In Jimmo v. Sebelius, the plaintiffs alleged that the Centers for Medicare and Medicaid Services (CMS) regularly and improperly denied Medicare reimbursement for outpatient therapy treatment when the beneficiary did not show a likelihood of improvement. These denials, based on policy manuals and other guidance, appear to contradict the government's own regulations, which specifically prohibit coverage denials based solely on the so-called “Improvement Standard.” In Jimmo, the United States District Court for the District of Vermont found that CMS' use of the Improvement Standard may have violated the rulemaking provisions of the Administrative Procedure Act (APA) and denied CMS' motion for summary judgment. Subsequently, the parties settled out of court.
In the settlement, CMS agreed to revise its policy manuals to clarify that the Improvement Standard was not an acceptable basis on which to deny Medicare coverage. CMS declined to defend its policies even though courts often grant deference to agency interpretations. The settlement implies that the agency feared that it would not have received such deference. It also implies that future Supreme Court decisions may give less deference to agency interpretations.