The Unintended Benefit of Properly Documenting Medical Necessity:  Avoiding Prosecution

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By Kirti Vaidya Reddy and Theresa DeAngelis

Properly documenting medical necessity of health care items and services ensures proper coordination of services across medical professionals and ultimately contributes to overall safety and quality of care of the patient.  In addition, payors rely on medical documentation to reimburse physicians and other medical providers for their medical judgment when treating patients with appropriate, medically necessary services.  Accurately and sufficiently documenting medical necessity is particularly important for items and services billed to Medicare, Medicaid or other government payors, as the alternative can result in Centers for Medicare & Medicaid Services (CMS) audits and investigation, and prosecution by CMS, the United States Department of Health and Human Services (HHS) Office of Inspector General (OIG), and the Department of Justice (DOJ).

In 2022, the government projects it will spend $768 billion for Medicare and $589 billon for Medicaid.  As such, there are rules in place to curb unnecessary reimbursements and to reimburse for treatment that is medically necessary.  For instance, Medicare regulations state that “[n]o payment may be made . . . for any expenses incurred for items or services, which . . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”  Additionally, CMS has developed rules enumerating medical items and services for which Medicare will or will not make payment, which may be found in regulation or in program manuals. Billing Medicare for items or services that are not medically necessary constitutes a false claim for payment, a violation of program rules, and a commonly cited basis for CMS prepayment reviews, overpayment assessments and payment suspensions. 

Billing any government payor for items and services that are not medically necessary may constitute a violation of the False Claims Act. In general terms, the False Claims Act prohibits any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government. The False Claims Act’s provisions may be enforced by the Department of Justice or by private whistleblowers. False Claims Act violations may result in a civil penalties of up to $25,076 per claim, plus three times the amount of damages sustained by the Government.

The government aggressively pursues actions under the False Claims Act based on billing for medically unnecessary services, as evidenced in numerous recent examples:

  • In April 2022, Providence Health and Services Washington agreed to pay $22.7 million to resolve allegations by the Department of Justice that it fraudulently billed federal healthcare programs for medically unnecessary neurosurgery surgeries or surgeries of greater complexity than necessary.  
  • In April 2022, a Michigan gynecologic oncologist agreed to pay $775,000 to resolve allegations with the Department of Justice that he billed federal healthcare programs for radical hysterectomies and chemotherapy in excess of what was medically necessary, when only simple hysterectomies were medically necessary. 
  • In March 2022, Radeas LLC settled with the Department of Justice for $11.6 million based on allegations that it submitted false claims for payment to Medicare for medically unnecessary urine drug testing.  
  • In May of 2021, SavaSeniorCare LLC settled with the Department of Justice for $11.2 million based in part on allegations that it caused its skilled nursing facilities to bill Medicare for rehabilitation therapy services that were not medically necessary.   

In addition to facing the stress and cost of defending against False Claims Act investigations and lawsuits, and the potential for damages and penalties, medical providers and organizations subject to False Claims Act liability may also be faced with Corporate Integrity Agreements, imposing costly, ongoing compliance obligations.

Thus, proper documentation at the outset is essential. That is why the majority of healthcare providers address custom healthcare software development. For medical providers, documenting medical necessity (as well as the Current Procedural Terminology codes and corresponding modifiers) justifies both the care required by the patient as well as the amount of reimbursement. 

Properly documenting medical necessity will stave off a potential whistleblower or government audit or investigation. Thus, internal audits and periodic review of records should be performed to consider whether medical records contain: (1) the patient’s relevant history; (2) the provider’s clinical impression and the status of the condition for each diagnosis on the day of service; (3) an assessment; (4) the rationale or reason for the encounter and for ordering tests or equipment; (5) a treatment plan; and (6) a legible date and signature of the provider.  Additionally, consider whether the patient notes are sufficiently detailed, whether the notes are copies of other notes, and whether the Current Procedural Terminology codes are correct and match the medical documentation. Individualized assessment of need is the primary consideration. 

These practices will not only contribute to patient quality and continuity of care but will also benefit medical providers seeking to be compliant and avoid scrutiny by payors.

Kirti Vaidya Reddy is a partner at Quarles & Brady LLP with extensive experience in government investigations and federal civil litigation.  She advises on fraud and abuse matters, conducts internal investigations and risk assessments, and zealously defends medical providers in government investigations and litigation.  She previously served as an Assistant United States Attorney in the Southern District of New York, Civil Division.

Theresa DeAngelis is an associate at Quarles & Brady LLP where she advises healthcare industry clients on a wide range of regulatory, transactional, and litigation matters, with a primary focus on fraud and abuse compliance and litigation. She previously represented False Claims Act (FCA) whistleblowers as an FCA litigation associate.