Compliance Today - February 2022

Definition of medical necessity

While the Medicare statute does not specifically identify the services to be covered, the concept of the medical necessity is foundational to Medicare coverage. The statute provides: “no payment may be made…for any expenses incurred for items or services which…are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”^[1] Medicare defines a “reasonable and necessary” service as one that “meets, but does not exceed, the patient’s medical need,” and is furnished “in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition…in a setting appropriate to the patient’s medical needs and condition.”^[2]

Providers must also consider the medical necessity of services provided to Medicaid members since most providers treat both Medicare and Medicaid patients. While the federal Medicaid statute does not specifically address the medical necessity of services, the state statutes or regulations that implement the state Medicaid programs typically do. For example, the Wisconsin rules for its Medicaid program cover services that are “required to prevent, identify or treat a recipient’s illness, injury or disability” and the services must meet nine standards, including that the treatment is consistent with “standards of acceptable quality of care,” “cost-effective,” and “of proven medical value” and “not experimental.”^[3]

Who determines medical necessity

The definitions of medical necessity beg the question: Who determines the medical necessity of the services? Historically, the decision of whether a service is medically necessary has been made between the physician and the patient. This model is a remnant of a healthcare system where services were paid exclusively by an individual and physicians often practiced in an independent environment. Despite the revolution in how healthcare services are provided and paid, many physicians continue to view the determination of the medical necessity of a service as a decision that is completely within their domain. As a result, compliance professionals auditing for the medical necessity of the services, as discussed below, may face headwinds when educating physicians on standards for medical necessity. As the American healthcare system has evolved and since the government now pays for an enormous percentage of our healthcare services, it has necessarily stepped into the role of determining which services are medically necessary. However, as a potential counterbalance to the increasing role of the government, professional organizations have also stepped into the discussion in various ways to help define the bounds of medical necessity.

The government standards come primarily from the Centers for Medicare & Medicaid Services (CMS). As a preliminary consideration, CMS generally does not consider experimental treatments to be medically necessary and, therefore, excludes from coverage experimental drugs and biologicals. To be covered by Medicare, drugs or biologicals must be “safe and effective” and “otherwise reasonable and necessary.”^[4] Drugs and biologicals are considered safe and effective when “approved for marketing by the Food and Drug Administration” and “when used for indications specified on the labeling.” For medical devices, Medicare similarly restricts coverage for experimental devices, but it did expand coverage in 2015 by allowing coverage for care furnished to Medicare beneficiaries in certain categories of investigational device exemption studies.^[5] A party interested in seeking Medicare coverage for one of these studies (i.e., the study sponsor) must submit a request for review and approval to CMS.

Beyond restrictions on experimental treatments, CMS primarily defines the scope of medically necessary services through national coverage determinations (NCDs) and local coverage determinations (LCDs). An NCD is a national policy statement “granting, limiting, or excluding Medicare coverage for a specific medical item or service”^[6] and may be issued either when there is a new procedure or device that may warrant coverage or when the utility of a procedure is in dispute. NCDs are binding on all Medicare administrative contractors (MACs), quality improvement organizations, and health maintenance organizations. When CMS issues an NCD, a “decision memorandum” will first be issued that explains the reasons for the decision, the process followed in making the determination, and a summary of the evidence considered. After the decision memorandum is issued, the actual NCD will be issued. The NCD is the formal instruction to the MACs and other contractors regarding how to process related claims.

CMS also grants authority to the MACs to develop LCDs that make medical necessity determinations specific to their jurisdiction. Each LCD describes the circumstances under which an item or service is considered by the MACs to be reasonable and necessary. In making that determination, the MACs determine whether the service is (1) safe and effective, (2) not experimental or investigational, and (3) appropriate (including the duration and frequency considered appropriate for the item or service).^[7] The process to develop an LCD requires the MACs to consider available medical literature, clinical guidelines, consensus documents, and public comment related to the item or service under review. Further, each MAC is required to have a “Contractor Advisory Committee” that includes healthcare providers and that may provide consultation and advice on the development of LCDs.^[8] Each LCD may also have a companion article that provides billing and coding guidelines for the covered service or item.

An important trend to counterbalance government determinations of medical necessity is the development of statements by organizations representing specialists to guide clinical decision-making, including so-called consensus statements and clinical guidelines such as appropriate use criteria (AUC). An example of a consensus statement is the “Appropriate Use of Drug Testing in Clinical Addiction Medicine,”^[9] published by the American Society of Addiction Medicine in 2017, which provides guidance of the use of urine drug testing in the treatment of substance misuse disorders. Similarly, AUC specify under what circumstances it is appropriate to perform a medical procedure or service and are typically evidence based or, if the evidence is still evolving, derived from expert consensus. In 2009, “Appropriate Use Criteria for Coronary Revascularization” were released to examine and improve patient selection for percutaneous coronary interventions, as well as address concerns about potential overuse.^[10] Since that time, several other organizations have developed AUC for procedures. For example, orthopedic surgeons now have AUC for several common procedures, and the American Academy of Dermatology has AUC for Mohs procedures.^[11] CMS is in the process of adopting an AUC program for certain advanced imaging services,^[12] demonstrating an increasing acceptance of these types of criteria by the government.

Government enforcement of medically unnecessary services

While prosecutions of medically unnecessary services were taboo for many years, the Department of Justice now aggressively pursues these cases both civilly and criminally. In the context of criminal prosecutions, the most notable example was for medically unnecessary invasive cardiology services. In a case arising out of Kentucky, the Department of Justice convicted a cardiologist of placing medically unnecessary stents as part of percutaneous coronary interventions.^[13] Dr. Richard Paulus, the subject physician, was ranked first in the nation for total amount billed to Medicare for angiograms, and his annual salary was approximately $2.5 million. The government’s investigation began when it received a complaint that Paulus placed stents into patient arteries that were not blocked. In an initial review of 19 procedures, a Medicare contractor found that seven of Paulus’ cases involved insufficient blockage to warrant a stent. Subsequently, an insurer and the Kentucky Board of Medical Licensure reviewed Paulus’ procedures and found that he had diagnosed patients with severe stenosis when none was apparent from the imaging performed. The government’s case against Paulus contended that Paulus repeatedly and systematically exaggerated the amount of blockage he saw on angiograms and used that misinformation to bill unnecessary procedures. Paulus was convicted. While the trial court initially vacated the guilty verdict, it was eventually restored by the appellate court. The decision by the Court of Appeals importantly held that: “At the very least, [medical] opinions may trigger liability for fraud when they are not honestly held by their maker, or when the speaker knows of facts that are fundamentally incompatible with his opinion.”

In the context of civil False Claims Act cases, there are also numerous examples of government prosecutions related to medically unnecessary services. Hospice services have been a hot spot. The government’s prosecutions have focused on whether beneficiaries who received hospice service met the Medicare eligibility criteria, which have produced mixed results for the government. The now-famous prosecution against AseraCare resulted in the jury finding 104 of 121 hospice claims reviewed for the trial were false because the beneficiaries did not meet the eligibility criteria, and therefore, services provided to those beneficiaries were not medically necessary.^[14] Despite that finding, the trial court and the appellate court found that the government had produced insufficient evidence to prove a violation of the False Claims Act. Specifically, the appellate court held that a claim cannot be false for purposes of the False Claims Act “if the underlying clinical judgment does not reflect an objective falsehood.” By contrast, a “reasonable difference of opinion among physicians reviewing medical documentation ex post is not sufficient on its own” to conclude that the claim for services was false. However, finding directly contrary, a different appellate court recently disagreed with the AseraCare court and found that medical opinions may be false for purposes of False Claims Act liability.^[15]

There are myriad other contexts in which the government has increased focus on the medical necessity of services. Several recent settlements involve the billing of allegedly medically unnecessary urine drug screens in the context of monitoring patients being treated for chronic pain or for substance misuse disorder.^[16] Over the last two years, there have also been a number of settlements surrounding the medical necessity of genetic testing.^[17] Finally, medically unnecessary inpatient admissions have become a hot spot for prosecutions.^[18]

Medical necessity considerations for compliance programs

As noted, compliance programs that ignore the medical necessity of services do so at their peril. But incorporating the review of potentially medically unnecessary services can be daunting considering the difficulty of detecting medically unnecessary services through random auditing and the possibility of provider resistance. The following section contains a road map for assessing and evaluating potentially medically unnecessary services.

Conclusion

Healthcare compliance is often encompassed by complexity, but navigating the travails of medically unnecessary services presents the challenge of confronting traditional notions of medical necessity in a context of potentially high-stakes government interactions. Understanding both the regulatory landscape and the recent enforcement history will help create a road map for successfully navigating this difficult terrain.

Takeaways

• While the Medicare statute does not identify specific services considered medically necessary, it provides a definition of services considered as such.

• Centers for Medicare & Medicaid Services provides guidance on the medical necessity of specific services through national coverage determinations and local coverage determinations.

• Many organizations representing healthcare providers have also contributed guidance on the medical necessity of services through consensus statements and appropriate use criteria.

• There is an increasing trend toward government prosecutors bringing civil and criminal prosecutions based on the lack of medical necessity.

• Because of the difficulty in identifying medical necessity from compliance monitoring, compliance programs should use other tools to detect problematic services.