Azar v. Allina: The Truth About Medicare Coverage Determinations, LCD’s and NCD’s

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Local Coverage Determinations (“LCDs”) are issued by Medicare Advantage Contractors (“MACs”), which are nothing more than interpretive guidance that do not go through formal rulemaking process. The U.S. Supreme Court recently held in Azar v. Allina Health Services that interpretive guidance does not bind health care providers unless promulgated through the notice-and-comment procedures required by the Medicare statute—which the LCDs were not.[1] The Medicare Act provides that no payment may be made to a physician under Medicare Part B if the items or services are not “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”[2] Consequently, to obtain Medicare reimbursement, providers must make certifications relating to the services they have provided to patients—including a certification of medical necessity.[3]

The Department of Health and Human Services (“HHS”) decides “whether a particular medical service is ‘reasonable and necessary’ . . . by promulgating a generally applicable rule or by allowing individual adjudication.”[4] The former course involves a National Coverage Determination (“NCD”). Through NCDs, HHS announces “whether or not a particular item or service is covered nationally.”[5] Under the current statute, HHS is required to use notice-and-comment procedures to promulgate NCDs—allowing at least 30 days for public comment before a final decision is made.[6] NCDs are binding and have the force of law.[7]

In the absence of an NCD, whether an item or service is covered by Medicare may be determined by local MACs. A MAC may issue an LCD, which announces “whether or not a particular item or service is covered” by that particular contractor.[8] By statute, LCDs must be published on the contractor’s website for a minimum of 45 days before they become effective.[9] Otherwise, however, LCDs are quite different from NCDs because: (a) they are not subject to formal notice-and-comment procedures; (b) they do not apply at all beyond the individual contractor that has adopted them; and (c) they are not binding on the agency.[10]

Until Allina, some courts assumed based on the “very limited case law on the question” that the submission of “claims that are contrary to an LCD can—under certain circumstances—give rise to FCA liability for non-compliance.”[11] These courts likened LCDs to “agency interpretations contained in policy statements, manuals, and enforcement guidelines” that, while “not entitled to the force of law,” can be “conclusive as to matters that they address[].”[12] They rejected the notion that “LCDs are advisory or not authoritative” and instead treated them as “gap-fillers” to be used “where there [are] no national rule[s]” that are “mandatory for the areas they cover.” Lederman, 2014 U.S. Dist. LEXIS 65666, at *11–13. Based on that supposition, these courts allowed alleged noncompliance with LCDs to serve as a basis for liability under the FCA.[13]

This assumption that noncompliance with an LCD could trigger FCA liability rested upon on another assumption: that LCDs could be treated as binding on providers without having been promulgated through the notice-and-comment statute that Congress drafted specifically for Medicare in 1987. That statute provides:

No rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under this title shall take effect unless it is promulgated by the [HHS] Secretary by regulation [via notice-and-comment rulemaking].

42 U.S.C. § 1395hh(a)(2)(emphasis added).

Over time, lower courts assumed that this provision mirrors the Administrative Procedure Act (“APA”), such that—while “substantive” rules must be promulgated via notice and comment—so-called “interpretive” rules do not.[14] But in Allina, the Supreme Court held that this assumption is misplaced. Rather, section 1395hh(a)(2)is broader than the APA and requires even so-called “interpretive” guidance to go through formal rulemaking to be valid.[15]

In Allina, a group of hospitals argued that the government violated the Medicare Act by announcing a new policy on “Medicare fractions” concerning care provided to low-income patients without proceeding through notice and comment. Id. at 1810. The government “admitted that it hadn’t provided notice and comment but argued it wasn’t required to do so in these circumstances” because the new policy amounted only to an “interpretive legal standard” (as opposed to a substantive one) “that merely advise[d] the public of the agency’s construction of the statutes and rules which it administers.” Id. at 1810-11 (emphasis and quotations omitted). However, the court ruled that “[t]he government’s interpretation can’t be right” because the Medicare Act “doesn’t use the word ‘substantive’ in the same way the APA does–to identify only those legal standards that have the ‘force and effect of law.”’ Id. at 1811. Rather, the Medicare Act’s conception of “substantive legal standards” is broader than the APA’s, such that even so-called interpretive rules must be promulgated via notice and comment. Id. at 1813-15.

Considering the uncertainty surrounding the promulgation of LCDs, using these determinations as evidence to criminally convict Dr. Lewis is arguably inflammatory under Fed. R. Evid. 403. Unfair prejudice arises from the inordinate weight that a jury is likely to give to the determinations reached by a government fact-finding body. Admitting such a guideline, risks usurping the proper role of the jury as fact finder. Legal conclusions contained within government reports generally fall outside the scope of the rule’s exceptions, as a jury will improperly defer to an agency’s conclusions. Courts are hesitant to treat as factual findings statements in a draft report or mere recommendations directed to a full agency or third party. As explained in Hines v. Brandon Steel Decks, Inc. “[c]onclusions are inadmissible because the jury would have no way of knowing whether the preparer of the report was cognizant of the requirements underlying the legal conclusion and, if not, whether the preparer might have a higher or lower standard than the law requires.” 886 F.2d 299, 303 (11th Cir. 1989). LCDs refer to standards of care[16] which are generally evaluated in negligence claims and are not the proper standard to evaluate criminal convictions. “Where intent of the accused is an ingredient of the crime charged, its existence is a question of fact which must be submitted to the jury.”Morissette v. United States, 342 U.S. 246, 274 (1952). Therefore, the trial court should not present any evidence that prejudges or creates “presumptive intent.” This would “conflict with the overriding presumption of innocence with which the law endows the accused, and which extends to every element of the crime. Such incriminating presumptions are not to be improvised by the judiciary.” Id at 275.

Further, the LCDs may mislead the jury as they are not thoroughly conclusive. A number of cases excluded agency reports that did not conform to the Rule 803(8)(c) hearsay exception.[17] In Toole v. McClintock, the court reversed the admission of an FDA report under Rule 803(8)(c) because the report contained, by its own terms, only “proposed findings” still subject to revision and further study. In reaching its conclusion, the Eleventh Circuit noted that the FDA report contained only proposed findings about the general area of products implicated in the case and not the specific product at issue. According to the Eleventh Circuit, Rule 803(8)(c) did not extend to proposed findings not adopted or approved by the agency. Here, L34588 admits that there is no laboratory or imaging test for establishing the diagnosis of trigger points and further gives a practitioner leeway to provide his/her rationale for providing the service for the unlisted diagnosis in the patient’s medical records. In United States v. Gray, the court affirmed the exclusion of an Internal Revenue Service referral report pursuant to Rule 803(8)(c), because the report was only a tentative internal document that did not state any factual findings by the agency.

The government cannot show that the procedures at issue violated any binding requirements, therefore, it is left to rely on an amorphous notion of “medical necessity.” But “liability for an FCA violation may not be premised on subjective interpretations of imprecise statutory language such as ‘medically reasonable and necessary.”’ United States v. Gardens Reg’l Hosp. & Med. Ctr., Inc., 2017 U.S. Dist. LEXIS 221356, at *20 (C.D. Cal. Dec. 29, 2017). In fact, 42 C.F.R. § 405.1062(a), specifically states “ALJs and attorney adjudicators and the Council are not bound by LCDs, LMRPs, or CMS program guidance, such as program memoranda and manual instructions…”[18] Surely if the Medicare Appeals Council and administrative judges are not bound by LCDs, their use in criminal trials is more prejudicial than probative. Without controlling guidance promulgated through the notice-and-comment procedures required by the Medicare statute that defines “medical necessity” in a particular medical context, allegations of lack of medical necessity based on the supposed standards of care fail to provide any relevance.

[1]139 S.Ct. 1804, 1813–15 (2019); but see Erringer v. Thompson, 371 F.3d 625 (9th Cir 2004) (“there seems to be no reason to doubt that the manual provisions [of the LCD] interpret the specific ‘reasonable and necessary’ mandate of the statute. Thus there is no indication of an explicit invocation of legislative authority”).

[2]42 U.S.C. § 1395y(a)(1)(A).

[3]See42 U.S.C. § 1395f(a)(2)–(3).)

[4]Heckler v. Ringer, 466 U.S. 602, 617 (1984)

[5]42 U.S.C. § 1395ff(f)(1)(B)

[6]42 U.S.C. § 1395y(l)(3); see also 78 Fed. Reg. 48,164 (Aug. 7, 2013)

[7]See42 C.F.R. § 405.1060; see also United States v. Adams, 371 F. Supp. 3d 1195, 1213 (N.D. Ga. 2019)(“NCDs are considered substantive rules, which carry the force of law”).

[8]42 U.S.C. § 1395ff(f)(2)(B)

[9] 42 U.S.C. § 1395y(1)(5)(D)

[10] See 68 Fed. Reg. 63,692, 63,693 (Nov. 7, 2003)

[11] United States v. Sklar, 273 F. Supp. 3d 889, 896 (N.D. Ill. 2017) (holding that “LCDs are binding” on health care providers); but see United States ex rel. McMullen v. Ascension Health, No. 3-12-0501, 2013 U.S. Dist. LEXIS 163739, at *6 n.3 (M.D. Tenn. Nov. 18, 2013) (calling into question whether LCDs “issued by contractors, not by the Government,” can bind providers for FCA purposes, and noting that the relator “d[id] not cite to a statute or regulation that conditions payment of a Medicare claim on compliance with any LCD”).

[12] Adams, 371 F. Supp. 3d at 1213 (citing United States ex rel. Ryan v. Lederman, 2014 U.S. Dist. LEXIS 65666, at *12 (E.D.N.Y. May 13, 2014)).

[13] (See, e.g., id. at *15; Sklar, 273 F. Supp. 3d at 897–98.)

[14]See, e.g., Abraham Lincoln Mem’l Hosp. v. Sebelius, 2011 U.S. Dist. LEXIS 61947, at *31 (C.D. Ill. June 7, 2011) (“The courts that have considered this issue have concluded or assumed without deciding that Section 1395hhimposes no standards greater than those established by the APA”).

[15] 139 S. Ct. 1804, 1810 (2019)

[16] According to the Medicare glossary, medically necessary refers to: “Health care services or supplies needed to diagnose or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.” https://www.medicare.gov/glossary/m

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Azar v. Allina: The Truth About Medicare Coverage Determinations, LCD’s and NCD’s

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Local Coverage Determinations (“LCDs”) are issued by Medicare Advantage Contractors (“MACs”), which are nothing more than interpretive guidance that do not go through formal rulemaking process. The U.S. Supreme Court recently held in Azar v. Allina Health Services that interpretive guidance does not bind health care providers unless promulgated through the notice-and-comment procedures required by the Medicare statute—which the LCDs were not.[1] The Medicare Act provides that no payment may be made to a physician under Medicare Part B if the items or services are not “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”[2] Consequently, to obtain Medicare reimbursement, providers must make certifications relating to the services they have provided to patients—including a certification of medical necessity.[3]

The Department of Health and Human Services (“HHS”) decides “whether a particular medical service is ‘reasonable and necessary’ . . . by promulgating a generally applicable rule or by allowing individual adjudication.”[4] The former course involves a National Coverage Determination (“NCD”). Through NCDs, HHS announces “whether or not a particular item or service is covered nationally.”[5] Under the current statute, HHS is required to use notice-and-comment procedures to promulgate NCDs—allowing at least 30 days for public comment before a final decision is made.[6] NCDs are binding and have the force of law.[7]

In the absence of an NCD, whether an item or service is covered by Medicare may be determined by local MACs. A MAC may issue an LCD, which announces “whether or not a particular item or service is covered” by that particular contractor.[8] By statute, LCDs must be published on the contractor’s website for a minimum of 45 days before they become effective.[9] Otherwise, however, LCDs are quite different from NCDs because: (a) they are not subject to formal notice-and-comment procedures; (b) they do not apply at all beyond the individual contractor that has adopted them; and (c) they are not binding on the agency.[10]

Until Allina, some courts assumed based on the “very limited case law on the question” that the submission of “claims that are contrary to an LCD can—under certain circumstances—give rise to FCA liability for non-compliance.”[11] These courts likened LCDs to “agency interpretations contained in policy statements, manuals, and enforcement guidelines” that, while “not entitled to the force of law,” can be “conclusive as to matters that they address[].”[12] They rejected the notion that “LCDs are advisory or not authoritative” and instead treated them as “gap-fillers” to be used “where there [are] no national rule[s]” that are “mandatory for the areas they cover.” Lederman, 2014 U.S. Dist. LEXIS 65666, at *11–13. Based on that supposition, these courts allowed alleged noncompliance with LCDs to serve as a basis for liability under the FCA.[13]

This assumption that noncompliance with an LCD could trigger FCA liability rested upon on another assumption: that LCDs could be treated as binding on providers without having been promulgated through the notice-and-comment statute that Congress drafted specifically for Medicare in 1987. That statute provides:

No rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under this title shall take effect unless it is promulgated by the [HHS] Secretary by regulation [via notice-and-comment rulemaking].

42 U.S.C. § 1395hh(a)(2)(emphasis added).

Over time, lower courts assumed that this provision mirrors the Administrative Procedure Act (“APA”), such that—while “substantive” rules must be promulgated via notice and comment—so-called “interpretive” rules do not.[14] But in Allina, the Supreme Court held that this assumption is misplaced. Rather, section 1395hh(a)(2)is broader than the APA and requires even so-called “interpretive” guidance to go through formal rulemaking to be valid.[15]

In Allina, a group of hospitals argued that the government violated the Medicare Act by announcing a new policy on “Medicare fractions” concerning care provided to low-income patients without proceeding through notice and comment. Id. at 1810. The government “admitted that it hadn’t provided notice and comment but argued it wasn’t required to do so in these circumstances” because the new policy amounted only to an “interpretive legal standard” (as opposed to a substantive one) “that merely advise[d] the public of the agency’s construction of the statutes and rules which it administers.” Id. at 1810-11 (emphasis and quotations omitted). However, the court ruled that “[t]he government’s interpretation can’t be right” because the Medicare Act “doesn’t use the word ‘substantive’ in the same way the APA does–to identify only those legal standards that have the ‘force and effect of law.”’ Id. at 1811. Rather, the Medicare Act’s conception of “substantive legal standards” is broader than the APA’s, such that even so-called interpretive rules must be promulgated via notice and comment. Id. at 1813-15.

Considering the uncertainty surrounding the promulgation of LCDs, using these determinations as evidence to criminally convict Dr. Lewis is arguably inflammatory under Fed. R. Evid. 403. Unfair prejudice arises from the inordinate weight that a jury is likely to give to the determinations reached by a government fact-finding body. Admitting such a guideline, risks usurping the proper role of the jury as fact finder. Legal conclusions contained within government reports generally fall outside the scope of the rule’s exceptions, as a jury will improperly defer to an agency’s conclusions. Courts are hesitant to treat as factual findings statements in a draft report or mere recommendations directed to a full agency or third party. As explained in Hines v. Brandon Steel Decks, Inc. “[c]onclusions are inadmissible because the jury would have no way of knowing whether the preparer of the report was cognizant of the requirements underlying the legal conclusion and, if not, whether the preparer might have a higher or lower standard than the law requires.” 886 F.2d 299, 303 (11th Cir. 1989). LCDs refer to standards of care[16] which are generally evaluated in negligence claims and are not the proper standard to evaluate criminal convictions. “Where intent of the accused is an ingredient of the crime charged, its existence is a question of fact which must be submitted to the jury.”Morissette v. United States, 342 U.S. 246, 274 (1952). Therefore, the trial court should not present any evidence that prejudges or creates “presumptive intent.” This would “conflict with the overriding presumption of innocence with which the law endows the accused, and which extends to every element of the crime. Such incriminating presumptions are not to be improvised by the judiciary.” Id at 275.

Further, the LCDs may mislead the jury as they are not thoroughly conclusive. A number of cases excluded agency reports that did not conform to the Rule 803(8)(c) hearsay exception.[17] In Toole v. McClintock, the court reversed the admission of an FDA report under Rule 803(8)(c) because the report contained, by its own terms, only “proposed findings” still subject to revision and further study. In reaching its conclusion, the Eleventh Circuit noted that the FDA report contained only proposed findings about the general area of products implicated in the case and not the specific product at issue. According to the Eleventh Circuit, Rule 803(8)(c) did not extend to proposed findings not adopted or approved by the agency. Here, L34588 admits that there is no laboratory or imaging test for establishing the diagnosis of trigger points and further gives a practitioner leeway to provide his/her rationale for providing the service for the unlisted diagnosis in the patient’s medical records. In United States v. Gray, the court affirmed the exclusion of an Internal Revenue Service referral report pursuant to Rule 803(8)(c), because the report was only a tentative internal document that did not state any factual findings by the agency.

The government cannot show that the procedures at issue violated any binding requirements, therefore, it is left to rely on an amorphous notion of “medical necessity.” But “liability for an FCA violation may not be premised on subjective interpretations of imprecise statutory language such as ‘medically reasonable and necessary.”’ United States v. Gardens Reg’l Hosp. & Med. Ctr., Inc., 2017 U.S. Dist. LEXIS 221356, at *20 (C.D. Cal. Dec. 29, 2017). In fact, 42 C.F.R. § 405.1062(a), specifically states “ALJs and attorney adjudicators and the Council are not bound by LCDs, LMRPs, or CMS program guidance, such as program memoranda and manual instructions…”[18] Surely if the Medicare Appeals Council and administrative judges are not bound by LCDs, their use in criminal trials is more prejudicial than probative. Without controlling guidance promulgated through the notice-and-comment procedures required by the Medicare statute that defines “medical necessity” in a particular medical context, allegations of lack of medical necessity based on the supposed standards of care fail to provide any relevance.

[1]139 S.Ct. 1804, 1813–15 (2019); but see Erringer v. Thompson, 371 F.3d 625 (9th Cir 2004) (“there seems to be no reason to doubt that the manual provisions [of the LCD] interpret the specific ‘reasonable and necessary’ mandate of the statute. Thus there is no indication of an explicit invocation of legislative authority”).

[2]42 U.S.C. § 1395y(a)(1)(A).

[3]See42 U.S.C. § 1395f(a)(2)–(3).)

[4]Heckler v. Ringer, 466 U.S. 602, 617 (1984)

[5]42 U.S.C. § 1395ff(f)(1)(B)

[6]42 U.S.C. § 1395y(l)(3); see also 78 Fed. Reg. 48,164 (Aug. 7, 2013)

[7]See42 C.F.R. § 405.1060; see also United States v. Adams, 371 F. Supp. 3d 1195, 1213 (N.D. Ga. 2019)(“NCDs are considered substantive rules, which carry the force of law”).

[8]42 U.S.C. § 1395ff(f)(2)(B)

[9] 42 U.S.C. § 1395y(1)(5)(D)

[10] See 68 Fed. Reg. 63,692, 63,693 (Nov. 7, 2003)

[11] United States v. Sklar, 273 F. Supp. 3d 889, 896 (N.D. Ill. 2017) (holding that “LCDs are binding” on health care providers); but see United States ex rel. McMullen v. Ascension Health, No. 3-12-0501, 2013 U.S. Dist. LEXIS 163739, at *6 n.3 (M.D. Tenn. Nov. 18, 2013) (calling into question whether LCDs “issued by contractors, not by the Government,” can bind providers for FCA purposes, and noting that the relator “d[id] not cite to a statute or regulation that conditions payment of a Medicare claim on compliance with any LCD”).

[12] Adams, 371 F. Supp. 3d at 1213 (citing United States ex rel. Ryan v. Lederman, 2014 U.S. Dist. LEXIS 65666, at *12 (E.D.N.Y. May 13, 2014)).

[13] (See, e.g., id. at *15; Sklar, 273 F. Supp. 3d at 897–98.)

[14]See, e.g., Abraham Lincoln Mem’l Hosp. v. Sebelius, 2011 U.S. Dist. LEXIS 61947, at *31 (C.D. Ill. June 7, 2011) (“The courts that have considered this issue have concluded or assumed without deciding that Section 1395hhimposes no standards greater than those established by the APA”).

[15] 139 S. Ct. 1804, 1810 (2019)

[16] According to the Medicare glossary, medically necessary refers to: “Health care services or supplies needed to diagnose or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.” https://www.medicare.gov/glossary/m

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