Hospitals have won a major battle in the continuing controversy over Medicare coverage of investigational medical devices, but many still could be accused of fraud.
U.S. District Judge John Davies in Los Angeles ruled April 8 that HHS couldn't enforce previous Medicare device policy.
In effect from 1986 to 1995, the policy generally barred Medicare payment for use of devices that hadn't been approved for marketing by the Food and Drug Administration. It appeared in 1986 Medicare instruction manuals.
HHS later decided to cover most investigational devices after intense lobbying by industry groups, which argued patient care and research were endangered (Sept. 18, 1995, p. 17).
From 1986 on, many hospitals continued to bill Medicare for use of investigational devices and were paid millions of dollars by the government. The exact amount of money in dispute has not been determined.
In response to an HHS false-billing probe, 25 hospitals filed a lawsuit in May 1995 challenging the legality of the device policy (May 15, 1995, p. 26).
Ruling in their favor, Davies said the HHS rule was void because the department didn't publish the rule and allow public comment before adoption.
Davies' decision should protect the 25 hospitals from fraud charges, said the hospitals' attorney, Leonard Homer of Ober, Kaler, Grimes & Shriver, Baltimore. The hospitals include Allegheny General Hospital, Pittsburgh; Cedars-Sinai Medical Center, Los Angeles; and Johns Hopkins Hospital, Baltimore.
The HHS probe, however, involved 132 hospitals. Many still could face federal action because HHS might fare better in other courts. A March newsletter of the Houston-based law firm Vinson & Elkins reported that HHS planned to try recovering payments from nine hospitals as a test.
An HHS spokesman last week said the HHS office of general counsel still was deciding whether to appeal Davies' ruling and whether to seek payment recoveries in other courts.
In addition, a related whistleblower lawsuit is pending in Seattle. The suit is sealed under court order until August, Homer said.
An attorney for the whistleblower didn't respond to a request for comment.
About half the 132 hospitals knew Medicare rules prohibited payment for investigational devices, an HHS official told the Senate Governmental Affairs investigations subcommittee at a February hearing. In his testimony, HHS Deputy Inspector General John Hartwig also said about 30 hospitals took steps to hide the nature of their claims (Feb. 19, p. 3).
"We believe these hospitals intentionally defrauded the Medicare program," Hartwig said.
For example, an April 1994 memo at Sutter Memorial Hospital in Sacramento, Calif., said: "To avoid a denial by Medicare, we do not keep the patient consent that identifies the device as investigational in the chart." The memo was submitted to the committee.
In the only settlement so far, Sutter agreed in February to pay about $1.3 million to avoid prosecution under the False Claims Act.
Senate Governmental Affairs Committee Chairman William Roth (R-Del.) has urged HHS Secretary Donna Shalala to "aggressively investigate" the allegations. Roth said he was especially concerned about allegations of unnecessary procedures and reuse of devices.
Throughout the controversy, hospitals have said they were confused about Medicare device policy. Because Medicare pays hospitals a set fee based on patient diagnosis, their choice of devices shouldn't affect reimbursement, they said (Feb. 20, 1995, p. 35).
In the Los Angeles federal court case, HHS argued that it wasn't required to follow rulemaking procedures. Its 1986 manuals didn't contain new policy but spelled out HHS' interpretation of the Medicare statute requiring "reasonable and necessary" care.
Davies wrote that the device rule clearly was new because "it is undisputed" that prior to 1986 hospitals regularly were reimbursed for the use of investigational devices.