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Medicaid Recoupment Based on Lack of Medical Necessity Not Permitted If Based on Review of Billing Records Alone

by Linda G. Rodrigue

On November 2, 2007, the Louisiana Court of Appeal for the First Circuit ruled that the Louisiana Medicaid Program may not recoup payments from a health care provider participating in Medicaid based solely on a billing record review when the basis for the alleged overpayment is that the services were not medically necessary. In Doc’s Clinic, APMC v. Louisiana Department of Health and Hospitals, No. 2007 CA 0480 (La.App. 1 Cir. 11/2/07), Doc’s Clinic appealed an Administrative Law Judge’s decision affirming an alleged overpayment of approximately $260,000.00. The Louisiana Department of Health and Hospitals (“DHH”) alleged that Doc’s Clinic had billed for medically unnecessary services, based on a billing record review by a nurse, with some assistance from a physician. DHH originally notified Doc’s Clinic of not only the alleged overpayment amount, but also of DHH’s intention to exclude the provider from the Medicaid Program participation.

Doc’s Clinic requested administrative review. There, an Administrative Law Judge recommended reversal of the exclusion of Doc’s Clinic from Medicaid participation, and recommended reversing the majority of the recoupment amount. The Secretary of DHH agreed to reverse the exclusion order but upheld the majority of the recoupment amount. Doc’s Clinic then sought judicial review of the Secretary’s decision. The trial court gave Doc’s Clinic no relief. However, the First Circuit did.

In its decision, the First Circuit determined that the post-payment review process utilized against Doc’s Clinic was “tainted”, in that the electronic claims submission process differed substantially from the universal HCFA 1500 form used to submit claims for reimbursement. The HCFA form allows for more than one diagnosis to be entered and for diagnoses and procedures to be cross-referenced, whereas the system utilized by DHH, through its intermediary, Unisys, does not allow providers to enter more than one diagnosis. Additionally, the Court agreed with Doc’s Clinic that DHH had improperly determined a lack of medical necessity based on a review of billing records alone. Doc’s Clinic had offered medical expert testimony that medical records are, at a minimum, helpful in making a proper medical necessity determination; however, recoupment of funds based on reviewing only the billing records cannot support a determination that services were medically unnecessary.

The Court of Appeal remanded the case to DHH to determine the amount of overpayments due in accordance with the findings and determination of the Administrative Law Judge. Finally, the Court awarded $7,500.00 in litigation expenses to Doc’s Clinic on the basis that DHH had acted without substantial justification.

This decision should be thoroughly reviewed. It identifies numerous practices by DHH that should be of concern to providers. Examples are admissions by Unisys representatives of having made mistakes in the overpayment determination process and that a review of medical records confirmed the medical necessity of procedures that had been deemed medically unnecessary. Overall, this decision is promising to health care providers in Louisiana. It demonstrates that, although agencies enjoy the privilege of deference from courts, the privilege is not absolute. Whether or not services are medically necessary should be determined, in large part, by review of all available medical records and with physician input.

Full post as published by Louisiana Law Blog on December 05, 2007 (boomark / email).