Debate Over Medical Necessity: When Does Performance of a Service Become Fraud?

A recent story in the Washington Post considered the increasing debate over when certain surgeries or other services are medically necessary, using spinal fusion as the primary example.  The concern centers on both the quality of patient care and the potential increased costs to the healthcare system.  Spinal fusion, as presented in the Washington Post story, provides a good example of the issue because it is as the heart of a major whistleblower suit that is currently pending in Florida, U.S. ex rel Baklid-Kunz v Halifax Health Medical Center.

In that suit, Elin Baklid-Kunz, a former compliance official at Halifax Health, became concerned about the number of spinal fusion surgeries that Dr. Federico Vinas was performing and signs of unusual productivity in other areas of the hospital’s operations.  A large part of the concern centered upon the allegation that the physicians’ compensation created incentives to perform more procedures.  For example, surgeons were able to earn as much as multi-thousands of dollars extra per procedure.  In the suit, Ms. Baklid-Kunz alleged that the surgeons performed procedures that were not medically necessary, in part because of the opportunity to earn additional compensation.  The essential question in the suit centers on whether the spinal fusion surgeries were medically necessary.

The healthcare industry has long focused on ways to address the combined issue of medical necessity and increased cost.  Traditionally, the healthcare system has compensated physicians and facilities on a per procedure or per service basis.  When compensation is based on a per service basis, the compensation model inherently incentivizes providers to perform more service.

However, it is not just the providers who are part of this system.  Insurers have been willing to pay for services on this basis as well.  The leading insurer in the country, Medicare, often sets the tone for the rest of the country as to what medical services will be covered.  In recognition of this dynamic, the government has previously tried to address how services will be covered and what can be deemed medically necessary.  Many attempts have been tried over the years, including the creation of the National Center for Health Care Technology in 1978 and the Agency for Health Care Policy and Research in 1989.  Each time, such a government agency tried to make recommendations to address the issues, negative reactions quickly followed from interested parties (such as medical device industry groups and provider organizations) that would result in Congress essentially defunding the agencies.  As Sean Tunis, former Chief Medical Officer at Medicare said, “If you get too close to actually changing how clinical or reimbursement decisions are made, Congress is going to slap you down.”

Private insurers often follow Medicare’s lead when determining how to set reimbursement and coverage requirements.  Accordingly, private insurers suggest that it can be difficult for them to get out front on an issue.  To some degree, private insurers express concern about public backlash if perceived as trying to force a change different than Medicare.  The Washington Post story refers to negative public coverage one North Carolina insurer received when it tried to reduce the number of spinal fusion surgeries.

What does all of this mean for the provision of care and healthcare costs?  A lot may depend upon the outcome of the suit brought by Ms. Baklid-Kunz.  Ms. Baklid-Kunz is alleging that since the surgeries were medically unnecessary procedures, those procuedres should not have been paid for by the government.  If her claims are successful, then Halifax Health will likely need to return millions of dollars to the government.  A successful suit could also encourage potential whistleblowers in other organizations to challenge the procedures performed by providers at their facilities in hopes of obtaining a similar payday.

However, retrospective lawsuits that second guess a provider’s clinical decision making do not seem to the best way to change how services are provided and reimbursements are set.  Recent reform efforts seem to be going in the direction of shifting how payments are made.  In Massachusetts, the second round of healthcare reform, Chapter 224, encourages the adoption of alternative payment methodologies that are not based on a fee-for-service model.  Provisions of Chapter 224 and the Affordable Care Act also strongly encourage coordination and efficiency of care.  These concepts could remove the incentive for providers to perform allegedly unnecessary services.  Only time and the outcome of lawsuits, present and future, may tell what, if anything, will change.

About Matt Fisher

Matt is the chair of Mirick O'Connell's Health Law Group and a partner in the firm's Business Group. Matt focuses his practice on health law and all areas of corporate transactions. Matt's health law practice includes advising clients with regulatory, fraud, abuse, and compliance issues. With regard to regulatory matters, Matt advises clients to ensure that contracts, agreements and other business arrangements meet both federal and state statutory and regulatory requirements. Matt's regulatory advice focuses on complying with requirements of the Stark Law, Anti-Kickback Statute, fraud and abuse regulations, licensing requirements and HIPAA. Matt also advises clients on compliance policies to develop appropriate monitoring and oversight of operations.
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