15 December 2017

Court Walks Back Ruling That Would Require Laboratories to Independently Verify Medical Necessity

Clinical laboratories stand in a position of tension: although laboratory tests must be medically necessary to be reimbursable by federal healthcare programs, laboratories often do not directly engage with patients in a way that would permit them to assess medical necessity.  A district court recently corrected its ruling regarding the extent to which laboratories can be held liable under the FCA when the tests for which they submit claims are not medically necessary.  United States ex rel. Groat v. Boston Heart Diagnostics Corp., No. 15-cv-487 (D.D.C. Dec. 11, 2017).

This summer, a district court denied in part the motion to dismiss of Boston Heart Diagnostics Corp. (“Boston Heart”), explaining that because laboratories certify on claim forms submitted to federal healthcare programs that tests are medically necessary, they have an independent obligation to determine medical necessity in order for that certification not to be false.  Boston Heart filed a motion for reconsideration.  The district court recently refined its analysis to rule that laboratories may rely on the ordering physician’s determination that a test is medically necessary.

To reach this conclusion, the court first looked to guidance from the Department of Health & Human Services Office of Inspector General (“OIG”), which makes clear that while laboratories must take reasonable steps to guard against their submission of claims for medically unnecessary tests, laboratories “do not and cannot treat patients or make medical necessity determinations.”  Accordingly, the precautions expected by OIG cannot encompass medical decision-making.  The court reasoned that had OIG intended to impose on laboratories a duty independently to verify the medical necessity representations of treating physicians, surely OIG would have explicitly described such an obligation.

Second, the court turned to preamble guidance.  Congress mandated the use of a negotiated rulemaking committee to develop coverage policies for laboratory services.  The preamble to the committee’s final rule acknowledged that laboratories are required by statute to certify to the medical necessity of their test claims.  Nonetheless, the committee recognized the “special circumstances” that arise for entities like laboratories that generally do not interface directly with patients.  As such, the committee’s discussion of laboratory duties focused on recordkeeping, and the court interpreted this limited view as a deliberate assignment of medical necessity determinations solely to physicians.

Nonetheless, despite recognizing its error, the court still ruled that it had appropriately denied Boston Heart’s motion to dismiss these claims.  This is because the relator had alleged that through a false marketing campaign, Boston Heart actively encouraged providers to order medically unnecessary tests.  And while Boston Heart did not have a duty to verify the medical necessity of the tests ultimately ordered, the court viewed the alleged scheme as violating Boston Heart’s “legal duty to ensure that it is not submitting false or incorrect claims” to federal healthcare programs.  In light of the alleged false marketing statements, the court ruled that the relator had adequately pled a theory of FCA liability.

A copy of the court’s opinion can be found here.

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