What Medical Practices and Healthcare Businesses Need to Understand about the “Reasonable Medical Necessity” Test

The phrase “reasonable medical necessity” has different meanings or interpretations for different laws and different medical actions.

Reasonable medical necessity has a unique definition when the topic is insurance. Some insurance policies distinguish between reasonably medical necessary procedures and elective procedures. The insurance policy and insurance laws may provide that elective surgeries aren’t covered or that the criteria for coverage require a more detailed review before payment will be authorized.

In the area of healthcare compliance, the phrase “reasonable medical necessity” applies to the submission of bills to federal agencies such as Medicare, Medicaid, and TRCIARE. The term may also apply to bills submitted to state agencies. Generally, medical bills that are submitted for procedures thar are not medically necessary may violate the False Claims Act, Stark Law, and the Anti-Kickback Statute (AKS).

Violations of these laws can result in a demand to return any payments, statutory penalties, being denied eligibility to submit future claims, and other consequences. Experienced healthcare lawyers help medical practices and other healthcare companies understand what bills might be challenges as being unnecessary and what steps may help prove that the bills were necessary for the patient’s health.

Medicare defines the phrase “medically necessary” as follows: “Health care services or supplies needed to diagnose or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.”

Some types of medical services and supplies that Medicare deems “Unreasonable and Unnecessary Services and Supplies” include:

• Services furnished at a hospital that could have, based on the patient’s condition, been provided in a lower-cost setting such as the patient’s home or a nursing home
• Hospital healthcare services that exceed Medicare’s limitations on the length of stay
• “Evaluation and management services exceeding those considered medically reasonable
• and necessary”
• Therapy and diagnostic procedures that are excessive
• Screening tests, exams, and therapies that are not related to the patient’s symptoms or diagnosis – with some exceptions
• Services that are not necessary based on the patient’s diagnosis – such as acupuncture and transcendental meditation
• Services and items given to a patient “for the purpose of causing or assisting in causing death (assisted suicide).

Services and items designed to reduce pain, even if the services/items possibly increase the risk of death, may be considered reasonable and necessary – if the services/items aren’t provided for the precise purpose of causing death.

Generally, Medicare requires that services should “meet specific medical necessity requirements in the statute, regulations, and manuals and specific medical necessity criteria defined by National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs), if any apply to the reported service.”

The Department of Justice files claims against physicians and health providers who provide services and items that aren’t necessary to:

• Preserve the integrity of the billing system for doctors, labs, and other health care service professionals who bill fairly
• Ensure that patients are receiving care based on their personal needs and not the financial wealth of the physicians
• Help the American taxpayer get the most for his/her Medicare and tax payments

The requirement to submit honest bills applies to Medicare – Parts A, B, C and D.

Services that Medicare Generally Considers Medically Necessary

According to Aging in Place, an organization dedicated to helping seniors, Medicare should pay for reasonably necessary services including preventive services. Preventive services include:

• “An annual wellness visit
• Diabetes screenings
• Mental health screenings
• Vaccines
• STI screenings
• Colonoscopies
• Bone density screenings
• Breast examinations”

One way to address the issue of medical necessity is to obtain advance approval from Medicare. A few common items that are checked for medical necessity include:

• “Seat lift mechanisms
• Oxygen therapy equipment
• Positive Airways Pressure devices for sleep apnea
• Pneumatic Compression Devices”

A few of the services that Medicare covers that should (there are always exceptions) consider “Medically Necessary” are:

• Hospital stays including meals, nursing, general care, and prescription drugs. Generally, Medicare covers the first 90-day stay period. Additional “lifetime reserve days” may be added on.
• Skilled nursing home stays. Medicare should cover physical and occupational therapies in a semi-private room, nutrition counseling, skilled nursing, mediations, and ambulance transportation
• Hospice care. This care is for patients with serious or terminal illnesses. Medicare should cover the entire stay included physician and nursing care, medical equipment, and end-of-life therapies
• Home health care. This includes physical therapy, speech therapy, occupational therapy, some skilled nursing, and home health aide care. Medicare normally does not cover “round-the-clock nursing care.”
• Ambulance services. Medicare generally covers ambulance care if other types of transportation would endanger the health of the patient.
• Doctor visits. Medicare generally allows doctors to be compensated for the diagnosis of a medical condition, treatments, second opinions, and surgery recommendations. Inpatient and outpatient mental health visits may also be covered.
• Durable medical equipment (DME). DME are items such as wheelchairs that are used repeatedly to treat an illness or condition. Examples of DME that Medicare generally considers reasonably necessary include patient lifts, walkers, wheelchairs, oxygen equipment, and crutches. Doctors may be required to certify that these devices are medically necessary. However, physicians need to be careful that the certification isn’t done by a designated health service that the physician (or a relative) has an interest in because the referral of the certification may be a violation of Stark Law.

Recent cases involving medical necessity and the False Claims Act

Several recent federal appellate decisions have begun to examine how certification of medical necessity affects whether the US Department of Justice or a whistleblower can file a False Claims Ac. Generally, the False Claims Act allows the DOJ or a whistleblower to seek reimbursement and statutory penalties for bills that are submitted to federal agencies such as Medicare if the bills are fraudulent. One area of fraud is bills submitted for services or devices that are not reasonably necessary.

The question raised in these cases is who determines what is medically necessary? Is the decider the physician who treats the patient, an agency that reviews the product such as FDA, or the agency that pays the bills such as Medicare?

The Third Circuit recently addressed the issue in a May 1, 2017 opinion in the case of U.S. ex rel. Petratos v. Genentech, Inc. et al., C.A. No. 15-3805 (3rd Cir. 2017). The case was a whistleblower lawsuit filed through the federal False Claims Act and the False Claims Act of California and other states. The Third Circuit held that medical necessity of FDA approved products (in this case, Genentech was accused of hiding data which caused doctors to certify Avastin, an FDA approved product, as reasonable and necessary for some at-risk Medicare patients) did not rest solely with FDA.

The Third Circuit reasoned that the test for medical necessity was more complex. The court identified the roles of the following entities in determining medical necessity:

• FDA. The Centers for Medicare and Medicaid Services (CMS) does generally rely on FDA approval of a prescription medication to determine if the drug is reasonable and necessary.
• CMS. CMS has the right to examine if an FDA approved drug is reasonable and necessary for each particular patient and that patient’s medical case.
• The individual physicians. CMS generally also relies on the CMS Form 1500 which physicians routinely submit in order to get paid.

In short, the Third Circuit reasoned that the determination of reasonable medical necessity is a multi-step process and doesn’t depend on unique tests. FDA is best positioned to assess drug approvals at a national level while the individual doctor is best positioned to assess the need to prescribe the drug to for a particular medical diagnosis.

In another Third Circuit Court case, in U.S. ex rel. Druding v. Care Alternatives, the appeals court held that if there is a difference of medical opinion about the medical necessity of a service or procedure that was enough to allow a False Claims Act case to proceed on the grounds the bill was false. In this case a hospice certified and recertified that patients were terminally ill and had a life expectancy of less than six months. The Third Circuit reversed the District Court’s decision and held that:

“A claim may be “false” under a theory of legal falsity, where it fails to comply with statutory and regulatory requirements. We also find that a physician’s judgment may be scrutinized and considered “false.”

We therefore find that a physician’s expert testimony challenging a hospice certification creates a triable issue of fact for the jury regarding falsity.”

The court added that the right to bring the FCA case is not based on showing that the physician’s certification of medical necessity is “objectively” false.

This is a major reason for consulting with an experienced healthcare compliance lawyer. An experienced healthcare lawyer understands the statutory and regulatory requirements and helps advice physician and healthcare business on the compliance requirements.

The Ninth Circuit examined the issue in the case of United States ex rel. Winter v. Gardens Reg’l Hosp. & Med. Ctr., Inc., No. 2:14-cv-08850 (C.D. Cal. Nov. 14, 2014). The court generally agreed with the Third Circuit that an objectively false standard is not required to file a False Claims Act case – based on reasonably medical necessity. This case involved hospital admissions that were alleged not to be reasonably medically necessary.

The FCA, Stark Law, the AKS – and medical necessity.

Often manufacturers of drugs, medical devices, dietary supplements, and other medical products will induce or pressure physicians to certify that their products are reasonably medically necessary – when the products are not.

Generally, under Stark Law, physicians who make referrals to designated health services such as testing facilities cannot make the referral if the physician (or family member) has a financial interest in that facility – unless an exception applies.

Generally, under the Anti-Kickback Statute (AKS), manufacturers, distributors, and other physicians can’t pressure doctors to prescribe medical drugs and products if the prescription is based on an illegal inducement such as paying the doctor money, paying for a doctor’s vacation, or providing fake directorships.

When physicians or other entities violate either Stark Law or the AKS by submitting false bills (bills for unnecessary medical services) – due to an improper referral or illegal inducement – the physicians can be charged with violating the False Claims Act. [31 U.S.C. § § 3729-3733]. The entities that provide the inducement can also be charged under the False Claims Act.

An experienced healthcare lawyer can explain how these laws apply to your billing practices and what exceptions or safe harbors may apply.

Doctors must have the best interests of their patients at heart. There are medical and regulatory standards that help determine whether a physician is ordering reasonably medical necessary tests or is ordering tests with financial incentives in mind. Experienced healthcare lawyers help medical practices understand their compliance issues including when bills the practices submit may be considered fraudulent.

Contact Cohen Healthcare Law Group, PC for legal experience on Stark Law, Anti-Kickback Statute, and False Claims Act compliance requirements. Our experienced healthcare attorneys and healthcare lawyers can explain compliance issues and help medical practices verify their practices are meeting federal and state compliance requirements.