Case of the Month: Court Says Labs Must Verify Medical Necessity of Tests that Physicians Order

More often than not, when a lab gets busted for falsely billing Medicare, medical necessity—or the lack thereof—is the reason. While the lab must certify that billed tests are medically necessary, ultimate responsibility for ascertaining whether particular tests meet Medicare medical responsibility standards for the ordering physician bears. However, a new federal court case challenges that common understanding by requiring labs to independently verify the medical necessity of ordered tests. Here's a look at the case and why it's so potentially troubling for labs.

What Happened
The case began as a whistleblower suit filed by former United Healthcare medical director claiming that Boston Heart Diagnostics routinely billed Medicare for tests that were medically unnecessary for certain diagnostic codes. Boston Heart noted that all of the tests were properly ordered by the treating physicians and that it's up to physicians to determine whether those tests were necessary. So it asked the court to toss the complaint without a trial.

What the Court Decided
The D.C. District Court ruled that the medical director had a valid whistleblower claim and deserved the chance to prove it in court. Having billed Medicare for the tests, Boston Heart had an obligation to provide independent verification of their medical necessity, according to the court. The fact that the ordering physicians' medical necessity determination conflicted with the diagnostic codes provided should have raised a red flag and led Boston Heart to make its own inquiry, the court reasoned [U.S. ex rel. Groat v. Boston Heart Diagnostics Corp.].

The ruling cites a California case (called Garcia v. Sibelius) stating that Medicare regulations "place the burden of establishing the medical necessity of diagnostic tests on the entity submitting the claim." But, as attorneys have noted, it's an apples and oranges comparison because unlike in Groat where the lab billed for the tests, the ordering physician was the billing entity in the Garcia case.

The Implications
Attorneys have criticized the Groat ruling. "The court fails to recognize that treating physicians—who have the most complete picture of an individual patient's needs and medical conditions—are in the best position to make determinations of medical necessity," according to an attorney with the leading law firm Jones Day. "Lab employees, by contrast, often do not even have occasion to interact with the patient in person," the attorney adds. Requiring lab employees to independently evaluate medical necessity would be not only unrealistic but potentially illegal under state licensing rules and practice-of-medicine restrictions.

Practical Impact
Getting physicians to document medical necessity is hard enough. The Groat case is scary because it's saying that labs could no longer simply rely on physicians to verify that ordered tests are medically necessary. They'd also have to do their own independent assessment to ensure those tests are medically necessary for the patient.

The good news is that Boston Heart has already appealed the ruling. And if the attorneys are right, Boston Heart will win the appeal. Of course, if the attorneys are wrong, labs (at least the ones in the D.C. Circuit where the Groat appeal will be decided) will have a significant new billing burden to contend with.