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Billing Labs Not Required to Determine Medical Necessity of Tests

In the recent case, United States ex. rel. Groat v. Boston Heart Diagnostics Corp., decided in December 2017, the U.S. District Court of the District of Columbia held that a laboratory may rely on the ordering physician's determination of medical necessity in the laboratory's certification for payment on the CMS-1500 claim form.

In the case, Tina D. Groat, M.D., who was the National Medical Director of Women's Health and Genetics at United Healthcare, initiated a qui tam or whistleblower action against the defendant, Boston Heart Diagnostics Corporation ("Boston Heart"), under the federal False Claims Act and various state false claims statutes. Boston Heart provided diagnostic testing related to cardiovascular health. Dr. Groat alleged that Boston Heart was using certain diagnosis codes to perform medically unnecessary tests because the tests could not predict the patient's risk of future heart disease, provided no additional information regarding the cardiovascular-related diagnoses sometimes used to justify these tests, and had no bearing on any potential treatments for those diagnoses. She also alleged that Boston Heart encouraged providers to order these medically unnecessary tests through marketing materials and test panels on pre-printed test requisition forms and that non-cardiology physicians were Boston Heart's primary target for its allegedly false marketing statements regarding the medical necessity of its tests. In short, Dr. Groat's false claims' theory was that Boston Heart's claims were “legally false” because Boston Heart certified that the tests it performed were medically necessary even though they were not medically necessary for certain populations.

Boston Heart filed a motion to dismiss the complaint. It argued that the CMS-1500 form “certification" does not require that the billing laboratory make the medical necessity determination. Instead, under the Medicare Part B framework, the laboratory certifies that the services are medically necessary by relying on the clinical determination of the treating physician. The Court rejected the argument and held that Boston Heart had an obligation to establish that the tests for which it sought government reimbursement were medically necessary because when it submitted the CMS-1500 form, it certified that the tests performed were medically necessary. Moreover, the regulatory scheme placed the burden of establishing the medical necessity of diagnostic tests on the entity submitting the claim, which in this case was Boston Heart.

Boston Heart then filed a motion for reconsideration, requesting that the Court reconsider its conclusion that Boston Heart had an obligation to establish that the tests were medically necessary. Interestingly, Boston Heart relied on the Compliance Program Guidance for Clinical Laboratories ("Compliance Guidance") issued by the HHS Office of Inspector General ("OIG") and argued that the Court's prior medical necessity conclusion conflicted directly with the longstanding position of the OIG that laboratories do not and cannot treat patients or make medical necessity determinations. The Court agreed, concluding that it had overstated a laboratory's obligation to establish that the tests for which it seeks government reimbursement are medically necessary. The Court also noted that, although it is true that when a laboratory submits the CMS-1500 form, it certifies that the tests performed were medically necessary and that the lab must not submit claims for medically unnecessary tests, the Court was now convinced that a laboratory cannot and is not required to determine medical necessity, but rather is permitted to rely on the ordering physician's determination that the laboratory tests billed to Medicare are medically necessary.

The Court further relied on the Compliance Guidance that while laboratories do not make medical necessity determinations, they should be able to produce or obtain from the treating physician the documentation to support the medical necessity of the service the laboratory has provided. Beyond the Compliance Guidance, the Court also relied on 42 C.F.R. § 410.32 and the explanation at the time of issuance of the regulation that the laboratory is not required to make an independent determination of medical necessity, but rather may rely on the treating physician's determination. In the Court's view, 42 C.F.R. § 410.32 was issued in an attempt to balance a laboratory's statutory requirement to certify medical necessity with the requirement that the treating physician determine medical necessity.

Although the Court ruled in favor of Boston Heart with respect to determinations of medical necessity, Dr. Groat's action survived Boston Heart's motion to dismiss the complaint. The Court concluded that Boston Heart engaged in a scheme to encourage non-cardiology physicians to order medically unnecessary tests with its false marketing campaign and pre-printed test requisition forms-- constituting a knowing violation of its legal duty to ensure that it was not submitting false or incorrect claims to Government payers.

This is an important case from a False Claims Act perspective. If the original decision had not been reversed, whistleblowers could hold labs to a standard of determining the medical necessity of every test ordered. However, the independent and affirmative acts of Boston Heart to encourage test ordering through its aggressive marketing and preprinted test requisition forms were found to be unacceptable and potentionally abusive practices.

Joseph P. "Joe" Loudon

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