False Claims Based on Unneeded Procedures: 4 Strategies for Compliance

Federal and state regulators have increased scrutiny around false claims involving medically unnecessary services in recent years. Such claims are costly to Medicare, Medicaid and other payors, and providers are liable under the False Claims Act for these false billing practices. However, medical necessity is not always easy for hospitals to detect. The definition of "necessity" may change depending on the payor, court or provider involved.

By maintaining regular and comprehensive medical audits, hospitals can ensure medical necessity, proper coding and legal compliance. Additionally, hospitals should be informed and proactive about two specific healthcare trends that have emerged in the past year: unnecessary cardiovascular stenting and physician-owned distributorships. Scott Becker, JD, partner with McGuireWoods in Chicago, comments on these trends and explains how hospitals should be cognizant of unnecessary care in times of increased compliance scrutiny.

The risks hospitals face
According to CMS, no Medicare payment shall be made for expenses incurred for items or services that "are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member," according to the Medicare Program Integrity Manual. To combat Medicare reimbursements for unnecessary procedures, CMS developed National Coverage Determinations. These determinations are made through an evidence-based process, where CMS' research can be combined with that of outside consultants and the Medicare Evidence Development and Coverage Advisory Committee.  

Hospitals face a range of risks when it comes to billing for unnecessary care, even if it occurs without the hospital's knowledge. Claims for services that are medically unnecessary will be denied, but the lack of reimbursement is a small risk compared to the penalties hospitals may face. If Medicare or other payors determine that services were medically unnecessary after payment has been made, they demand that the money be refunded with interest. If payors discover a pattern of such claims, the physician or provider may face large monetary penalties or settlements, exclusion from Medicare or Medicaid, and possible criminal prosecution. They could also be at risk for medical malpractice awards to patients who file suits over receiving an unnecessary procedure.

Cardiovascular stents and physician-owned distributorships
Tiny mesh tubes that prop open blocked arteries have been the root of large legal problems for some hospitals. Stent implant procedures, which cost approximately $20,000 each, have attracted a fair amount scrutiny due to some physicians' abuse of the service.

In July, a cardiologist from Salisbury, Md., was convicted of healthcare fraud and other criminal charges after he placed unnecessary coronary stents in more than 100 patients. John R. McLean, MD, then falsely recorded in the patients' medical records the existence or extent of coronary artery blockage to justify the stent and the submission of claims to healthcare benefit programs. He billed hundreds of thousands of dollars to Medicare, Medicaid and private payors for the implants, and now faces a minimum of 35 years in prison.

"The evidence shows that Dr. McLean egregiously violated the trust of his patients and made false entries in their medical records to justify implanting unneeded cardiac stents and billing for the surgery and follow-up care," U.S. Attorney Rod J. Rosenstein said in a press release. "We do not bring federal prosecutions based on discretionary judgments that might be disputed by reasonable medical professionals."

Legal repercussions are not limited to physicians who implant the unnecessary stents, however. Hospitals can find themselves in the crossfire, facing federal charges, class-action lawsuits from patients and regulatory penalties from the Office of Inspector General or other departments.

Dr. McLean had privileges at Peninsula Regional Medical Center in Salisbury. In August, the hospital agreed to pay $1.8 million to settle federal allegations that it failed to prevent Dr. McLean from implanting the stents. It also agreed to repay federal funds it may have received for stents Dr. McLean used. Following the settlement, PRMC agreed to have its cardiac catheterizations overseen by an independent review organization as part of a corporate integrity agreement with the Office of Inspector General and Department of Health and Human Services.

Unrelated to Peninsula Medical Center, two physicians within Greensburg, Pa.-based Excela Health system implanted alleged unnecessary stents in patients from 2009-2010. After notifying 141 patients that their stent may or may not have been necessary, the system saw an initial wave of 34 patient lawsuits in July with more expected to follow. One class-action suit charges Westmoreland Hospital, an Excela site where some of the unnecessary procedures occurred, with failure to get informed consent to perform surgeries, enrichment from performing surgeries without obtaining informed consent and administrative negligence.

Physician-owned distributorships
Physician-owned distributors only emerged in the past 10 years but have managed to spark plenty of debate. In a POD, a physician owns part of a firm that sells devices or implants to hospitals or ambulatory surgery centers where the physician works. The physician then keeps the profits from those sales.

In June, the Senate Finance Committee minority staff launched an inquiry into PODs and published a report highlighting their concerns — one being that PODs may result in procedures being driven by financial incentives rather than patient need. "This is especially troubling given numerous concerned allegations provided to the Committee that, due to their financial interest, physician investors in PODs may perform more procedures than are medically necessary," the bipartisan report read.

A Wall Street Journal news report later illustrated the Senate committee's concerns. In the spring, Providence Portland (Ore.) Medical Center revoked a neurosurgeon's privileges after learning that his rate of multiple spinal-fusion surgeries was nearly 10 times the national average. Vishal James Makker, MD, operated on the spines of some patients up to seven times. The Wall Street Journal reported a later development in the case, revealing Dr. Makker was involved in a physician-owned distributorship with Omega Solutions, a spinal implant distributor.

PODs show that the need for physicians' disclosure of financial arrangements has moved beyond relationships with vendors or accepting gifts from device makers or pharmaceutical companies. Hospitals should be mindful of the disclosure and documentation of these types of relationships between physicians and device companies. Armed with this knowledge, hospitals can take the necessary steps to ensure POD-involved physicians are not driving surgeries for financial gain in their facility.

Legal strategies for hospitals
No hospital wants to play a part in news stories like those mentioned, but providers shouldn't assume immunity to such incidents. Mr. Becker says four core strategies can help guard against billing for unnecessary procedures.

1. Coding audits. The billing/coding audit is the first line of defense, and hospitals should perform this on an annual basis — at least. "Hospitals should look at medical records and essentially assess if there's proper documentation, meaning proper medical or legal information that backs it up," says Mr. Becker. A wide variety of third-party consultants and firms can offer developed expertise in these areas to help ensure that hospitals are properly billing and coding procedures performed. These audits can be performed either internally or externally.

Certain trends are more likely to trigger governmental audits, such as a high concentration of procedures in areas that generate larger percentages of hospital collections, or when a hospital capitalizes on certain aspects of the Medicare program. Hospitals should focus on these areas to maintain compliance. Proper documentation is crucial to supporting medical necessity for services. By charting medical decision-making and physicians' thought processes, providers can support medical necessity through objective and clear documents.

Still, audits are not a surefire way to prevent problems since charting or coding is not always an accurate indication of necessity. "There is a downside to billing and coding audits: they don't address the issue of physicians who have become skilled at deception. If physicians chart a certain way, they can document for a condition that's not absolutely present," says Mr. Becker.

2. Remaining alert to complaints. Hospitals should be vigilant and open to any complaints or signals of potentially inappropriate conduct by physicians. "One of the worst cases for medical necessity was when a pain management physician was performing procedures and nurses complained. They told the hospital the procedures might have been unnecessary and [may have been] performed to rack up dollars. The hospital waited too long [to investigate]," says Mr. Becker.

Certain specialties are more subjective and may require additional discretion. "A broken leg is a clear diagnosis, but other conditions are not that objective," says Mr. Becker. If a hospital does receive a complaint from an employee over a physician's adherence to necessity, it should immediately pursue an internal or external review to assess the argument.

3. Maintain regular reviews of physicians' numbers. In additions to physician charting and medical documentation, medical necessity is often examined by comparing diagnosis codes with procedure codes. "Keep an eye on which physicians' numbers are going way up or way down," says Mr. Becker, as dramatic shifts could indicate a problem. "If somebody has a spike in numbers, it's worth trying to figure out why. Are they moving more business to your hospital, or should you be concerned they're hiking that up by performing unnecessary procedures?"

4. Enforce policies where physicians have to disclose relationships with vendors.
Whether it's a POD or another relationship with a vendor, pharmaceutical company or device-maker, hospitals should enforce policies that mandate the disclosure and documentation of such arrangements. "Physicians have developed consulting relationships of all sorts. You want to ensure these relationships are reported. That way, if the physician starts using a specific type of stent, you know there may be separate motivation," says Mr. Becker.

Related Articles on False Claims:

Understanding and Avoiding Retaliation Lawsuits for Hospital Leaders
3 Core Concepts for Hospital and Healthcare False Claims Cases
9 Key Legal Developments Facing Hospitals

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