United States: DOJ Issues New Memo Limiting Use Of Agency Guidance Documents In Civil Enforcement Cases: What It Means For Health Care Enforcement

On January 25, 2018, the U.S. Department of Justice (DOJ) issued a memorandum limiting the use of agency guidance documents in affirmative civil enforcement (ACE) cases.  Stating that "[g]uidance documents cannot create binding requirements that do not already exist by statute or regulation," the memorandum strongly discourages DOJ litigators from using noncompliance with agency guidance documents as a basis for suit or as evidentiary proof in ongoing litigation.

Specifically, for future ACE cases, ACE attorneys may only use guidance documents to explain legal mandates or provide evidence that a party had knowledge of a legal requirement. (For pending cases, application of this memo is discretionary.)  The memo also prevents guidance documents from creating additional legal requirements.  Lastly, the memo states that noncompliance with guidance may not be used as conclusive evidence of a legal violation.

DOJ's Position on Agency Guidance Documents

This January 25 memo is consistent with DOJ's recently announced position that guidance documents issued by DOJ may not be used to implement new legal standards.  In a memorandum dated November 17, 2017, the Attorney General prohibited DOJ from implementing guidance documents that change the law or impose additional standards.  Because guidance documents do not result from the notice-and-comment rulemaking process required by the Administrative Procedure Act, the memorandum explained, any guidance documents released by DOJ must be instructional only, and must clearly state they have no legally binding effect on persons or entities outside the federal government. The January 25 memo expands upon this principle, prohibiting DOJ litigators from relying upon guidance documents issued by other agencies.

The Effect on Health Care Enforcement Actions

This change significantly impacts enforcement actions in the highly-regulated health care industry, which is replete with non-binding sub-regulatory guidance issued by the Centers for Medicare & Medicaid Services (CMS) and the Health and Human Services Office of Inspector General (OIG). Such guidance is often relied upon by qui tam relators and government attorneys in False Claims Act (FCA) cases to allege non-compliance should net them treble damages.  In particular, DOJ enforcement actions that turn on establishing noncompliance with three often-used categories of health care guidance—Local Coverage Determinations (LCDs), Medicare billing manuals, and fraud alerts and advisory opinions—will face serious hurdles in light of the January 25 memo.

Local Coverage Determinations
LCDs are determinations by Medicare Administrative Contractors (MACs)—private health care insurers that contract with CMS to administer Medicare claims—regarding whether items and services are covered by Medicare.  Specifically, LCDs contain information about standards for "reasonable and necessary" items and services, general coding information, and documentation requirements.  A network of MACs administer claims on a regional basis throughout the United States.1  Because LCDs are issued by individual MACs, they provide coverage requirements only for that region, meaning that coverage requirements may differ from region to region.

To date, LCDs have factored into FCA cases in two prominent ways: (i) as a standard for demonstrating claims were not medically necessary; and, (ii) as a means for arguing the documentation supporting the disputed claims was insufficient.

The January 25 memo is additional support for health care providers to defend against these claims, since only statutes and regulations legally establish the standards for medical necessity and documentation.  We note, however, that some pre-memo courts have held LCDs are interpretive, rather than substantive, and therefore are not subject to the Administrative Procedure Act's notice and comment requirements, which would take them out of the documents identified in the January 25 memo.  Nonetheless, if a defense attorney can demonstrate LCDs do more than explain existing legal mandates, they add standards not otherwise required under applicable law, and should not be relied upon by DOJ ACE attorneys.

Medicare Billing Guidance
CMS maintains many manuals, policies and procedures, and other guidance that specify the parameters of Medicare benefits and establish requirements for Medicare claims. This guidance is often relied upon in FCA cases claiming health care providers failed to meet claims requirements, typically arguing documentation is insufficient, claims were improperly coded, or the services did not meet the requirements to establish medical necessity.

As one example, when enforcing documentation requirements for evaluation and management (E/M) visits, CMS and DOJ attorneys rely on CMS' "Evaluation and Management Services Guidelines" and the Medicare Claims Processing Manual to determine the standards for documentation and the appropriate E/M "level" to bill. Providers bill a higher level for more complex visits. Because Medicare reimbursement increases as the E/M level increases, many government enforcement actions have been premised on allegations that providers fraudulently "upcoded" the E/M level. Although CMS may still rely on its guidance for straightforward administrative overpayment cases, the DOJ will face a significant hurdle when trying to rely on the same guidance as a basis for establishing noncompliance in FCA cases.

Fraud Alerts and Advisory Opinions
A third source of agency guidance frequently relied upon in FCA cases is guidance issued by the OIG, often in the form of advisory opinions, special fraud alerts, bulletins, and other guidance.  These documents range from providing fraud and abuse analyses of individual arrangement or transactions, to highlighting patterns of arrangements that may present substantial risk under the federal Anti-Kickback Statute (AKS), to establishing and defining enforcement initiatives.  Often, these documents are used in support of the government's position in FCA cases, particularly when the position relies on a complex analysis under the AKS.

While such documents may still be used for explanatory purposes per the January 25 memo, to the extent the guidance defines the legal standard differently or more onerously than set forth in the applicable statutes or regulations, reliance on the guidance will not be permitted.

The Impact of the Memo on Health Care Enforcement Actions

In the highly-regulated health care industry, the January 25 memo may offer a valuable defense tool in health care enforcement actions. Given the complexity of Medicare reimbursement and health care fraud and abuse laws, qui tam relators and ACE litigators have often relied upon the volumes of sub-regulatory guidance when arguing health care providers were not compliant with applicable law. The January 25 memo eliminates this practice, to the extent noncompliance with guidance was used to establish that a party violated applicable law.


1 Currently, there are twelve MAC regions for Medicare Parts A and B, four MAC regions for home health and hospice, and four DME MAC regions.

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