Ruling Raises Concerns About Lab Responsibility for Determining Medical Necessity of Tests

NEW YORK (360Dx) – A recent ruling by a federal court in Washington DC is causing alarm in the laboratory industry about whether labs could be legally held responsible for determining the medical necessity of tests ordered by patients' physicians.

In June, a federal court in Washington DC denied a clinical laboratory's motion to dismiss a False Claims Act lawsuit, Groat v. Boston Heart Diagnostics, brought by former UnitedHealthcare Medical Director Tina Groat. In it, she alleged that certain tests offered by Boston Heart, and ordered by physicians, were screening tests that were not medically necessary. Boston Heart filed a motion late last year requesting that the case be dismissed for a variety of reasons, including that, "a laboratory has no legal obligation to second-guess the medical judgement of a treating physician and make its own independent determination of medical necessity."

In denying the motion to dismiss, US District Court Judge Reggie Walton specifically rejected the argument that determining medical necessity is not a lab's responsibility.

"Boston Heart has an obligation to establish that the tests for which it seeks government reimbursement are medically necessary," Walton wrote.

The responsibility of the lab to certify the medical necessity of tests, Walton wrote, was explicitly written on the CMS-1500 form, which contains the phrase, "the services on this form were medically necessary." The CMS-1500 is the standard paper claim form to bill Medicare fee-for-service contractors when a paper claim is being used.

The wording of Judge Walton's ruling has spurred multiple healthcare law firms to blog about the case and prompted the American Clinical Lab Association to weigh in, filing its own brief encouraging the court to reconsider its decision. ACLA views Judge Walton's ruling as potentially significant enough to warrant involvement even though Boston Heart is not even an ACLA member, according to attorneys for the association.

"We try to follow things that have an impact and this rose to the surface," said Peter Kazon, senior counsel with Alston & Bird, ACLA's outside legal counsel. Kazon said intervention by the association in cases in which it is not a party is rare.

Although the ruling comes on a motion in a pending case rather than a final verdict, the ruling's explicit description of lab responsibility could affect lab liability in the future, attorneys said.

"If the case is resolved without that decision being overturned — let's say the defendant won or the plaintiff won or the case was settled — that decision on the motion would remain on the books and have some limited precedential value," said Stephen Sozio, co-lead of the healthcare practice at the firm Jones Day, who has written articles about the ruling. "Other than in that particular court, it's not a binding precedent on any other court, but it will have some precedential value as guidance on the issue."

An impractical requirement

ACLA argued that requiring labs to assess medical necessity would be essentially equivalent to asking them to practice medicine, which most labs are not set up to do.

"In the overwhelming majority of cases, the laboratory does not have the patient's medical record, have knowledge of the patient's condition or medical history, or have any other information related to the patient," ACLA argued in its amicus curiae brief filed in July.

Holding labs responsible for verifying medical need could also adversely affect patient care, Kazon said.

"The way laboratory testing is done today is incredibly efficient and it's done quickly. If a physician orders a test one day, that specimen is picked up, sent to the laboratory, tested overnight, so they can get the results back to the physician and patient who are waiting for them often by the next day," he said. "If the laboratory has to stop and look at every test to see if there is a basis for determining whether the test is medically necessary, there is no way it won't slow down the entire process."

For labs, the responsibility for determining medical necessity would present a Catch-22 situation, according to Boston Heart. In its motion to dismiss the case, the lab argued that it could potentially face even greater liability for failing to perform a test ordered by a physician than for performing one that may not be necessary.

"If it second-guessed a physician's medical judgement and declined to perform an ordered test, and the patient died the next day of cardiac failure, the adverse implications for Boston Heart could be devastating," the lab's attorneys argued.

In separate arguments requesting the court to change its ruling, Boston Heart and ACLA have both cited "Compliance Program Guidance" from the Office of the Inspector General of the Department of Health and Human Services to argue that a medical necessity determination is not required of labs. According to ACLA, OIG's guidance states that "laboratories do not and cannot treat patients or make medical necessity determinations."

Attorneys for Groat have rebutted Boston Heart and ACLA's arguments by alleging that OIG's guidance is being selectively quoted. In addition, Groat lawyers argued, OIG's lab guidance was already cited in Boston Heart's original motion to dismiss, prior to Judge Watson's ruling.

"This Court need not reconsider the same argument on a motion for reconsideration," Groat's attorneys argued.

Awaiting a final ruling

UnitedHealthcare, though a spokeswoman declined to comment about the case. Neither Groat, who no longer works for UnitedHealthcare, nor her lawyers could be reached for comment.

Boston Heart, in an emailed statement, said, "We believe treating physicians, who have the most complete picture of an individual patient's health, are in the best position to make determinations of medical necessity — not laboratory employees."

Meanwhile, legal battles over the ruling have waged on all summer, with both Boston Heart and ACLA urging the court to reconsider its ruling, and attorneys for Groat submitting rebuttals of the requests to reconsider. The most recent motion on the case, filed on Sept. 15, was ACLA's reply to the plaintiff's critique of its brief in the case. It is unclear when Judge Walton will make his final determination on whether or not to change the ruling.

For ACLA, interest in the case centers exclusively on the potential impact of the judge's ruling for the lab industry and is unrelated to the legal dispute between the two parties, Kazon noted.

"Our point is you should reconsider this and at a minimum revise that part of the decision that basically says laboratories have this independent obligation," Kazon said.

Sozio noted that while the ruling is just one case and doesn't necessarily change the law, an added risk for the lab industry would be if other courts adopted similar views.

"The case, in our view, was wrongly decided, and should not be followed by other courts," he and colleagues wrote on in a blog on the Jones Day website.

Meanwhile, according to Kazon and Sozio, the ruling, if unchanged, could not only impact the lab industry but potentially have a ripple effect in medicine. Kazon, noted that the CMS 1500 form is used to bill almost any Part B Medicare service, meaning the language of the ruling could apply broadly across the medical industry.

Sozio and colleagues agreed.

"The court's flawed reasoning should raise a concern for any healthcare provider that relies on a treating physician's determination of medical necessity," they wrote. "Pharmacies filling prescriptions, chemotherapy centers administering treatments, stand-alone imaging centers, and other providers could, by Groat's logic, be required to obtain complete patient medical records and independently verify medical necessity."