UPDATE: Labs may rely on ordering physician’s determination that a test is medically necessary

In a June 2017 alert, we discussed a D.C. Circuit Court decision (United States ex rel Groat v. Boston Heart Diagnostics Corp), in which the court found that because labs certify in CMS Form 1500 that all services are medically necessary, the burden is on the labs, not the ordering physicians, to confirm that the tests are medically necessary. In a decision dated Dec. 11, 2017, the D.C. Circuit Court clarified its conclusion and found that a laboratory cannot and is not required to determine medical necessity, and is allowed to rely on the ordering physician’s determination that the laboratory tests are medically necessary

Why the clarification?

In reconsidering its prior decision, the court first looked at the Office of Inspector General (OIG) Compliance Program Guidance for Clinical Laboratories (OIG Guidance), dated 1998. The court reviewed the medical necessity portion of the OIG Guidance and found that:
  • Lab compliance programs are effective when labs communicate with physicians that claims will be paid only if the services are reasonable and necessary for the individual beneficiary.
  • A lab should be able to produce or obtain from the treating physician documents to support the medical necessity of the tests ordered. 
The OIG Guidance also states that, among other things, labs should encourage physicians to submit diagnosis information on requisition forms and that requisition forms should have a statement that Medicare does not cover routine screening tests. After reviewing the OIG Guidance, the court determined it had overstated laboratory obligations to establish that tests are medically necessary when submitting claims to Medicare. The court noted that the OIG Guidance does not include this duty for labs. 

The court also reviewed the Department of Health and Human Services negotiated rulemaking commentary for the regulation governing laboratory recordkeeping. In reviewing that, the court found that there is a division in responsibilities between the physician (responsible for maintaining the information in the medical records) and the lab (responsible for maintaining the information it receives from the physicians). HHS noted that because labs will experience a payment denial if the medical necessity is not supported by the documentation, laboratories are not excluded from requesting additional information from the ordering physician; and, if they do so, labs must focus that request on documentation relevant to medical necessity. 

Finally, the court reviewed the cases it cited from around the country to support its prior ruling that the regulatory scheme puts the burden of establishing medical necessity of diagnostic tests on the entity submitting the claim. Upon this second review, the court determined the cases did not, in fact, support its prior ruling. 

Despite changing its ruling on laboratory obligations regarding determinations of medical necessity, the court did not dismiss the complaint. This case is still in its early stages and we will continue to monitor it as it progresses to provide further updates.

It is important to note that while this 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.  Labs should educate referring physicians that the physician’s medical records must support the medical necessity for each service ordered. Labs must be aware that there may be times when the lab will be required to obtain documentation from the physician to ensure medical necessity is supported before it performs services and before it submits a claim for reimbursement from Medicare. Additionally, the onus is typically on the lab to obtain documentation from the ordering physician to support medical necessity in the event of a payor audit.  It is important that labs trust the clinicians that order testing. If a physician’s records do not support medical necessity, the lab’s claim will be denied or is at risk for recoupment. 

If you have questions regarding the case or its implications for your lab’s claim submissions, please do not hesitate to contact any of the attorneys listed below.

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