Clinical laboratories are in a difficult position: although laboratory tests must be medically necessary to be reimbursable by federal healthcare programmes, laboratories often do not directly engage with patients in a way that would permit them to assess medical necessity. A district court recently corrected its ruling regarding the extent to which laboratories can be held liable under the False Claims Act when the tests for which they submit claims are not medically necessary.(1)

Overview

In Summer 2017 a district court denied in part Boston Heart Diagnostics Corporation's motion to dismiss, explaining that because laboratories certify on claim forms submitted to federal healthcare programmes that tests are medically necessary, they have an independent obligation to determine medical necessity in order for that certification not to be false. Boston Heart filed a motion for reconsideration.

The district court recently refined its analysis to rule that laboratories may rely on the ordering physician's determination that a test is medically necessary.

Decision

To reach this conclusion, the court first looked to guidance from the Department of Health and Human Services Office of Inspector General (OIG), which clarifies that while laboratories must take reasonable steps to guard against their submission of claims for medically unnecessary tests, laboratories "do not and cannot treat patients or make medical necessity determinations". Accordingly, the precautions expected by the OIG cannot encompass medical decision making. The court reasoned that had the OIG intended to impose an independent duty to verify the medical necessity representations of treating physicians on laboratories, it would have explicitly described such an obligation.

Second, the court turned to preamble guidance. Congress mandated the use of a negotiated rulemaking committee to develop coverage policies for laboratory services. The preamble to the committee's final rule acknowledged that laboratories are required by statute to certify to the medical necessity of their test claims. Nonetheless, the committee recognised the special circumstances that arise for entities such as laboratories that generally do not interface directly with patients. As such, the committee's discussion of laboratory duties focused on recordkeeping, and the court interpreted this limited view as a deliberate assignment of medical necessity determinations solely to physicians.

Despite recognising its error, the court ruled that it had appropriately denied Boston Heart's motion to dismiss these claims. This is because the relator had alleged that through a false marketing campaign, Boston Heart actively encouraged providers to order medically unnecessary tests. While Boston Heart had no duty to verify the medical necessity of the tests ultimately ordered, the court viewed the alleged scheme as violating Boston Heart's "legal duty to ensure that it is not submitting false or incorrect claims" to federal healthcare programmes. In light of the alleged false marketing statements, the court ruled that the relator had adequately pled a theory of False Claims Act liability.

A copy of the court's opinion can be found here.

For further information on this topic, please contact Scott D Stein at Sidley Austin LLP's Chicago office by telephone (+1 312 853 7000) or email (sstein@sidley.com). Alternatively, contact Brenna E Jenny at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000) or email (bjenny@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

Endnotes

(1) United States ex rel Groat v Boston Heart Diagnostics Corp, 15-cv-487 (DDC, December 11 2017).

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