D.C. Circuit Court Reverses Medical Necessity Ruling

MANY LAB EXECUTIVES were concerned last year after a judge in the District of Columbia Circuit Court ruled that clinical laboratories need to determine that all lab test services physicians order are medically necessary.

The court also ruled that ordering physicians do not need to determine medical necessity, noted the law firm McDonald Hopkins in a commentary about the court case.

The judge’s ruling was made in June 2017, in the case of United States ex rel Groat v. Boston Heart Diagnostics Corp. This ruling was viewed as a challenge to long-standing precedents in how lab tests are ordered. For decades, the general practice has been that the physician ordering the test makes the primary decision as to the medical necessity of the test. Upon receiving a physician’s test order, the clinical laboratory is responsible for performing that test.

Second Ruling in December

Thus, clinical laboratory directors and pathologists will welcome a new development in this case. In December, the judge’s ruling was overturned in a clarification, McDonald Hopkins explained. While the December ruling means that lawyers can cite the ruling when arguing issues related to medical necessity, the ruling does not apply to all court decisions going forward and may not apply at all, given that the case is pending in the circuit court, attorneys told THE DARK REPORT.

In the second ruling issued Dec. 11, the court found that a laboratory cannot—and is not required to—determine medical necessity. Instead, labs can rely on ordering physicians’ determinations that the laboratory tests they order are medically necessary.

“It is important to note that—while the decision is positive for labs—this decision merely provides that labs are not solely responsible for determining and certifying medical necessity for services submitted as claims to Medicare,” McDonald Hopkins wrote in an advisory to clients. “Labs should educate referring physicians that each physician’s medical records must support the medical necessity for each service ordered.”

In an effort to clarify the issue, THE DARK REPORT interviewed lawyers familiar with the case: Jane Pine Wood, Chief Legal Officer for BioReference Laboratories Inc., and Courtney G. Tito, an Associate with McDonald Hopkins.

“This ruling in December is good, but it’s limited because it is specifically applicable only in the District of Columbia,” stated Wood. “It was a narrow ruling in a false claim case. The plaintiff argued the fact that the laboratory knew the service in question wasn’t medically necessary, so the laboratory claims submitted for the testing were false claims. And the court basically said, ‘No, simply the fact that it turns out to be medically unnecessary does not in and of itself make it a false claim.’

When Is It a False Claim?

“In essence, under the federal False Claims Act, when a lab has a test for a Medicare patient, just the fact that it happens to be medically unnecessary does not by itself mean it’s a false claim,” added Wood.

Tito identified another reason for caution. “The whistleblower in the case still has to make the case with enough detail for this ruling to get beyond what’s called ‘the pleading stage’ so that it can move forward into more substantive issues,” she said. “If the case does not move beyond the pleading stage, the December ruling may be moot.”

Another question that labs will want answered is whether the December decision applies only in the District of Columbia. If it applies only in that one district, does that mean labs and their lawyers may not be able to cite the case in a similar lawsuit in another district?

Second Ruling in December

“Labs and lawyers for labs could still cite the case, but a court in another jurisdiction doesn’t have to follow it, even though courts generally will defer to earlier decisions,” Wood explained. “While they may give deference, courts also will disagree.

“That said, the December ruling is much better than the initial ruling,” she noted. “The initial ruling was particularly troubling for pathologists and clinical labs because labs are not in a position to make that determination, either factually or legally. Labs don’t practice medicine.

“While the December ruling is better than the one in June, it would have been ideal if the court said that the ordering physician is the final arbiter of medical necessity for all purposes,” Wood explained. “This ruling has only the narrow purpose of determining whether or not a false claim allegation in this court case could be made. It doesn’t do anything to touch what is the bane of laboratories, which is: will the lab face recoupment because the physician did not adequately document medical necessity?

“That said, the ruling is useful for clinical labs anywhere, whether they are in D.C. or not,” she added. “Lawyers can cite the case and I have done so in letters I’ve sent to private payers about medical necessity. I’ve explained that the determination of the physician should prevail.

“So, in that way, this ruling may be useful in cases involving medical necessity or in cases in which a payer is seeking recoupment,” she added. “Many times, health insurers will ask labs for patients’ medical records to support claims of medical necessity. In those cases, labs need to go back to the ordering physician for those records, and that’s quite a burden.”

Court Decision May Have Limited Application for Labs

LAWYERS FOR CLINICAL LABORATORIES will follow closely the whistleblower case of United States ex rel Groat v. Boston Heart Diagnostics Corp. that generated the medical-necessity decision, said Courtney G. Tito, Associate with the law firm of McDonald Hopkins.

“As this case progresses, this and other decisions may become what’s called the law of the case and become part of the substance of the court’s determination,” she explained. “In that way, the decision could have far-reaching implications. But right now, it’s very focused on this particular pleading and whether that determination was necessary to make a dismissal decision or not.

“Some labs will look at this December ruling as one that will be important later,” Tito added. “Other labs are relying on it now when they argue over denied claims. While labs can rely on the December ruling that physicians need to make the determination of medical necessity, the ruling does not strip labs of their legal duty to make sure that each lab test claim they submit is medically necessary and that they have the proper documentation.”

Contact Jane Pine Wood at jwood@bioreference.com or 800-229-5227 ext. 7800; Courtney G. Tito at ctito@mcdonaldhopkins.com or 561-472-2978.


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