Labs Wage Legal Fights Over Fees, Medical Necessity Checks

Medical labs that bill Medicare and Medicaid should closely track two recent legal developments concerning reimbursement rates and potential False Claims Act liability.

The American Clinical Laboratory Association (ACLA) followed through on a threat to file suit over $670 million in Medicare lab payment rate cuts scheduled to take effect in 2018. And a federal court ruled that medical labs don’t have to independently verify the medical necessity of tests ordered by physicians and billed to government health-care programs.

In ACLA’s lawsuit against the new fee schedule, the group said smaller labs in rural areas that provide services for skilled nursing facilities will face financial difficulties from the rate cuts and could be forced to close, resulting in “dramatically decrease[d] available services” and care quality for Medicare beneficiaries.

Karen S. Lovitch, a member of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in Washington and a Bloomberg Law advisory board member, told me that rural hospitals that accept lab orders from local unaffiliated physicians might curtail that aspect of local outreach under the new lower Medicare rates. The ACLA noted in its lawsuit that hospital labs charge higher rates and have higher costs than large independent testing labs, but were almost entirely excluded from the data that the Centers for Medicare & Medicaid Services used to calculate the 2018 rate schedule.

Lovitch said the new rate schedule, and the CMS’s exclusion of smaller private lab fee data from its pricing methodology, could lead to lower private lab fee rates over the long term if private insurers push for reimbursement rates to match rates paid by Medicare.

While the ACLA faces an uphill battle against the CMS over Medicare rates, the industry should “breathe a sigh of relief” at a Dec. 11 ruling in United States ex rel. Groat v. Bos. Heart Diagnostics Corp., according to Peter M. Kazon, senior counsel for Alston & Bird LLP in Washington.

The U.S. District Court for the District of Columbia walked back its own June 9 ruling in an FCA lawsuit that said clinical testing lab Boston Heart Diagnostics Corp. was required to independently verify the medical necessity of tests billed to Medicare and Medicaid. Judge Reggie B. Walton said that earlier judgment was erroneous and contrary to both Medicare regulations and guidance from the Department of Health and Human Services Office of Inspector General.

The impact would have been tremendous on diagnostic providers if the court’s prior ruling had stood, said Kazon, who represents labs and other diagnostic providers. Kazon told me that he hadn’t seen any other court go as far as this court did in placing an obligation on a lab to verify medical necessity, and he said other whistleblowers would have seized the issue to file other FCA lawsuits against labs if the ruling was followed by other courts.

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