Bailey v. Montana Department of Public Health & Human Services, 343 P.3d 170

Lisa Bailey, a 51-year-old Medicaid recipient with morbid obesity (BMI >60) and multiple comorbidities, sought Medicaid authorization for gastric bypass surgery; her treating physicians supported bariatric surgery as likely to improve her conditions.
The Montana Department of Public Health and Human Services denied coverage based on an administrative rule excluding “all invasive medical procedures undertaken for the purpose of weight reduction such as gastric bypass.”
Bailey administratively appealed; the hearing officer and the Board upheld the denial, finding the exclusion reasonable and based in part on fiscal considerations.
Bailey sought judicial review in the First Judicial District Court, which affirmed the Department’s denial; she appealed to the Montana Supreme Court.
The Supreme Court considered whether the categorical exclusion is unreasonable or contrary to federal Medicaid law, but found the record insufficient to show the exclusion precluded all treatments for obesity or that gastric bypass in her individual case met Montana’s definition of medical necessity.
The Court affirmed the denial, holding states have discretion to set coverage limits within Medicaid and that Montana’s funding considerations and rulemaking provided a valid basis for the exclusion on the record presented.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Montana’s categorical rule excluding all invasive weight-reduction procedures (including gastric bypass) from Medicaid is unreasonable or contrary to federal law	Bailey: The exclusion effectively bars all treatments for morbid obesity and discriminates based on diagnosis; mandatory service categories require coverage of medically necessary components	Dept.: State may categorically exclude services within its broad Medicaid discretion and consider fiscal priorities; rule is a reasonable macro-decision	Held: Affirmed. Court found no record evidence that the rule bars all obesity treatments or that gastric bypass in Bailey’s case met the program’s medical-necessity definition; states may set reasonable coverage limits and consider funding priorities

Beal v. Doe, 432 U.S. 438 (1977) (states need not fund every procedure within Medicaid service categories but must follow statutory objectives)
Wilder v. Va. Hosp. Assn., 496 U.S. 498 (1990) (state participation in Medicaid is voluntary but subject to federal requirements)
Preterm, Inc. v. Dukakis, 591 F.2d 121 (1st Cir. 1979) (distinction between state ‘macro-decisions’ on covered services and physician ‘micro-decisions’ on individual medical necessity)
Rush v. Parham, 625 F.2d 1150 (5th Cir. 1980) (states may adopt medical-necessity definitions that reasonably limit physician discretion)
Pinneke v. Preisser, 623 F.2d 546 (8th Cir. 1980) (held that mandatory Medicaid categories require coverage of medically necessary treatments and physician judgment controls necessity)
Weaver v. Reagen, 886 F.2d 194 (8th Cir. 1989) (state limits unreasonable where drug was the only approved treatment)
McCoy v. Dept. of Health & Welfare, 907 P.2d 110 (Idaho 1995) (state rule excluding all obesity procedures was overly broad and unreasonable)
Lankford v. Sherman, 451 F.3d 496 (8th Cir. 2006) (discussion of mandatory service areas and medically needy optional coverage)