Medical Necessity Under Kassebaum-Kennedy

Lawrence R. Huntoon, MD, PhD
Article Type: 
Medical Ethics and Managed Care
July/August 1998
Volume Number: 
Issue Number: 

They're federal agents...they're coming through the front door of YOUR office to conduct a Medicare investigation...their guns are drawn and they're pointed in YOUR direction. Tiny little beads of sweat start to form on your forehead as you peer down the barrel of the agent's gun, anxiously waiting for what comes next. Make my day? Nope. A riddle: What's vague, undefined and can hurt you...a lot? Answer: "Medical Necessity."(1)

This seemingly innocuous term poses a significant threat to physicians under both the Medicare program and the Health Insurance Portability and Accountability Act (HIPAA). Medicare officials or overzealous prosecutors clearly can use the term medical necessity to mean whatever they say it means. And, who might be making these determinations? Well, a General Accounting Office study published several years ago reported that in the Medicare program "Only 1 out of 100 medical claims are ever examined by a doctor or nurse. The rest are reviewed by high-school educated claims processors who are forced to pass judgment on as many as 400 claims per working day, or one every 72 seconds."(2) That should give all of us pause for thought if not terrified concern.

There are those who say, however, that "there is no strong evidence that the government will attempt to convert routine payment denials into fraud and abuse cases."(3) But, what is a routine payment denial? How many routine denials does it take for the government to establish a "pattern" of fraud against a physician? And, if you differ with Medicare or government officials on what is medically necessary, can it land you in prison?...Even if you have an expert witness on your side who supports your position? The answer is clearly "Yes." What's more, in the case of U.S.A. v. Jeffrey J. Rutgard (U.S. 9th Cir. Co. 95-50309), government prosecutors came very close to setting a very dangerous precedent. Government prosecutors extrapolated from a few claims (0.4% of the physician's billings) to argue that the physician's entire practice had thus been fraudulent. The underlying implication was that the physician should be considered guilty until proven innocent, and that the government need not prove each and every instance of fraud. The result was 11 years in jail and $16 million in restitution for Rutgard. Thanks to quick and decisive action by the AAPS, and the compelling amicus curiae brief filed by one very talented attorney, Andrew Schlafly, J.D., the government's abusive extrapolation scheme has been thrown out on its ear. The second "home run" hit as a result of the AAPS's amicus curiae brief is that reasonable doubt is created when medical experts disagree on the medical necessity of a treatment or procedure, and where there is reasonable doubt, the physician ought not be found guilty of a crime.(4)

And to be sure, all of us would like to prevent ourselves from becoming victims of the "mountie looking for his bounty," but under HIPAA, we are all potential targets. One group whose focus is prevention had this to say about the issue: "By creating a health care fraud and abuse account supported by fines and forfeitures authorized by HIPAA to be used to pay the salaries and operations of those who investigate health fraud and abuse, HIPAA creates an untoward incentive, a conflict of interest, whereby health fraud and abuse investigators may benefit personally by ensuring that the largest number of physicians are audited, investigated, and inspected in order that a larger pool will be fined and prosecuted for health fraud and abuse."(5) Want a raise? Looking to upgrade to a luxury car? No problem if you're a health care fraud investigator. Just round up about 10 physicians, threaten the beegeebers out of them, and 4 or 5 are bound to cough up a hefty "settlement" without a fight --- easier and less risky than robbing banks, and its all in a day's work. Its like paying somebody to rob people!

Actually, we need look no farther than the PATH (Physicians At Teaching Hospitals) program to see what abusive and coercive tactics have, in fact, already been used by government investigators to extort large settlements from targeted "providers."(6) With the leverage of treble damages and $10,000 per incident --- and given the high cost of proving one's innocence (often in the six figure range) --- the pressure to "settle" will be tremendous for anyone who is merely accused of committing a health care crime. We note that if a group of private citizens engaged in such a widespread and organized extortion enterprise, they would very likely be prosecuted for extortion under RICO and would likely spend the rest of their lives in jail. Government prosecutors, however, will likely be rewarded with bonuses and salary increases instead. We must recognize that these same Big Government bullying techniques used in the Medicare program are a clear and present danger under HIPAA as well.

And last but not least, as far as government commandos storming into our offices with guns drawn is concerned,1 my best advice, based upon my experience with the incompetent and bungling Medicare bureaucracy, would be to purchase and wear a bullet-proof vest at all times while in your office practicing medicine.




1. Should fraud squads threaten deadly force? AAPS News, Vol. 53, No.6, June 1997.
2. Mitka M. High school grads say what's "medically necessary." American Medical News, Sept. 20, 1993.
3. Mazer RE. Fraud and abuse amendments require careful attention from internists. Today's Internist, January/February 1997, p.18.
4. Interested readers can read more about this in Court Proceedings, Vol. 1, No. 7, 1997 published by the Bureau of National Affairs, Inc. or in AAPS News, May 1997, Vol. 53, No. 5.
5. Evaluation of the Civil and Criminal Penalty Section of the Health Insurance Portability And Accountability Act of 1996 and Recommended Avenues for Solutions to Identified Problems. American Preventive Medical Association, January 21, 1997.
6. Dangerous PATH. American Medical News, May 26, 1997, p.19.

Dr. Huntoon is a neurologist in Jamestown, New York, and serves on the Editorial Board of the Medical Sentinel.

Originally published in the Medical Sentinel 1998;3(4):147-148. Copyright©1998 Association of American Physicians and Surgeons (AAPS).

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