Investigating and Preventing Medically Unnecessary Procedures

• January 31, 2025

• Elizabeth Skinner
• Michael Bittman , Nelson Mullins Riley & Scarborough LLP
• Bob Wade , Nelson Mullins Riley & Scarborough LLP

The health care industry has had decades of experience directing and conducting compliance investigations for hospitals and other organizations. The most complex investigations involve allegations that surgeons and other interventionalists perform medically unnecessary procedures or services. This article addresses why these investigations are complex, how to identify medically unnecessary procedures, effective investigative techniques, and tips on prevention.

Most compliance investigations involve billing issues where the goal is to determine if there is a coding, documentation, or another unintentional error, correct the error going forward, and satisfy any retrospective liability in a legal manner. For example, if it is determined that an overpayment exists, we assist providers in quantifying the amount and making a report and refund. A provider’s failure to make a timely report and refund can lead to exposure under the federal and state False Claims Acts.[1]

To be clear, medical necessity reviews involve more than just a chart audit to ensure that the documentation in the medical record matches the claim. Medical necessity is a medical determination: was the procedure or service necessary based on the patient’s medical condition? By way of example, a patient may have some plaque buildup in the artery, but is the degree of buildup to the point making a stent placement medically necessary? If a stent is placed and most cardiologists would believe there was not sufficient blockage to put a patient through the stent placement procedure, an overpayment may result since the placement could be deemed not to be medically necessary.

Overpayments involving billing issues pale in comparison to the legal risks posed by the performance of medically unnecessary procedures. When allegations of medically unnecessary procedures are confirmed, swift corrective action must be taken keeping patient safety in the forefront. Even with prompt corrective actions, the performance of medically unnecessary procedures rightfully attracts the ire of law enforcement and attention of personal injury lawyers. The resulting “Perfect Storm” can enmesh a hospital in decades of protracted litigation resulting in significant reputational harm.

Understanding how to mitigate risk, avoid pitfalls and follow best practices with respect to partnerships among in-house counsel, compliance officers, billing and coding reviewers, peer reviewers, and outside legal counsel are important considerations in providing the best protection and defense of health care organizations and their employed or contracted providers. The purpose of this article is to give health care leaders and their counsel tools to identify and prevent the performance of unnecessary procedures. Collaborative efforts described in this article provide the best opportunity of protecting patients and minimizing legal, financial, and public relations risks.

Identification

Medical necessity standards and legal risks

Medical necessity is a Medicare payment principle used by other payors. No payment may be made under Medicare for a service that is “not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of the malformed body member.”[2] By billing Medicare for surgical procedures, both the physician and hospital or ambulatory surgery center (ASC) expressly or impliedly represent that the surgery or intervention is medically necessary. For example, the Centers for Medicare & Medicaid Services (CMS) 1500 claim form used by physicians to bill Medicare requires physicians to certify that “the services listed above were medically indicated and necessary to the health of this patient …”

Sources of medical necessity standards may be found in CMS national coverage determinations, Medicare Administrative Contractor (MAC) local coverage determinations, and national guidelines issued by medical societies, such as American College of Cardiology, American Heart Association/American Stroke Association.

The legal risks associated with performance of medically unnecessary surgeries include criminal, civil, and administrative penalties. All were on display in cases involving Dr. Richard Paulus and King’s Daughters Medical Center in Ashland, KY. In May 2014, the medical center paid $40.9 million to resolve allegations of false claims for medically unnecessary cardiac catheterizations and coronary stents, and for improper financial relationships with five employed cardiologists by paying compensation that was commercially unreasonable and in excess of fair market value. The medical center agreed to a five-year corporate integrity agreement and to cooperate in existing criminal and civil investigations of cardiologists.

One of its employed cardiologists, Dr. Paulus, was indicted on 26 counts of health care fraud and making false statements. Paulus ranked no. 1 in the U.S. for amounts billed to Medicare for angiograms, a cardiac catheterization procedure involving injection of contrast dye into heart arteries and x-rays to determine the amount of blockage. His annual salary exceeded $2.5 million, driven by the medical center’s per-procedure compensation package. The government's prosecution theory was that Paulus exaggerated the extent of blockages on angiograms so he could perform and bill for unnecessary cardiac procedures, including insertion of stents. The government relied on the American College of Cardiology recommendation that stents be placed in patients in two situations: (1) when angiogram reflects 70% or more blockage of a coronary artery; and (2) when angiogram reflects 50% or more blockage of a coronary artery, plus the patient experiences symptoms of cardiac distress. At trial, the government introduced the opinions of multiple physicians who concluded that Paulus overestimated the percentage of blockages revealed by angiograms resulting in medically unnecessary stent procedures. In defense, Paulus asserted that angiograms can be interpreted differently by different cardiologists, i.e., inter-observer variability, and his interpretations could not be false as a matter of law. The jury convicted Paulus of 11 counts of health care fraud and making false statements. In a post-verdict ruling, the district court entered a judgment of acquittal, ruling that the government failed to prove falsity or fraudulent intent because the amount of artery blockage is a "subjective medical opinion, incapable of confirmation or contradiction," not an "objectively verifiable fact subject to proof or disproof."

The appellate court reversed and reinstated the conviction.[3] The court explained that "[t]he degree of stenosis is a fact capable of proof or disproof. A doctor who deliberately inflates the blockage he sees on an angiogram has told a lie; if he does so to bill a more expensive procedure, then he has also committed fraud."[4] To be false under the fraud statutes a statement must be capable of confirmation or contradiction. Ordinarily, only facts can fit into this category; opinions when honestly given are almost never false. "[O]pinions may trigger liability for fraud when they are not honestly held …, or when the speaker knows of facts fundamentally incompatible with his opinion."[5] The jury was entitled to credit the "phalanx of experts who testified that Paulus systematically recorded severe blockages even when the angiograms only showed mild blockages or no blockage at all."[6]

Press coverage of the Department of Justice (DOJ) settlement and Paulus criminal case[7] spawned malpractice actions by hundreds of patients for unnecessary cardiac operations and lack of informed consent.

Sources of Medical Necessity Concerns

Allegations of medically unnecessary procedures can arise from numerous well-known sources familiar to most seasoned attorneys, compliance officers, and engaged executives. Complaints and concerns may be raised by physicians, advanced practice providers, hospital and medical group clinical staff, managers, executive leadership, non-clinical staff, and patients or their family members. Concerns of medical necessity may be raised on an entity’s internal hotline. These reports may be anonymous, or the reporter may provide their contact information. Audits or reviews by commercial payors, government payors, and government contractors may put the organization on notice of medically unnecessary services. Whenever reasonable suspicion arises that a provider has received payment for medically unnecessary services from a federal health care program, the provider has a legal duty to investigate to determine whether an overpayment exists.[8]

An investigation may also be launched in response to findings by a health care peer review committee, routine internal audits, or audits performed in response to an issue detected by internal data analytic tools. Also, if a locum tenens physician is covering for a surgeon on a temporary basis, such physician, with insight on how the temporarily absent physician practices, may discover that medically unnecessary procedures have been performed.

New on the horizon are the reports from internal audit departments or vendors providing data obtained via artificial intelligence (AI) tools. For years, health care systems and organizations have identified outliers when a specialist or surgeon’s wRVUs are an outlier because the incidence of procedures exceeds local and national benchmarks. These new tools may assist in identifying potentially problematic procedures or services quicker in comparison with traditional retrospective reviews.

Now, with the explosion of research, the existence of AI tools, and the many technical and scholarly articles related to AI, the government, payors, and health care systems are searching for ways to obtain and analyze data that may point to potential compliance issues related to medical necessity.[9] Health care systems are concerned that there will be new AI expert battles analogous to the “Battle of the Experts” very well known to litigators who defend health care providers and systems. Who has the AI tools providing the most accurate data to either defend the providers or in the case of the government or plaintiff attorneys, who has the data that proves a procedure is medically unnecessary? The answers to these questions and many others will be interesting to follow in the years ahead.

Investigative Tips and Techniques

Regardless of the source of an allegation or concern raised associated with medical necessity, the provider should develop a detailed investigation plan that is diligently pursued, usually under the direction of legal counsel for the purpose of giving legal advice to the provider. The investigative goal is to determine all facts and information necessary to determine whether an overpayment exists and, if so, the amount of overpayment. A best practice for counsel directed investigations is to appoint in writing the provider’s compliance personnel participating in the investigation as agents of the legal counsel. A collaborative approach to the investigation among compliance, internal and external legal counsel, peer review, and the chief medical officer, will pay off as the investigation progresses. Identifying experts who understand how the electronic health record (EHR) system works, what audit trails are available in the EHR, how operating room records track technical aspects of procedures, and how many other technical systems function, is vital to establishing evidence in medical necessity investigations. 

When investigating alleged medically unnecessary procedures performed at a hospital or ASC, it is important to notify the organization’s peer review leaders as soon as possible. Unless state law requires confidentiality of peer review information, the notice should include a request for information on past peer review investigations of the practitioner. Peer review investigations often move slowly. Hospitals, ASCs, and employers of the physicians subject to investigation, likely must investigate more quickly to evaluate patient safety and potential overpayments. The investigations should be coordinated to the extent possible, including sharing interviews, data, and expert reviews. Joint defense agreements may be useful and appropriate due to common interests in determining whether overpayments exist.

Investigations of coding issues should be paused until underlying medical necessity issues are determined. If the organization has sufficient internal medical expertise, an internal review directed by an attorney can be arranged. However, if internal medical expertise is lacking or if the dynamics of the relationships dictate more independence, external physician review should be arranged through counsel. The medical necessity review should be comprehensive and include more than just documentation in the medical record, e.g., all available diagnostic tests and office visit notes.

The persons involved in the compliance investigation should be limited to those with a need to know. All persons involved should be instructed the investigation is being directed by legal counsel for the purpose of rendering legal advice to the organization as to whether the entity is required to report and refund overpayments to federal health care programs.

In working with medical experts, we typically request that the expert provide a verbal report before putting anything into writing. This ensures the reviewer has addressed the proper scope and has considered the appropriate information. If a written report is requested, we typically request a draft for review and comment before the report is finalized. Of course, the final report must be the work of the expert, but there is nothing improper about making suggestions to clarify wording in the report.

Towards the end of an investigation, we frequently request an interview of the subject practitioner. Medical staff bylaws may have formal requirements for such an interview, but generally do not apply to a compliance or employer investigation. Employed practitioners have a duty to cooperate with their employers in an investigation and most compliance policies and employee handbooks expressly require cooperation. The physician should be informed in advance of the general nature of the interview subjects, including specific cases. We generally permit practitioners to have their attorney present. When investigative counsel is involved in questioning the subject practitioner, we provide Upjohn warnings[10] and document the warnings in our interview summary. We do not allow interviews to be taped or recorded.

It is important to give the physician a fair opportunity to address the issues under investigation. Using the stent example, even if one cardiologist may believe that the plaque buildup was insufficient to perform the stent procedure, the subject physician may have sufficient medical justification to have performed the stent procedure. The subject’s explanations and credibility must be evaluated. Such interviews may trigger the need for additional information or investigative steps before concluding the investigation and determining whether the allegations of unnecessary medical procedures are substantiated, unsubstantiated, or cannot be determined.

Before recommending disciplinary action against a practitioner, a best practice is to obtain a second medical expert opinion to see if it matches the opinion being relied on for the disciplinary action. We want to avoid relying on a single expert when taking action that may impair a practitioner’s career. It is also a best practice to confer with experienced labor counsel when considering disciplinary options.

Corrective Action and Monitoring

Compliance Starts at the Top

Part of the problem—and a key to curbing it—lies in the inherent conflict between hospital and ASC leadership and productive surgeons responsible for referring patients and generating revenue. Leaders who turn a blind eye to medical necessity concerns, or who reflexively defend the surgeons despite compelling evidence, disserve the organization and patients. Leaders who respect the role of the compliance officer, acknowledge the value of the compliance team and understand the compliance program set the tone for the entire organization. Leaders who involve the compliance officer in executive meetings and initiatives are instrumental in contributing to the operation of an effective compliance program. With executive leadership support and partnership, the organization is more likely to avoid non-compliance in many areas including the prevention of real or perceived medically unnecessary procedures performed by employed or independent surgeons.

Empowering Physician Leaders

Physician leaders who understand compliance and the legal risks associated with allegations of medically unnecessary procedures can make all the difference in protecting patients and the organization. Physicians are instrumental in promoting safeguards to their colleagues and peers. Obtaining the support of the Chief Medical Officer or other physician leaders involved in addressing non-compliance at any stage of a concern, audit finding, or compliance investigation will increase the likelihood of timely decision making and efficiently moving forward with corrective action. Physician support demonstrates the organization’s integrity and commitment to effective compliance in the wake of alleged or actual occurrence of patients receiving medically unnecessary treatment or procedures, and can help stave off qui tam cases, government investigations, and medical malpractice lawsuits. 

Developing physician compliance champions requires a compliance officer and team dedicated to physician education, participation of the compliance officer in medical group governance as partners in policy development related to reporting and investigating compliance concerns, and including physicians on compliance committees of the board. Physician compliance champions ensure other physicians are aware of the work that is performed to protect the organization and current investigations. Engaged physicians raise meaningful questions and concerns that can lead to additional monitoring, auditing, education, or changes in process that mitigate compliance risks.

Compliance officers and teams who develop relationships with their physician leaders can enhance compliance education for the entire organization. Physicians are role models and have the attention of leadership and the clinical teams. This is vital in helping organizations appreciate the importance of monitoring for detection of issues related to medical necessity.

Monitoring When Issues are Identified

Organizations with an effective audit team will include audits or reviews that seek to identify signs of potential medical necessity concerns. Whether AI tools, government reports, nationwide government audits, or the Office of Inspector General (OIG) Work Plan are used by the audit team, the organizational audit work plan should address outlier high volume providers, medical procedures the OIG and DOJ have targeted in the past year or two with settlements or corporate integrity agreements, and audits performed by government contractors and payors.

Monitoring for medical necessity should be an on-going process for all health care organizations. If an investigation into medical necessity concludes that the allegations cannot be determined, a monitoring plan may be in order. Such monitoring should be reported through the peer review process and compliance, preferably on a monthly basis. 

If an anonymous hotline report indicates a physician is frequently performing a specific type of procedure and the allegation is the procedure is not medically necessary, a review of a sample of the procedures may be performed, a probe sample, before launching a full investigation. The results of the review may indicate whether further monitoring or an investigation is warranted.

If an allegation of medical necessity is deemed substantiated, in addition to a report and refund, the corrective action might require the physician to complete additional documentation focused on the clinical criteria required to support medical necessity. Further monitoring is very important to ensure the physician maintains compliance to meet the agreed upon clinical criteria or the improved documentation to support medical necessity. A clear monitoring plan with accountability for a physician leader to monitor the procedures performed is critical in ensuring compliance.

Compliance Program Effectiveness

Compliance programs are only effective when the basic elements of a program are in place. For over 25 years the OIG has recommended that compliance programs include the seven elements of an effective compliance program. Parts of the OIG recommended guidance were intended to establish elements that, if implemented, could identify, correct, and monitor medical necessity issues. DOJ’s recent guidance on effective compliance programs goes beyond basic elements. A new area of guidance is the expectation an organization will create a “speak up culture” and ensure protections for potential whistleblowers. DOJ will evaluate a company’s policies, training, and treatment of employees who report misconduct. Education and training that focuses on “See Something, Say Something” can be used in annual education, compliance presentations, clinical staff, leadership, and physician groups. In addition, creative marketing of this message can be implemented in banners on the organization intranet and added to weekly or monthly newsletters.

DOJ expects organizations to include the Chief Compliance Officer (CCO) on their executive leadership teams.[11] If the CCO is included in hiring new executive leaders, the CCO can assess the candidate’s commitment to the organization’s core values and risk tolerance. This is particularly important in selecting a CMO or medical group executive. A CMO or medical group executive is key to supporting risk mitigation initiatives, responding to audit or review findings indicating risk, and supporting corrective action when medical necessity issues are substantiated for a productive physician. A CMO or medical executive who chooses to ignore concerns that a physician performs medically unnecessary procedures increases the organization’s risk for adverse patient outcomes, governmental enforcement, and other substantial legal risks.

An organization that supports the role of compliance may include compliance questions in exit interviews. The purpose of the compliance-related questions at exit is two-fold. First, for departing employees who deny knowing of any uncorrected compliance issue, the documented response will be helpful in defending the organization if the ex-employee turns out to be a whistleblower. Second, if the departing employee discloses compliance concerns, those concerns are documented so compliance can address them in a proper manner.

CCOs and compliance professionals can protect the organization more effectively when meaningful partnerships exist with leadership. The CCO must have a seat at the table with executive leadership to provide effective guidance and address compliance issues proactively.

Other Tips

• • Educate the organization from the board to the caregiver level that quality of care and medical necessity are compliance concerns.
  • For each interventionalist:
    • Track the number of procedures performed and compare to prior years and national, state, and local benchmarks, e.g., the number of stent procedures per office volume, number of stents per patient.
  • Interview peers, nurses, operating room staff. (Reminder: This may not always be easy. Fear of retaliation may prevent both staff and leaders from speaking out.)
  • Refer suspect cases to peer review. If peer review response is slow or inadequate, have random charts reviewed by internal or external experts.

Conclusion

Federal budgetary issues suggest that governmental scrutiny of medical necessity will intensify. One recent example of a DOJ settlement where medical necessity was a pinnacle issue is $10.8 million paid by St. Peter’s Health in Helena, Montana.[12] DOJ noted that although St. Peter’s Health relied on Dr. Thomas Weiner’s medical record documentation, many of the services documented by Weiner and billed by St. Peter’s Health as Weiner’s employer were not medically necessary. In addition to St. Peter’s Health billing for services deemed to be not medically necessary, the government raised Stark Law issues as St. Peter’s Health compensated Weiner using a productivity compensation model. This case commenced with an internal concern regarding potential medically unnecessary procedures and services in the fall of 2018 and employed all the reviews and actions as noted in this article. The St. Peter’s settlement is an example where a physician’s actions in performing or documenting medically unnecessary services, without the actual knowledge of the physician’s employer, resulted in the hospital employer billing for services and receiving reimbursement that were unsupportable but also resulted in above fair market value compensation being paid to the physician. It should also be noted that on August 26, 2024, the DOJ filed a lawsuit against Weiner seeking damages and penalties under the False Claims Act and the Unlawful Prescribing of Controlled Substances Law. 

As shown in this article, the performance of medically unnecessary procedures and services harms patients and places organizations at considerable legal risk. To enhance patient safety and minimize legal risks, organizations should strengthen medical necessity reviews in annual compliance audit plans and evaluate and monitor the medical necessity of procedures performed by interventionalists whose compensation and volumes are outliers.

ARTICLE TAGS

• Health Care Liability and Litigation Practice Group
• Patient Care Liability and Litigation