## Facts

- Medicare beneficiaries and suppliers challenged federal reimbursement treatment of a patient-specific orthopedic seating device used in skilled nursing facilities.
- The device, manufactured by OrthoConcepts, was described as a brace fitted to the individual patient mounted on a wheeled base, allowing the patient to sit or recline.
- Medicare Part B covers both “durable medical equipment” (DME) and “braces,” but DME coverage is limited to use in the patient’s home (or a facility treated as the patient’s home), restricting reimbursement in certain institutional settings.
- OrthoConcepts sought coding and reimbursement as a “brace” (orthotic) rather than DME; Medicare carriers denied some claims, treating the device as DME.
- Administrative adjudicators in individual reimbursement disputes had reached inconsistent results regarding whether the device was a brace.
- HCFA issued HCFAR 96-1 to address the inconsistency, stating that the devices should be classified as DME and therefore subject to the home-use limitation.
- The district court held HCFAR 96-1 was a legislative rule requiring notice-and-comment rulemaking and invalidated it; the court also enjoined the agency from treating the device as DME.
- HHS and HCFA appealed.

## Issues

1. Whether HCFAR 96-1 was a legislative rule requiring notice-and-comment procedures under the APA and 42 U.S.C. § 1395hh, or an interpretive rule exempt from those procedures.
2. Whether HCFA permissibly interpreted the Medicare statute and regulations in classifying the devices as DME rather than braces, making the home-use limitation applicable.

## Decision

- The First Circuit reversed the district court’s ruling that HCFAR 96-1 was invalid for lack of notice-and-comment procedures.
- The court held HCFAR 96-1 was an interpretive rule that clarified existing law and therefore could be issued without notice and comment.
- The court held HCFA’s classification of the devices as DME (not braces) was a permissible interpretation of the statute and regulations.
- The court vacated the district court’s injunction barring the agency from treating the devices as DME.

## Legal Principles

- An agency pronouncement is interpretive, not legislative, when it explains the agency’s view of existing statutory or regulatory duties rather than creating a new binding norm with the force of law.
- Under Medicare’s rulemaking framework and the APA, interpretive rules are generally exempt from notice-and-comment requirements.
- When statutory or regulatory text leaves room for administrative judgment, courts defer to a reasonable agency interpretation, including an agency’s interpretation and application of its own coverage regulations.
- Medicare Part B’s home-use limitation for DME may be applied where the agency reasonably classifies an item as DME rather than as a brace.

## Conclusion

The First Circuit upheld HCFA’s interpretive ruling classifying OrthoConcepts’ wheeled orthopedic seating device as durable medical equipment subject to the Medicare Part B home-use limitation, and it vacated the district court’s injunction that had required the agency to treat the device as a brace.


Warder v. Shalala, 149 F.3d 73 (1st Cir. 1998)