined by a combination of economic, social, and medical circumstances;

      (b) giving preference to the elimination or restoration of an entire medicaid
      program or service, rather than sacrifice or augment the quality of care for
      several programs or services through dilution of funding; and

      (c) giving priority to services that employ the science of prevention to
      reduce disability and illness, services that treat life-threatening conditions,
      and services that support independent or assisted living, including pain
      management, to reduce the need for acute inpatient or residential care.
                                          . . .
      (12) If available funds are not sufficient to provide medical assistance for
      all eligible persons, the department may set priorities to limit, reduce, or
      otherwise curtail the amount, scope, or duration of the medical services
      made available under the Montana medicaid program after taking into
      consideration the funding principles set forth in subsection (2).

Section 53-6-101, MCA.

¶11   The Department has promulgated rules defining medically necessary services.

Under these rules,

      “Medically necessary service” means a service or item reimbursable under
      the Montana Medicaid program, as provided in these rules:

      (a) Which is reasonably calculated to prevent, diagnose, correct, cure,
      alleviate, or prevent the worsening of conditions in a patient which:

             (i) endanger life;

             (ii) cause suffering or pain;

             (iii) result in illness or infirmity;

             (iv) threaten to cause or aggravate a handicap; or

             (v) cause physical deformity or malfunction.




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       (b) A service or item is not medically necessary if there is another service
       or item for the recipient that is equally safe and effective and substantially
       less costly including, when appropriate, no treatment at all.

Admin. R. Mont. 37.82.102(18). The Montana Medicaid program provides coverage in

35 service areas, including inpatient and outpatient hospital services, nursing facility

services, laboratory and x-ray services, physician services, home health care, ambulance

services, and physical and occupational therapy. Admin. R. Mont. 37.85.206(1). Certain

services are excluded from coverage under the Montana Medicaid program, including

chiropractic services, acupuncture services, naturopathic services, dietician services,

physical therapy aide services, surgical technician services, nutritional services, massage

services, dietary supplements, infertility treatment, and experimental treatment. Admin.

R. Mont. 37.85.207(2).      Also excluded from coverage are “all invasive medical

procedures undertaken for the purpose of weight reduction such as gastric bypass, gastric

banding, or bariatric surgery, including all revisions.” Admin. R. Mont. 37.85.207(2)(o).

¶12    Few cases have directly addressed the specific question of whether, within their

broad discretion to administer Medicaid programs, states may exclude coverage for

gastric bypass procedures. In general, courts have struggled to reconcile the United

States Supreme Court’s statement that “nothing in the [federal Medicaid] statute suggests

that participating States are required to fund every medical procedure that falls within the

delineated categories of medical care,” with its later observation, in the same case, that

“serious statutory questions might be presented if a state Medicaid plan excluded

necessary medical treatment from its coverage . . . .” Beal, 432 U.S. at 441, 444,




                                             8
97 S. Ct. at 2370-71; see also Harris v. McRae, 448 U.S. 297, 307 n. 11, 100 S. Ct. 2671,

2683 n.11 (1980).

¶13    Addressing this latter statement, the First Circuit concluded, “[W]e do not believe

that we should read this dictum as signaling a flat rule that all services within the five

general categories deemed ‘medically necessary’ by a patient’s physician must be

provided by the state plan.” Preterm, Inc. v. Dukakis, 591 F.2d 121, 125 (1st Cir. 1979).

The court went on to describe

       two levels of judgment as to medical necessity in the statutory scheme. The
       first is the macro-decision by the legislature that only certain kinds of
       medical assistance are deemed sufficiently necessary to come under the
       coverage of its plan. The second is the micro-decision of the physician,
       that the condition of his patient warrants the administering of a type of
       medical assistance which that plan makes available.

Preterm, 591 F.2d at 125. This view was also accepted by the Fifth Circuit, which

rejected the position that “a state program is required to pay for any services a physician

determines to be medically necessary for the patient,” and instead held “that a state may

adopt a definition of medical necessity that places reasonable limits on a physician’s

discretion.” Rush v. Parham, 625 F.2d 1150, 1155 (5th Cir. 1980). Thus, the court

concluded that it is not inconsistent with the objectives of Title XIX for a state Medicaid

program to categorically exclude certain services. Rush, 625 F.2d at 1155-56.

¶14    This view is not universally accepted. The Eighth Circuit has held that “Title XIX

mandates that five basic categories of medical assistance be provided to all categorically

needy persons when the assistance is medically necessary.”           Pinneke v. Preisser,

623 F.2d 546, 549 (8th Cir. 1980). The court continued, “The decision of whether or not



                                            9
certain treatment or a particular type of surgery is ‘medically necessary’ rests with the

individual recipient’s physician and not with clerical personnel or government officials.”

Pinneke, 623 F.2d at 550. Pinneke sought coverage for sex reassignment surgery, which

the court found was “the only medical treatment available” to address her transgender

status. Pinneke, 623 F.2d at 548. Similarly, in Weaver v. Reagen, 886 F.2d 194, 196 (8th

Cir. 1989), the court found limitations on state Medicaid coverage of the drug AZT

unreasonable where the drug was “the only approved treatment of AIDS.”

¶15    Despite disagreement among the federal courts regarding whether a state Medicaid

program must fund all medically necessary treatments within a mandatory service area, it

is clear that exclusions from Medicaid coverage may not discriminate on the basis of

“diagnosis, type of illness, or condition.”      42 C.F.R. § 440.230.   Thus, categorical

exclusion of all treatments for a certain condition, or of the only available treatment for

that condition, is arbitrary, unreasonable, and inconsistent with the objectives of Title

XIX. McCoy v. Dept. of Health & Welfare, 907 P.2d 110, 113-14 (Ida. 1995). In

McCoy, one of the only cases to address Medicaid coverage for the treatment of obesity,

the Supreme Court of Idaho concluded that a state Medicaid rule excluding “all medical

procedures for the treatment of obesity” was overly broad and unreasonable. 907 P.2d at

112, 114. The court declined to address, however, whether narrower exclusions of

specific procedures, such as gastric stapling or intestinal bypass surgery, were

permissible. McCoy, 907 P.2d at 114.

¶16    Bailey argues that the Department’s exclusion of “all invasive medical procedures

undertaken for the purpose of weight reduction,” combined with the exclusion of


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“dietician services,” “nutritional services,” and “dietary supplements,” Admin. R. Mont.

37.85.207(2)(d), (g), (i), (o), has the effect of excluding all treatments for obesity, and

thus discriminates on the basis of diagnosis or condition. She further argues that the

components of gastric bypass surgery fall within mandatory service areas, such as

inpatient hospital services, and therefore must be covered if medically necessary. She

claims the Department cannot rely on State budgetary considerations to exclude

necessary medical treatment.

¶17    We first address Bailey’s claim that rules promulgated by the Department have

effectively excluded all possible treatments for obesity, and therefore impermissibly

discriminate on the basis of condition or diagnosis. While it may be apparent to a

layperson that the excluded categories—surgical procedures, nutritional and dietician

services, and dietary supplements—encompass many possible treatments for obesity, this

Court may not make a determination on this silent record that these treatments are the

only possible methods of treating obesity. Bailey has not presented any expert testimony

explaining the range of possible treatments for obesity and their feasibility for patients

considered morbidly obese. Without such testimony, we are unable to determine whether

the exclusions prohibit all treatment for the condition of obesity, and thus unable to

determine whether the exclusions discriminate on the basis of that condition.

¶18    In her reply brief on appeal, Bailey refers to a prior hearing decision in which a

Department hearing officer stated that “[t]he Montana Medicaid Program does not cover

any treatments for morbid obesity, such as gastric bypass surgery, dietician services,

nutritional services and dietary supplements.”      There is no information before us


                                            11
regarding how the hearing officer reached this conclusion and what evidence, if any, this

statement was based upon.      We are therefore unable to accord this statement any

conclusive effect.

¶19    We next address Bailey’s argument that the Department may not exclude

medically necessary treatments falling within mandatory service areas. As noted, this is

an area in which courts are divided, and guidance from the Supreme Court has been less

than definitive. We agree with those courts holding that a state may “adopt a definition

of medical necessity that places reasonable limits on a physician’s discretion,” Rush,

625 F.2d at 1154, and therefore is not required to provide coverage for every procedure

falling within a mandatory service area. We are persuaded, first, by the plain language of

the federal Medicaid statute, which provides that each state is to furnish medical

assistance “as far as practicable under the conditions in such State . . . .” 42 U.S.C.

§ 1396-1. This speaks to the states’ “broad discretion” in determining the scope of

coverage under the program. Beal, 432 U.S. at 444, 97 S. Ct. at 2370. In exercising this

broad discretion, the State is permitted to consider the “macro-decision” of what types of

medical assistance it considers sufficiently necessary to include within the program;

within these reasonable limits, physicians may then exercise their discretion as to the

“micro-decision” regarding the appropriate treatment for an individual patient. Preterm,

591 F.2d at 125.

¶20    If we were to conclude otherwise, the State’s “broad discretion,” Beal, 432 U.S. at

444, 97 S. Ct. at 2371, would be negated, “the variations [of medically necessary

services] being theoretically limited only by the diversity of physicians . . . .” Preterm,


                                            12
591 F.2d at 125. Although we acknowledge the Supreme Court’s statement that “serious

statutory questions might be presented if a state Medicaid plan excluded necessary

medical treatment from its coverage,” Beal, 432 U.S. at 444, 97 S. Ct. at 2369-70, we do

not believe such conditional speculation can be allowed to override clear statutory

language allowing states to consider “the conditions in such State” and provide assistance

“as far as practicable” under those individualized conditions, 42 U.S.C. § 1396-1.

¶21    The Department has exercised the discretion granted to states by the federal

Medicaid statute by defining the term “[m]edically necessary service” within the

Montana Medicaid program. Admin. R. Mont. 37.82.102(18). We recognize that this

definition itself presents certain difficulties to claimants.   A “[m]edically necessary

service” is one “reimbursable under the Montana Medicaid program.” Admin. R. Mont.

37.82.102(18). Thus, even if a procedure meets the remaining elements of medical

necessity because it is reasonably calculated to correct conditions that endanger life,

cause pain, result in illness or infirmity, threaten to cause a handicap, or cause physical

deformity, it is, by definition, not medically necessary if the Department has decided not

to cover it. Admin. R. Mont. 37.82.102(18). The Department’s definition codifies its

“macro-decision” making authority, Preterm, 591 F.2d at 125, and yet, the broad and

circuitous nature of the definition causes us concern. Bailey is unable to demonstrate that

the treatment she seeks is medically necessary under this definition, and this Court must

struggle with the issue of whether the State may exclude a medically necessary service

without the benefit of any evidence demonstrating whether the service in question is, in




                                            13
fact, medically necessary. Bailey has not, however, challenged the reasonableness of this

definition.

¶22    The record before us is slim.      We have not been presented with evidence

demonstrating that the procedure sought by Bailey would, but for the categorical

exclusion, meet the Department’s definition of medical necessity.            Without this

information, we cannot determine whether denial of the procedure in Bailey’s case is

unreasonable.   Remanding to obtain a further determination of medical necessity,

however, would require us to invalidate the Department’s decision to exclude gastric

bypass surgery from coverage. We are not able to declare the exclusion unreasonable

when we have been presented with no evidence regarding the safety, success,

cost-efficiency, or other aspects of surgical procedures for weight reduction. Without this

information, we cannot evaluate the reasonableness of the Department’s judgment that

these services are not appropriate for Montana Medicaid coverage.

¶23    Finally, we address Bailey’s argument that monetary considerations are not a

sufficient basis for the Department’s decision to exclude “invasive medical procedures

undertaken for the purpose of weight reduction” from Montana Medicaid coverage.

Admin. R. Mont. 37.85.207(2)(o).        Having elected to participate in the Medicaid

program, Montana is required to comply with the objectives of Title XIX. Wilder, 496

U.S. at 502, 110 S. Ct. at 2513. Within that broad requirement, however, a state may

“place appropriate limits on a service based on such criteria as medical necessity or on

utilization control procedures.” 42 C.F.R. § 440.230. Montana law explicitly recognizes

the need to address the State’s fiscal realities, providing specific funding principles and


                                            14
permitting the Department to “set priorities to limit, reduce, or otherwise curtail the

amount, scope, or duration of the medical services made available” in accordance with

those principles. Section 53-6-101(12), MCA. It is implausible that the mandate to

furnish medical assistance “as far as practicable under the conditions in such State” does

not permit consideration, within the basic requirements of Title XIX, of such practical

conditions as the State’s financial resources. 42 U.S.C. § 1396-1.

                                     CONCLUSION

¶24    The federal Medicaid statute does not require a state Medicaid program to fund

every treatment within the required categories of service. Bailey has not shown that the

exclusion of “all invasive medical procedures undertaken for the purpose of weight

reduction” discriminates against persons with a diagnosis of morbid obesity by

precluding all possible treatments for that condition.     The State’s consideration of

funding priorities and principles provided a valid basis for the exclusion.           The

Department’s rule excluding coverage for gastric bypass surgery is not invalid, and the

Order of the District Court is therefore affirmed. Though we affirm today, we make no

decision regarding those matters on which we were presented with an insufficient record,

and thus do not foreclose Bailey from obtaining a more conclusive determination of those

issues in further proceedings if her condition warrants.



                                                  /S/ LAURIE McKINNON

We Concur:

/S/ JAMES JEREMIAH SHEA


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/S/ PATRICIA COTTER
/S/ BETH BAKER
/S/ MICHAEL E WHEAT




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