Hospital “Medical Necessity” Settlements: An Abuse of the False Claims Act?

Reports have surfaced that the federal government is preparing to announce settlements under the False Claims Act with hundreds of hospitals as part of a nationwide enforcement initiative into the suspected overuse of implantable cardiac devices, referred to as Implantable Cardioverter Defibrillators (“ICDs”).[1]  There reportedly are more than 500 hospitals under investigation, many if not most of which may have already settled with the government.  Several hospital chains have already announced settlements with the Department of Justice (“DOJ”) arising from the enforcement initiative, including HCA, Tenet Healthcare, Iasis Healthcare, Catholic Health Initiatives, St. Joseph Health and MedCath Corp.  Collectively, it may turn out to be the largest False Claims Act (“FCA”) recovery in history.  It will also mark the first time that DOJ has sought to use the FCA on such a large scale to allege that institutional providers submitted false claims because the procedures billed lacked medical necessity.

The theory of recovery underlying the government’s FCA enforcement action, however, is deeply troubling.  The government’s argument appears to be the following:

First, “medical necessity” is a condition of payment under the Medicare statute, which allows reimbursement only for those items and services which are “reasonable and necessary for the diagnosis or treatment of illness or injury. . .” and all other hospital services are excluded from coverage 42 U.S.C. § 1395y(a)(1)(A); 42 CFR § 411.15(k);

Second, CMS has determined through National and Local Coverage Determinations, as well as regulations and policy manuals, which items and services will be covered by Medicare and which will be excluded from coverage as not “reasonable and necessary.”

Third, a hospital’s submission of reimbursement claims for medical services deemed by CMS not to be “reasonable and necessary” and therefore not covered by Medicare is “knowingly false” under the FCA, irrespective of whether hospital physicians held an honest belief that the services were medically necessary for the care and treatment of the beneficiary.

It is easy to imagine how the government’s aggressive interpretation of the FCA could create peril for institutional medical providers who are trying in good faith to render medical necessary services consistent with current professional standards.  For example, an NCD published ten years ago provides that Medicare will not cover the cost of an ICD in a patient who has had an acute myocardial infarction (“MI”) within the past 40 days, or an angioplasty within the prior 3 months.[2]  However, a cardiologist, applying current professional standards, might very well reach the conclusion that a patient’s clinical condition is such that the patient requires an ICD immediately as a potentially life-saving measure.

On the government’s view, if the hospital bills Medicare for implanting the ICD in the patient, it could be held liable under the FCA for submitting a false claim.  The government would not be alleging that the hospital believed the procedure was not medically necessary at the time it was performed, but rather that the hospital was not entitled to bill for the procedure given Medicare’s coverage limitations as embodied by the NCD, which the government contends is the final word on what is “reasonable and necessary” for reimbursement purposes.

But why should that make the hospital’s billing of the procedure a fraud under the FCA rather than simply a non-reimbursable claim?  The incentive for the government to proceed under the FCA is obvious.  The collateral consequences of treating the hospital’s claim submission as a “false claim” under the FCA are enormous.  Invoking the statute permits the government to avail itself of the statute’s draconian remedies, which include not only treble damages, but also civil penalties of up to $11,000 per false claim and possible exclusion of the hospital from Medicare and other federal health care programs.  Far less clear, however, is whether invocation of the FCA is fair, appropriate or analytically sound.

For the hospital’s submission of the claim to be “knowingly” false, the hospital must have acted with actual knowledge that the information was false, in deliberate ignorance of whether the information was false or with reckless disregard for whether the information was false.  However, in the hypothetical discussed above, the hospital honestly believed the services were “reasonable and necessary” for the care of its patient.  Therefore, for the government to proceed under the FCA, it must take the position that the NCD setting forth criteria for when Medicare will cover ICDs as “reasonable and necessary” is conclusively determinative of whether such services are “reasonable and necessary” in any given case.  Following that logic, any claim seeking payment of such services would be “knowingly false” because the provider seeking reimbursement is certifying as medically necessary that which is objectively medically unnecessary as dictated by CMS through publication of the NCD.  At least one federal district court judge has sanctioned this type of analysis and approach.  In United States ex rel. Ryan v. Lederman, 2014 WL 1910096 at *5-6 (May 13,  2014) (E.D.N.Y.), Judge Gleeson reasoned that Medicare does not pay for services that are not “reasonable and necessary” and that “[d]eciding what is ‘reasonable and necessary’ is delegated in the first instance” to HHS through the promulgation of NCDs and LCDs. Id. at *1.  The court then accepted the government’s argument that a claim can be “false” for purposes of the FCA if it is “categorically not covered by Medicare” as per a LCD.  Judge Gleeson equated the “falsity” of a claim under the FCA with whether the claim is “covered by Medicare.” Id. at *6  In so holding, Judge Gleeson necessarily concluded that a provider’s certification of a service as “medically necessary” is “false” if it is contrary to a coverage determination of a NCD or LCD.

The problem with this approach and the Lederman court’s conclusion, however, is that the Medicare statute prohibits the government from regulating the practice of medicine or otherwise interfering with the independent medical judgment of providers:  Section 1395 of Title 42 expressly provides:

Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided … or to exercise any supervision or control over the administration or operation of any … person [providing health services].

42 U.S.C. 1395; Evelyn v. Kings County Hosp. Ctr., 819 F. Supp. 183, 196 (E.D.N.Y. 1993) (“Such deference … is consistent with Congress’s express directive that Medicaid and Medicare not become vehicles for federal supervision or control over the practice of medicine or the manner in which medical services are provided. Neither did Congress intend federal authorities to exercise any direct supervision or control over the administration or operation of any health care institution.”).

By dictating what is and is not medically necessary, and then improperly enforcing that position through the FCA by treating claims as “knowingly false” if they seek reimbursement in a manner that is inconsistent with such a determination, a compelling argument can be made that the government is violating the Congressional mandate contained in 42 U.S.C. § 1395 that the government may not “exercise any supervision or control” over the “practice of medicine” or the “administration or operation” of any medical provider.  The government’s strategy is all the more indefensible if it is sourced to an obsolete NCD that may be inconsistent with current professional standards regarding medically necessary cardiac care.

Nor may this problem be avoided through the sophistry of arguing that the government is not really interfering with the practice of medicine, but rather is only deciding the proper scope of Medicare reimbursement, which it is entitled to do under the law. See, e.g., Definition of NCD contained in 42 U.S.C. § 1395ff (f)(1)(B) (the term “national coverage determination” means a determination by the Secretary with respect to whether or not a particular item or service is covered nationally under this subchapter . . . .”).  While that argument might be persuasive if the government’s only response to a reimbursement claim inconsistent with an NCD (and thus contrary to the government’s existing view of “reasonable and necessary” treatment) were a simple denial of the claim, the argument loses all credibility when the government’s response instead is to treat the claim as false and fraudulent under the FCA.

In so doing, the government necessarily is arguing that the certification of medical necessity associated with the claim submission is “knowingly false” which, in turn, means the government is treating the NCD as determinative of medical necessity for all purposes, and not merely for Medicare reimbursement purposes.  However, utilizing the coercive power of a fraud statute like the FCA to enforce the government’s “world view” on the medical necessity of an ICD or any other medical procedure is patently abusive and violative of the statutory mandate discussed above.  The government is thereby arrogating to itself the authority to declare what constitutes medically necessary care for patients, with medical providers forced to comply on pain of facing anti-fraud enforcement measures should they take a contrary view.  Such intrinsically coercive and arguably ultra vires behavior will inevitably result in prohibited governmental “supervision or control” over the “practice of medicine” and the “administration or operation” of hospitals and other medical providers across the country.

Two other district courts, addressing hospice fraud allegations under the FCA, have made rulings supporting the view that an FCA claim cannot be based merely on a good faith difference in clinical judgment.  In United States ex rel. Geschrey v. Generations Healthcare, LLC, 922 F. Supp. 2d 695 (N.D. Ill. 2012), the court concluded that a difference of opinion over whether a patient is “terminally ill” and therefore eligible for hospice care is insufficient to state a claim under the FCA, noting in that case that the Relator had not “alleged facts demonstrating that the certifying physician did not or could not have believed, based on his or her clinical judgment, that the patient was eligible for hospice care.” Id. at 703.  Even more recently, in United States ex rel. Paradies et al. v. AseraCare, 2:12-cv-00245, Slip Op. (Nov. 3, 2015) (N.D. AL), the district court ordered a new trial after concluding that its jury instructions on the issue of “falsity” in connection with hospice fraud allegations “did not accurately reflect the law.” Slip Op. at 19.  The court had instructed the jury that “improper practices,” standing alone, do not demonstrate falsity without proof that specific claims were false when submitted to Medicare and that a claim is false if it contains an assertion that is untrue when made.  Id. at 15.  The court concluded, however, that it had not gone far enough, and that it should also have instructed the jury that “‘the FCA requires “proof of an objective falsehood”‘” and that “a mere difference of opinion, without more, is not enough to show falsity.” Id. at 15, 19 (citations omitted); see alsoUnited States ex rel. Swafford v. Borgess Med. Ctr., 98 F. Supp. 2d 822, 828 (W.D. Mich. 2000) (citing United States v. City of Green Bay, 168 F.3d 1013, 1020 (7th Cir. 1999)) (“the FCA is not an appropriate vehicle for policing technical compliance with administrative regulations. Mere violations of administrative regulations are not actionable under the FCA ‘unless the violator knowingly lies to the government about them.”‘).  These cases suggest a far different approach to FCA liability from the one seemingly endorsed in Lederman by acknowledging that reasonable and good faith differences in medical judgment will not support FCA liability merely because a particular provider’s view conflicts with an NCD or LCD.  Further, such an approach is much more consistent with the overall statutory scheme, which expressly prohibits the government from interfering in or regulating the practice of medicine.

[1] L. Schencker, “Hundreds of Hospitals Said To Settle in Federal Probe of Cardiac Procedures,” Modern Healthcare, September 28, 2015

[2] CMS National Coverage Determination for Automatic Defibrillators, Pub. No. 100-3, Man. Sec. No. 20.4, Effective Date, 1/27/05.