Are ABNs a No-Win for Laboratories and Other Health Care Providers?

A case addressing provider knowledge, beneficiary notice and liability for Medicare-denied claims may create confusion concerning proper advance beneficiary notices (ABNs). International Rehabilitative Sciences v. Burwell, (W.D. Wash. at Tacoma, No. 08-cv-05442-BJR, 2/13/15), highlights regulatory and Medicare manual instructions regarding ABNs that differ for laboratories as opposed to other providers.
Background On July 14, 2008, International Rehabilitative Sciences (doing business as RS Medical) challenged, in the US District Court for the Western Division of Washington, four decisions by the Medicare Appeals Counsel (MAC) denying coverage of a device known as the BIO-1000. The district court ruled in favor of RS Medical and against U.S. Department of Health and Human Services Secretary Burwell saying that the Secretary’s final decisions denying coverage were arbitrary and capricious and were not supported by the evidence presented by RS Medical. This court never reached the issue of whether RS Medical knew or should have known Medicare would deny coverage for the BIO-1000 and if it gave adequate notice to beneficiaries to allow it to shift liability to them. The Ninth Circuit overturned the ruling, declaring the Secretary’s decision was not arbitrary and capricious and remanded the limitation on liability (ABN) issue.
RS Medical Knew of Past Denials and Issued ABNs Based on That Knowledge On remand, the District Court faced the following issues:

1. Whether RS Medical knew that the BIO-1000 would not be covered by Medicare, and
2. Whether it provided adequate notice to beneficiaries to shift liability for the cost of services.

When deciding whether to cover a certain procedure or device, CMS contractors review literature and other evidence that providers present to determine efficacy, medical necessity and other issues. In this case, CMS decided that the BIO-1000 was not medically necessary and denied claims for the device. RS Medical argued that it did not know the BIO-1000 would not be covered by Medicare and because it had allegedly never received a notice of non-coverage and it had reason to believe the claims would be covered because of other evidence in the case, it should be paid. According to court documents, this belief was based on four arguments, all of which the court rejected. The first argument was that prior claims were initially paid by lower end CMS reviewers and RS Medical did not know that the claims would later be denied at the higher level of review. Secondly, RS Medical expressed a belief that when the device received a Healthcare Common Procedure billing code, it was eligible for coverage. The court was not persuaded and explained that the mere fact that a procedure or device receives a billing code does not mean that it will be covered by Medicare. RS Medical also asserted that meetings by Thomas M. Zizic, president of the manufacturer of the BIO-1000 device, with Medicare contractors gave him the impression that the contractors “believed the evidence supported the clinical efficacy of the device.” The court ruled that Zizic’s subjective belief was not adequate to imply coverage. Finally, RS Medical argued that the approval of the device by the Food and Drug Administration created a reasonable basis to believe the device would be covered but again, the court disagreed.
The ABN and “Adequate Notice” This case is troubling because the court said the reason noted on the ABN to support its belief that the BIO-1000 would not be covered was insufficient. The court noted RS Medical’s ABN stated, “Medicare has not established coverage criteria for this item or does not cover this item.” The court ruled that this was a generic notice and did not provide sufficient information to allow a Medicare beneficiary to make an informed decision about whether to receive the service or not. Unfortunately, the court provides a lot of reasons why it thinks this notice is not adequate but provides no information on what it would consider adequate in this case. In a footnote, the court comments that the regulations indicate if a provider notifies beneficiaries that a device will not be covered, the provider cannot then argue that it did not know Medicare would deny coverage.
Analysis and Comment Some of the comments by the court in this case seem to conflict with current rules concerning the proper administration of ABNs by providers, including laboratories. First, there is an alternative format for laboratories provided on the Medicare Beneficiary Notice Initiatives webpage on the CMS website. This ABN uses somewhat generic reasons similar to the one rejected by this court. Laboratories are well advised to err on the side of providing more detail rather than relying on a CMS form that is relatively simplified, even if the form has been successfully employed by the laboratory in the past. Laboratories may want to make additions to the ABN in the area designated as the reason box to make the explanation a little more specific to avoid accusations that a beneficiary did not understand what they were signing. Takeaway: Laboratories may not want to rely too heavily on the ABN as a method to ensure it gets paid for its services, but rather should rely on working to get physicians to submit orders for tests that include appropriate medical necessity documentation.