Lessons Learned From Recent ‘Lack of Medical Necessity’ FCA Cases

Health Highlights

Editor’s Note: During fiscal year 2017, the federal government won or settled over $2.4 billion in healthcare fraud judgments and settlements. A review of False Claims Act (FCA) cases reveals that the government doesn’t focus just on high-profile targets, such as opioid mills, but also on less attention-grabbing entities, including hospices, rehab services, acute care facilities and others dealing with patient populations whose treatment options are not always clear. What links these settlements is the underlying complaint that the services rendered and reimbursed lacked medical necessity.  

Many “lack of medical necessity” cases are resolved with high penalties but no requirement of admission—and even the allowance of public disagreement—making settlement an appealing option. But settlement can result in follow-on litigation and public opinion consequences. So when faced with an FCA case alleging lack of medical necessity, should organizations settle or fight? In a new article for Law Journal Newsletters, summarized below, Manatt examines that critical question. Click here to read the full article.


‘Medical Necessity’ and ‘Standard Medical Practice’

The Centers for Medicare & Medicaid Services (CMS) covers services that are “reasonable and necessary.” The Medicare.gov site defines “medically necessary” as “services or supplies that are needed for the diagnosis or treatment of your medical condition and meet accepted standards of medical practice.” The phrase “accepted standard of medical practice” is also in CMS’s Medicare Program Integrity Manual.

As a practical matter, “accepted standard of medical practice” isn’t always black-and-white. A myriad of factors—from patient considerations to provider training—plays into what is often a subjective decision. Providers have routinely settled cases where the crux of the allegation is that the defendant’s medical decision is contrary to the relator’s views, medical association guidelines, or a CMS National or Local Coverage Determination, arguably making reimbursement claims false.

Insights From Case Examples

A review of settled cases shows that they tend to allege something more than a difference of medical opinion, such as deleting certain entries in medical records or rejecting specific factual, rather than subjective, requirements for coverage. The FCA cases alleging lack of medical necessity that have not settled, however, provide additional insight.

For example, in United States ex rel. Polukoff v. St. Mark’s Hospital, 2:16-cv-00304 (D. Utah, Jan. 19, 2017), the relator argued that the defendant doctor and the hospital in which he worked were performing unnecessary heart surgeries relating to closing the hole between two chambers. Medicare had not weighed in on the circumstances that would deem this procedure medically necessary. Instead, the relator argued that the proof the surgery was unnecessary could be found in the guidelines from the American Heart Association and American Stroke Association.

The defendant’s reason for performing the surgery was to avoid future strokes. The association’s guidelines stated there was no evidence this surgery prevented strokes and, therefore, it should not be conducted unless a patient had already suffered at least two of a particular kind of stroke. The district court, noting that this case appeared to be about subjective medical judgment rather than objective false fact—a necessary element of an FCA case—granted defendants’ motion to dismiss at the pleading stage under Federal Rule of Civil Procedure 12(b)(6).

In July, the Tenth Circuit Court reversed. See United States ex rel. Polukoff v. St. Mark’s Hospital, No. 17-4014 (10th Cir., July 9, 2018). The court relied on the CMS Medicare Program Integrity Manual’s definition of “reasonable and medically necessary” services—particularly the section requiring those services to be “furnished in accordance with accepted standards of medical practice.” The court noted two allegations that supported the relator’s view that the services were contrary to accepted standards—and were sufficient to overcome a motion to dismiss:

  • The defendant operated contrary to the guidelines; and
  • The defendant performed more than 800 of the surgeries in 2010, while the renowned Cleveland Clinic performed less than 50 in the same time period.

The Eleventh Circuit has yet to weigh in on a case in a different procedural posture—a court sua sponte granting summary judgment. U.S. v. CGNSC Administrative Services, No. 16-13004 (AseraCare). AseraCare is a hospice case in which the government intervened. The relator claimed the patients weren’t terminal and therefore were not eligible for hospice. Noting that the government’s and relator’s only evidence to support their claims was one expert doctor’s opinion that the patients weren’t terminal, based on his review of the medical records, the district court sua sponte granted the defendants summary judgment.

The court rejected both medical association guidelines and a Local Coverage Determination as not providing evidence of objective false fact. The Eleventh Circuit now has the appeal. If it supports the lower court’s decision, there will arguably be a circuit split on whether a case alleging only differing medical opinions is enough to proceed.

These cases should be viewed in light of the Brand Memo—released by the Department of Justice on January 25, 2018, and authored by Associate Attorney General Rachel Brand—which directs attorneys in the civil fraud division not to “convert agency guidance documents into binding rules.” The memo states that “agency guidance documents cannot create any additional legal obligations.”


While awaiting the Eleventh Circuit’s decision, parties to medical necessity FCA cases would be wise to thoroughly assess the strength and nature of evidence supporting their view of “reasonable and necessary” before deciding whether to settle or litigate.



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