Maryland Bar Bulletin
Publications : Bar Bulletin : April 2013


The health care industry continues to be a hot area for enforcement activity, as evidenced by the government’s record-breaking $4.2 billion health care-related fraud and abuse recovery in FY 2012. 

It is clear that the government is committed to the prevention and prosecution of fraud, waste, and abuse in federal health care programs, such as Medicare, Medicaid, and TRICARE. Recent government settlements and federal court rulings have shown that even providers who bill Medicare for outpatient tests performed without sufficient physician supervision may be subject to hefty False Claims Act penalties. 

In light of the heightened enforcement environment, health care providers may want to refresh themselves of the physician supervision rules as to not run afoul of the regulations.

What are the Medicare Physician Supervision Rules?

Medicare provides payment for outpatient therapeutic and diagnostic services that are provided incident to a physician’s service. As a condition of Medicare payment, these outpatient services must be performed under the appropriate level of physician supervision. The Centers for Medicare & Medicaid Services (CMS) has categorized the amount of physician supervision required for outpatient diagnostic and therapeutic services into three levels – general, direct, and personal. 

General supervision requires the service to be furnished under the overall direction and control of the physician; however, the actual physical presence of the physician is not required during the performance of the procedure.

Direct supervision requires the physician to be physically present onsite and immediately available to provide assistance and direction throughout the procedure; however, the physician is not required to be present in the same room when the actual procedure is being performed.

Personal supervision requires the physician to be physically present in the room for the entire duration of the procedure.

With respect to direct supervision, CMS has defined the term “immediately available” to mean “immediate physical presence” and “interruptible.”

In order to fulfill the requirements for direct supervision, a physician should not be so physically far away from the location where the outpatient services are being furnished that he or she could not immediately intervene, and the physician should not be performing another procedure that could not be easily interrupted.  Additionally, the supervising physician must have sufficient proficiency to perform these duties and be able to furnish assistance and direction, instead of merely managing an emergency.

Why Should Providers Follow the Supervision Rules?

Health care providers who choose to disregard CMS’ supervision rules may be liable for False Claims Act penalties for submitting claims to the government for services that were not properly supervised. Perhaps one of the most notable examples of the enforcement of the physician supervision rules is U.S. ex rel. Hobbs v. MedQuest Associates, Inc. 

The whistleblower action, initiated by a former MedQuest employee, alleged that MedQuest, a leading diagnostic testing firm, and three of its independent diagnostic testing facilities (IDTF) submitted claims to Medicare for tests that were performed without the required level of physician supervision or were performed by physicians who lacked the required proficiency and certification to perform the tests. Medicare pays for diagnostic tests that are performed in an IDTF under the direct supervision of a physician. The supervising physician must be Medicare enrolled, approved by the carrier or Medicare, and have satisfied the proficiency standards for the tests the physician is supervising. The name of each physician performing a supervisory function within the IDTF must also be documented and reported to Medicare.

In this case, the three IDTFs allegedly conducted diagnostic tests without direct supervision, and in some instances contrast tests were supervised by physicians who lacked the required proficiency to perform the tests. 

Additionally, the government alleged that from January 2004 to July 2005, MedQuest submitted claims to Medicare using the physician billing number of the former owner of the Charlotte IDTF. Ultimately, the U.S. District Court for the Middle District of Tennessee concluded that each claim submitted by MedQuest for diagnostic tests that were performed without the appropriate level of supervision or without the supervision of an approved Medicare physician constituted an appropriate basis for an award of penalties under the False Claims Act. The District Court awarded $11.1 million in treble damages and civil penalties. Upon reconsideration, the $11.1 million award was not found to be “grossly disproportionate” as to violate the Excessive Fines Clause of the Eighth Amendment.

What is the Moral of the Story?

The Hobbs case should be a wakeup call to health care providers performing tests that require a level of supervision for Medicare payment. In this environment of increased enforcement activity, providers may want to review the supervision rules to ensure compliance or risk huge financial consequences. 

India K. Brim is an associate in the Washington, D.C. office of Squire Sanders (US) LLP.

Author’s Note: On April 1, 2013, the United States Court of Appeals for the Sixth Circuit overturned the $11.1 million judgment against MedQuest for its submission of claims to Medicare for tests in diagnostic testing facilities that were not supervised by approved physicians. The Sixth Circuit held that MedQuest’s use of non-approved supervising physicians for contrast procedures did not constitute an adequate basis for False Claims Act (FCA) liability. The Court noted that MedQuest’s use of a billing number belonging to a physician’s practice also did not trigger the excessive fines under the FCA. Despite dismissing the government’s FCA claims, the Sixth Circuit had little sympathy for MedQuest and encouraged the government to seek administrative remedies against MedQuest with the Centers for Medicare and Medicaid Services, such as suspension and expulsion from the Medicare program.

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Publications : Bar Bulletin : April 2013

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