Lack of Medical Necessity and the Criminalization of Clinical Decision Making

In 2010, Georgia nursing home owner and operator, George Houser, was charged in a federal indictment with conspiracy to commit healthcare fraud on the theory that he had billed Medicare and Medicaid for services that were so inadequate or deficient that they were essentially “worthless.” Aside from its disturbing and sensational facts – such as evidence of “barbaric” and “uncivilized” conditions at the three facilities, including leaking roofs, insect infestations, and food shortages – Houser was notable for several reasons, but principally because prosecutors in the case had relied on a civil theory of liability, the so-called “worthless services” theory, as the basis for criminal fraud charges. While the federal False Claims Act (FCA) has been construed broadly to accommodate shifting and expanding theories of liability like worthless services and implied certification, federal criminal statutes like the healthcare fraud statute are to be, and historically have been, interpreted narrowly.

Addressing that concern, Houser had argued on appeal from his conviction and 20-year sentence that engrafting a “worthless services” concept onto the federal healthcare fraud statute rendered the statute unconstitutionally vague because “determining at what point healthcare services have crossed the line from merely bad to criminally worthless would leave many men of common intelligence guessing.” Because Houser’s convictions could be upheld on other grounds, the Eleventh Circuit declined to articulate a bright line rule for determining when clearly substandard services become “worthless,” and left open the question of whether the provision of “worthless” services, versus the failure to provide services at all, can provide a basis for prosecuting a provider under the federal healthcare fraud statute.  

Like worthless services, lack of medical necessity is being used more frequently and aggressively to support criminal healthcare fraud prosecutions, thus broadening the scope of the healthcare fraud statute. Because the Medicare and Medicaid programs will reimburse only for those healthcare services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member,”[1] providers must certify when they submit claims for payment that the healthcare items or services for which reimbursement is sought are medically reasonable and necessary. For there to be criminal liability based on lack of medical necessity, the government must prove not only that the item or service was unnecessary, but that the provider knew it was unnecessary.

The Social Security Act does not, however, define “reasonable and necessary,” thus leaving considerable room for debate surrounding the meaning of these nebulous terms as they relate to healthcare services. Whether a service is medically necessary in any particular case often involves subjective clinical judgment on which medical experts may reasonably disagree, making these cases among the most difficult to prosecute. These cases are rendered more difficult by the deference traditionally given to physicians and the reluctance of courts to second-guess the medical community. 

Despite the inherent challenges of prosecuting cases based on lack of medical necessity, the criminalization of medical judgment and medical decision-making is undoubtedly trending up.  Over the last few years, the Department of Justice has prosecuted a number of physicians and other providers of healthcare services for performing allegedly unnecessary procedures or providing allegedly unnecessary services. The defendants in these cases include long-term care, hospice, and home health providers; pain management specialists; behavioral health providers; cardiologists; dermatologists; ophthalmologists; and spinal surgeons. The burgeoning reliance on lack of medical necessity in criminal healthcare fraud cases means that the specter of criminal prosecution looms over any medical practice, regardless of size, sophistication or discipline.  

Although all providers and practice areas are potential targets of government scrutiny, a recent spate of criminal medical necessity cases has involved allegedly unnecessary cardiac procedures, including the placement of unnecessary coronary stents and the performance of unnecessary diagnostic catheterizations. For example, in October 2016, following a seven-week trial featuring 10 expert witnesses for the government and four days of deliberations, a jury in the Eastern District of Kentucky convicted cardiologist Richard Paulus on multiple counts of healthcare fraud and making false statements relating to healthcare matters. Evidence at trial showed that Paulus had placed stents in over 70 patients whose blockages were significantly less than 70% and that he had exaggerated their medical conditions to make it appear as though the heart procedures were necessary and qualified for payment.

In a similar case from the Northern District of Ohio, cardiologist Harold Persaud was convicted in September 2015 of healthcare fraud and making false statements arising from his performance of medically unnecessary stent procedures, aortograms, renal angiograms, and other procedures and tests, and is currently serving a 20-year sentence. And, in November 2011, Maryland cardiologist John McLean was sentenced to 97 months in prison for billing insurers for unnecessary coronary stent procedures on dozens of patients after unsuccessfully arguing at trial that the medical standard for coronary stents alleged by the government was incorrect and that the process of evaluating angiograms was highly subjective. Like Houser, McLean contended on appeal that the healthcare fraud statute was unconstitutionally vague as applied to him because no clear standard of medical necessity governed the use of coronary artery stents during the relevant time period. The Fourth Circuit disagreed, concluding that the statute was not a medical malpractice statute, but a fraud statute, which requires intent, and negated any ambiguity arising from the lack of clear medical guidance. Insofar as the statute required proof not simply that the stent procedures were medically unnecessary but that McLean knew they were, it was not unconstitutionally vague as applied to him.

Other criminal medical necessity cases include that of physician Roman Johnson, who pled guilty in the Northern District of New York in March 2015 to conspiracy to commit healthcare fraud after submitting $14 million in claims to Medicare for vitamin infusions, physical therapy and occupational therapy. Another included two Houston physicians who, in January 2015 and March 2016, were convicted by federal juries in unrelated cases on charges related to falsely billing Medicare and Medicaid for medically unnecessary diagnostic tests. And while Baltimore ophthalmologist John Arthur Kiely agreed in March 2014 to pay $1.4 million to resolve allegations made under the FCA that he submitted false claims for glaucoma surgeries that were not medically necessary, Dr. Salomon Melgen, an ophthalmologist in the Southern District of Florida, was not so lucky. Charged in April 2015 with 46 counts of healthcare fraud for billing Medicare for allegedly medically unnecessary laser surgeries and eye injections used to treat age-related macular degeneration and retinal disorders, he currently faces up to 10 years in prison on the healthcare fraud counts.

Like Melgen, dermatologist Amir Bajoghli found himself defending against felony charges rather than civil FCA claims arising out of his billing Medicare, Tricare, and other insurance plans for Mohs micrographic surgery and complex wound repairs that the government alleged were medically unnecessary. According to the government, Dr. Bajoghli had intentionally misdiagnosed benign lesions as cancerous so that patients would be forced to undergo unnecessary Mohs surgery to remove the lesions. Although he faced over 40 counts of healthcare fraud, a federal jury in the Eastern District of Virginia acquitted him on November 30, 2015, after a five-week trial during which the government contended that Bajoghli had, in at least 80 instances, lied about the presence of cancer when in fact “there was no cancer there.” The defense was able to refute the government’s theory of the case by establishing through the use of medical experts that Bajoghli never performed Mohs surgery on a lesion he did not believe was cancerous, with at least one expert testifying that he agreed with over 90% of Bajoghli’s diagnoses. Such testimony demonstrated the complicated and subjective nature of analyzing skin cells and diagnosing lesions as cancerous or pre-cancerous, thus casting reasonable doubt on Bajoghli’s alleged intent to defraud.[2]

The Bajoghli verdict underscores not only the difficulty of proving the requisite intent in criminal healthcare fraud cases, but also the importance of early and aggressive use of expert testimony where the medical necessity of procedures or services is at issue. For example, in United States v. Rutgard,[3] the Ninth Circuit held that where two expert ophthalmologists, (neither of whom had seen the patient), disagreed as to whether the performance of cataract surgery on an eye with a hole at its center is ever medically necessary, and one testified that the patient’s chart met Medicare standards, no reasonable juror could conclude beyond a reasonable doubt that the defendant ophthalmologist knew the surgery on the patient’s left eye was medically unnecessary, and the evidence was insufficient to establish fraud.

Providers and their counsel must be able to establish that the services at issue were medically necessary; or, at the very least, that reasonable persons could disagree over the medical necessity of the procedure or services, and this is often possible only through the use of highly qualified medical experts. In addition to medical experts, the testimony of patients and their family members that the services provided were medically necessary can also be an effective defense strategy. Experts may also be necessary to establish that the services provided were consistent with national and local coverage determinations and other published guidance.

In the tradition of the best defense being a good offense, providers can reduce their exposure by:

• Keeping complete and accurate documentation not only of the medical necessity of procedures and services, but of the medical decision-making underlying determinations of medical necessity
• Avoiding the use of EMR features such as copy and paste, which may give the appearance of fraud associated with “cloned documentation” and over-documentation
• Implementing a compliance program that not only encompasses coding and billing, but that evaluates the quality of the medical services provided and ensures that those services are supported by medical necessity that is appropriately and adequately documented in the records

[1] 42 U.S.C. § 1395y(a)(1)(A); 42 C.F.R. § 402.3

[2] The acquittal was obtained despite the vigorously contested admission of evidence of post-scheme conduct, evidence that was not directly related to one of the 53 specifically charged executions, and other prejudicial financial information, which the government introduced to prove fraudulent intent and consciousness of guilt.

[3] 116 F.3d 1270, 1283 (9th Cir. 1997).