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Medical Necessity and The False Claims Act

“How Having an Effective Policy May Mitigate Damages”

by Sean Weiss, Partner & VP of Compliance

Since we are now approaching the end of September and only have 3 months left in 2019, I thought this would be a great time for those groups beginning their 2020 planning during Q4 to address the importance of making compliance the center of all things in your organization in the coming year. To do this, we have to define what health care compliance is, which is to say it’s the process of following rules, regulations, and laws that relate to health care practices/organizations. When I hear others speak about compliance programs and how important they are, I can’t help but to agree. However, the lines often get blurred when folks try to blend the plan and policies together. In my opinion, the actual plan is what it is and for the most part, remains stagnant unless things change significantly (you still need to review it annually at a minimum). The fluid and, in my opinion, the most critical part of the compliance program are the policies and how they are implemented, followed and remedial steps taken when a policy is violated or not followed to the degree it is supposed to be. As I wrote last week in my blog about non-retaliation and provided you with a sample policy, this week I am writing about Medical Necessity and the importance of this policy and how failure to establish medical necessity potentially impacts The False Claims Act.

With so many things to consider regarding why compliance needs to be established as a culture within an organization, and before I get to The False Claims Act and Medical Necessity portion of this post, I’ll begin my discussion surrounding the critical nature of compliance programs and demonstration of an actual culture within the organization of compliance. I’ll do this by addressing the original Filip Memo which was part of the United States Attorney’s Manual (USAM), that became the Justice Manual on September 25, 2018, which focuses on specifically whether to criminally charge a corporation: “Generally, prosecutors apply the same factors in determining whether to charge a corporation as they do with respect to individuals. See JM 9-27.220 et seq. Thus, the prosecutor must weigh all of the factors normally considered in the sound exercise of prosecutorial judgment: the sufficiency of the evidence; the likelihood of success at trial; the probable deterrent, rehabilitative, and other consequences of conviction; and the adequacy of noncriminal approaches. See id. However, due to the nature of the corporate “person,” some additional factors are present. In conducting an investigation, determining whether to bring charges, and negotiating plea or other agreements, prosecutors should consider the following factors in reaching a decision as to the proper treatment of a corporate target:

  1. the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime (see JM 9-28.400);
  2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management (see JM 9-28.500);
  3. the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it (see JM 9-28.600);
  4. the corporation’s willingness to cooperate, including as to potential wrongdoing by its agents (see JM 9-28.700);
  5. the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision (see JM 9-28.800);
  6. the corporation’s timely and voluntary disclosure of wrongdoing (see JM 9-28.900);
  7. the corporation’s remedial actions, including, but not limited to, any efforts to implement an adequate and effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, or to pay restitution (see JM 9-28.1000);
  8. collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution (see JM 9-28.1100);
  9. the adequacy of remedies such as civil or regulatory enforcement actions, including remedies resulting from the corporation’s cooperation with relevant government agencies (see JM 9-28.1200); and
  10. the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance (see JM 9-28.1300).”

* “The factors listed in this section are intended to be illustrative of those that should be evaluated and are not an exhaustive list of potentially relevant considerations. Some of these factors may not apply to specific cases, and in some cases one factor may override all others. For example, the nature and seriousness of the offense may be such as to warrant prosecution regardless of the other factors. In most cases, however, no single factor will be dispositive. In addition, national law enforcement policies in various enforcement areas may require that more or less weight be given to certain of these factors than to others. Of course, prosecutors must exercise their thoughtful and pragmatic judgment in applying and balancing these factors, so as to achieve a fair and just outcome and promote respect for the law.” [updated November 2018]

In the above factors, I specifically point to numbers 5 and 7 given their focus on existing compliance programs and remedial actions taken by responsible individuals. These 2-factors demonstrate the significant impact in a positive way that having a compliance plan that is a living, breathing document can have on dissuading the government seeking criminal charges.

The biggest focus right now in compliance as far as I am concerned and what I am seeing is with the billing of services (E/M and Procedures) that fail to meet the definition of “Medical Necessity” which can be alleviated by having a solid policy in place to define medical necessity as understood in the industry, as defined by Medicare and other payers, and your practice’s position on it. For the purpose of this discussion, “generally accepted standards of medical practice” means standards that are based on credible scientific evidence published in peer‐reviewed medical literature generally recognized by the relevant medical community or otherwise consistent with the standards set forth in policy issues involving clinical judgment. “Medically Necessary” or “Medical Necessity” shall mean health care services that a physician, exercising prudent clinical judgment, would provide to a patient for the purpose of preventing, evaluating, diagnosing or treating an illness, injury, disease or its symptoms, and that are: a) in accordance with generally accepted standards of medical practice; b) clinically appropriate, in terms of type, frequency, extent, site and duration, and considered effective for the patient’s illness, injury or disease; and c) not primarily for the convenience of the patient, physician or other health care provider, and not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of that patient’s illness, injury or disease.”

Then there is a legal doctrine by which evidence-based clinical standards are used to determine whether a treatment or procedure is reasonable, necessary and/or appropriate and we evaluate that by looking at the Medicare program. “Medical Necessity” is defined under Title XVIII of the Social Security Act, Section 1862 (a) (1) (a): “Notwithstanding any other provision of this title, no payment may be made under part A or part B for any expenses incurred for items or services which, except for items and services described in a succeeding subparagraph, are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

When drafting your medical necessity policy, I would make sure to address the impact it has on The False Claims Act. The False Claims Act (FCA) looks at terms such as “Knowingly”, which is the submission of false claims for the purpose of receiving an entitlement for non-covered services. Then there is the Reverse False Claims, which addresses knowing and improper avoidance of an obligation to pay monies to the U.S. Government under the Affordable Care Act which created statutory obligations to report and refund overpayments – 60-day rule/self-disclosure protocol. It is critical to understand the FCA covers potential false claims based on the conduct at the time the claims were submitted (affirmative false claims) as well as potential false claims based on later discovery and mishandling of overpayment refund obligations.

A few final points regarding The False Claims Act:

  • Under the FCA, a person is deemed to have acted “knowingly” when the person “acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b).
  • As the Ninth Circuit has pointed out, the FCA knowledge standard does not extend to honest mistakes, but only to “lies.” “Claims are not ‘false’ under the FCA unless they are furnished in violation of some controlling rule, regulation or standard”. See, e.g., United States ex rel. Local 342 v. Caputo Co., 321 F.3d 926, 933 (9th Cir.2003); United States v. Southland Mgmt. Corp., 326 F.3d 669, 674-75 (5th Cir.2003) (“[W]hether a claim is valid depends on the contract, regulation, or statute that supposedly warrants it.
  • It is only those claims for money or property to which a Defendant is not entitled that are ‘false’ for purposes of the False Claims Act”) (citation omitted) (en banc); United States ex rel. Hochman v. Nackman, 145 F.3d 1069, 1073-74 (9th Cir.1998) (no falsity when Defendants’ acts conformed with Veteran Administration payment guidelines); United States ex rel. Lindenthal v. Gen. Dynamics Corp., 61 F.3d 1402, 1412 (9th Cir.1995) (whistleblower’s FCA claims for payment based on work that satisfied contractual obligations “could not have been ‘false or fraudulent’ within the meaning of the [False Claims Act]”); United States ex rel. Glass v. Medtronic, Inc., 957 F.2d 605, 608 (8th Cir.1992) (a statement cannot be “false” or “fraudulent” under FCA when the statement is consistent with regulations governing program).
  • Additionally, a Defendant does not knowingly submit false claims when he follows Government instructions regarding the claims. See United States ex rel. Butler v. Hughes Helicopters, Inc., 71 F.3d 321 (9th Cir.1995); Wang v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir.1992).
  • The last point I will emphasize regarding The False Claims Act is this; Additionally, claims are not “false” under the FCA when reasonable persons can disagree regarding whether the service was properly billed to the Government. See United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir.1999) (holding that “errors based simply on faulty calculations or flawed reasoning are not false under the FCA . . . [a]nd imprecise statements or differences in interpretation growing out of a disputed legal question are similarly not false under the FCA”) (citations omitted); Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1477 (9th Cir.1996) (“How precise and how current the cost allocation needed to be in light of the [Water Supply Act’s] imprecise and discretionary language was a disputed question within the [Government]. Even viewing [plaintiff’s] evidence in the most favorable light, that evidence shows only a disputed legal issue; that is not enough to support a reasonable inference that the allocation was ‘false’ within the meaning of the False Claims Act”).

Remember that when you are drafting your policy regarding medical necessity, that it is determined based on Clinical Review Judgment, which involves two steps:

  • The synthesis of all submitted medical record information (e.g. progress notes, diagnostic findings, medications, nursing notes, etc.) to create a longitudinal clinical picture of the patient and,
  • The application of this clinical picture to the review criteria is to make a reviewer determination on whether the clinical requirements in the relevant policy have been met. MAC, CERT, RAC, and ZPIC/UPIC clinical review staff shall use clinical review judgment when making medical record review determinations about a claim.

The last thing to keep in mind regarding medical necessity is that there is a clear and binding standard: The Medicare statute requires that any “rule” requirement, or other statement of policy (other than a material coverage decision) that establishes or changes a substantive legal standard” must be promulgated by regulation. 42 U.S.C § 1395hh.

  • One of the questions to ask regarding Medicare and medical necessity is has CMS promulgated a standard for determining whether a service is reasonable and necessary?
  • Although the “Treating Physician Rule” has been removed from the Social Security Act, I am still hearing attorneys make arguments using it in Medicare and commercial payer cases. (United States v. Prabhu, 442 F. Supp 2d 1008 (D. Nev 2006))
  • Keep in mind that clarity of Medical Necessity issues affect whether a claim is “False” and whether the requisite “knowledge” exists.
  • “Claims are not ‘false’ under the FCA when reasonable persons can disagree regarding whether the service was properly billed to the Government.” Prabhu
  • “a Defendant does not ‘knowingly’ submit a ‘false’ claim when his conduct is consistent with a reasonable interpretation of ambiguous regulatory guidance.” Prabhu

Taking the time to construct an effective and reasonable policy related to Medical Necessity will go a long way to demonstrating a culture of compliance and potentially mitigate damages during an investigation. Given the current state of affairs in D.C. and the focus shift I expect to take place based on rumblings I have heard from folks in the know, 2020 will be another year of intense focus on provider coding and documentation. And I expect nothing less from the commercial payers.

Disclaimer: This blog post is not intended to provide any legal advice, guidance or opinion. The information contained in this blog post is a non-legal interpretation of statutes, acts, laws and should not and does not substitute for the advice, guidance or opinion of legal counsel. The author bares no liability and make no warranties for the information provided if implemented as is without confirmation of its applicability by the end user.

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