Are Allegations of Lack of Medical Necessity in False Claims Act Cases a Basis for Settlement or Trial?

Although, when announcing its focus, the government listed opioid pill mills, ambulance services and other high profile targets, a review of settlements in False Claims Act cases over the last year suggests other, less attention grabbing, targets; that is hospices, rehab services, acute care facilities, specialty labs and other providers dealing with particularly compromised patient populations where treatment options are not always clear. What these settlements often have in common is that the underlying complaints allege that the services that were rendered and reimbursed lacked medical necessity.

The Department of Justice appears content to resolve such cases with large penalties, without requiring any kind of admission from the settling healthcare provider, making settling an appealing option even where the provider stands behind the medical need for the service. Indeed, in certain recent cases, the settling entities have been permitted to issue press releases strongly disagreeing with the government's allegations and noting that the only reason they have agreed to settle for a significant payment was to save money on legal fees and avoid the uncertainty of a trial in order to better serve the shareholders and the business. That said, a public settlement can and often does result in follow-on litigation and can hurt the entity in the court of public opinion. This makes the decision to settle or fight the allegations in a contested False Claims Act case alleging medically unnecessary services an important one.

'Medical Necessity' and 'Standard Medical Practice'

The Centers for Medicare and Medicaid Services (CMS) cover services that are “reasonable and necessary.” On the Medicare.gov website the term “medically necessary” is defined for beneficiaries as follows:

“Services or supplies that are needed for the diagnosis or treatment of your medical condition and meet accepted standards of medical practice.”