Medical Necessity Considerations for Compliance Professionals

A fundamental tenet of healthcare billing compliance is that services must be medically necessary.

The Social Security Act, Section 1862(a) (1) (A), states the following as it relates to Medicare:

“No payment may be made under Part A or Part B for any expenses incurred for items or services not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

And, many Medicare Administrative Contractors (MACs) explain similar requirements. For example, one administrative contractor has posted the following on their website:

“The Medicare Administrative Contractor will determine if an item or service is “reasonable and necessary” under §1862(a) (1) (A) of the Act if the service is:

Safe and effective;

Not experimental or investigational; and

Appropriate, including the duration and frequency in terms of whether the service or item is:

    • Furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the beneficiary’s condition or to improve the function of a malformed body member;
    • Furnished in a setting appropriate to the beneficiary’s medical needs and condition;
    • Ordered and furnished by qualified personnel; and
    • One that meets, but does not exceed, the beneficiary’s medical need

For any service reported to Medicare, it is expected that the medical documentation clearly demonstrates that the service meets all of the above criteria. All documentation must be maintained in the patient’s medical record and be available to the contractor upon request.”1

Even with these types of statements, many providers continue to experience medical necessity woes – let's review a few of the most common issues.

#1. Laboratory Testing

Laboratory testing is ubiquitous in health care, as test results are often essential for diagnosis and therapeutic management of patients. Unfortunately, medically unnecessary tests are not uncommon and enforcement agencies and internal compliance programs rightfully monitor the appropriateness of laboratory tests.  The U.S. Department of Health and Human Services Office of Inspector General (OIG) has reported regularly on unnecessary laboratory testing. Some of their recent statements relate to tests during the COVID-19 pandemic. They expressed concerns about providers performing additional tests when conducting COVID-19 tests, such as expensive tests or services that may or may not be related to COVID-19.

For example, some laboratories were billing a COVID-19 test with other far more expensive tests, such as Respiratory Pathogen Panels (RPP), which test for a variety of respiratory infections along with COVID-19, and antibiotic resistance tests. Other potentially unnecessary tests billed along with COVID-19 tests include allergy, genetic, and cardiac panel testing. Some laboratories are also billing respiratory, gastrointestinal, genitourinary, and dermatologic pathogen code tests.

In fact, the OIG recently performed a focused review in this area and published their findings in a report titled, “Labs With Questionably High Billing for Additional Tests Alongside COVID-19 Tests Warrant Further Scrutiny.”2

In this report, the OIG concluded that 378 labs billed Medicare Part B for add-on tests at questionably high levels—in volume, payment amount, or both—compared to 19,199 other labs. This includes 276 labs that billed for high volumes of add-on tests on claims for COVID-19 tests, and 263 labs that billed for high payment amounts from add-on tests on claims for COVID-19 tests.

Based on this review, OIG is recommending further scrutiny of billing by outlier labs. They suggest these outlier labs exceeded the thresholds for one or both measures of questionable billing, raising concerns about potential waste or fraud.

#2. It’s Not Just the Feds

Though the federal government may have the biggest stick to wield when it comes to medical necessity enforcement, healthcare compliance professionals are seeing more and more enforcement at the state-level as well.

For example, in the State of New York, the Attorney General’s Medicaid Fraud Control Unit (MFCU) was instrumental in recently recovering over $430,000 from a pediatric dental organization. The settlement resolved allegations that some dentists performed medically unnecessary pulpotomies — often referred to as “baby root canals” — on pediatric patients.

A pulpotomy is a procedure to restore infected primary teeth in children whereby the dentist removes infected and damaged pulp from the upper part of the tooth and covers the remaining part of the child’s tooth with a filling or a crown. The dental organization admitted that the MFCU’s investigative findings, in some instances between 2011 and 2018, demonstrated affiliated dentists performed and billed Medicaid for therapeutic pulpotomies not supported by the medical records maintained at the dental practices. The case against the dental practices was initiated by a former employee, who will receive a portion of the settlement. The whistleblower lawsuit was filed under the qui tam provisions of the federal and New York False Claims Acts, which allows people to file civil actions on behalf of the government and share in any recovery.

Another example comes from the State of California. The Attorney General there announced securing a seven-year prison sentence against an orthopedic surgeon for repeatedly defrauding the Medi-Cal and Medicare programs. The fraud occurred over a four-year period and included the physician ordering excessive and medically unjustifiable X-rays on his patients. He was convicted of 10 felony counts of health care insurance fraud and sentenced to serve a seven-year prison sentence.  Regarding the case, the Attorney General stated, “Due to his dishonest behavior, patients at his clinic had to undergo unnecessary medical tests so he could steal from the state’s Medi-Cal funds. This sentence reaffirms what we know to be true: Abuse of power by medical practitioners will never be tolerated within our state’s healthcare system.”

The physician operated a medical clinic that cared for over 26,000 patients. After receiving tips about potential fraud, an investigation into the physician’s alleged misconduct led investigators to randomly select the files of five Medi-Cal patients and five Medicare patients.

These 10 files became the basis of the 10 felony charges. The investigation revealed the physician would administer X-rays even in routine office visits and would X-ray multiple parts of a patient's body — regardless of whether it had any relation to a patient’s medical condition.

Over the course of an approximate four-year period, evidence collected showed the doctor subjected ten individual patients to hundreds of unnecessary X-rays at his clinic.


Whether it is at the federal or state level, medical necessity has been and will continue to be scrutinized. Medical necessity scrutiny will not be limited to laboratory testing, dental services, or x-rays as described above. Any medical service could potentially be scrutinized for medical necessity. For example, the OIG has an active work plan item focused on the medical necessity of inpatient rehabilitation facility (IRF) services. Their prior work has demonstrated a lack of medical necessity for these types of services. One of their reports found that medical record documentation for 175 of 220 sampled IRF stays did not support that the IRF care was reasonable and necessary in accordance with Medicare requirements.

The list of types of services could go on and on. Regardless of the type of services a health care provider may bill for, it is essential that their compliance program have a plan in place to monitor medical necessity risks as they pertain to their organization.




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