No. 96-1849

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1996

JOHN H. LARY, JR., PETITIONER

v.

SHIRLEY CHATER, COMMISSIONER OF 
SOCIAL SECURITY, AND DONNA SHALALA, SECRETARY
OF HEALTH AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

WALTER DELLINGER
Acting Solicitor General

FRANK W. HUNGER
Assistant Attorney General

ANTHONY J. STEINMEYER
KATHERINE S. GRUENHECK
Attorneys

Department of Justice
Washington, D.C. 20530-0001
(202)514-2217

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QUESTION PRESENTED

Whether the Secretary's Medicare Part B overpay-
ment determination in this case comports with statu-
tory and due process requirements.

(I)

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TABLE OF CONTENTS

Opinions below . . . . 1
Jurisdiction . . . . 1
Statement . . . . 2
Argument . . . . 10
Conclusion . . . . 15
Appendix A . . . . 1a
Appendix B . . . . 12a

TABLE OF AUTHORITIES

Cases:

Adams  v. Heckler,  799 F.2d 131 (4th Cir. 1986) . . . . 10 
Bacon v. Sullivan, 969 F.2d 1517 (3d Cir. 1992) . . . . 10
Bloodsworth v. Heckler, 703 F.2d 1233 (11th Cir.
1983) . . . . 7-8, 10
Chaves County Home Health  Service, Inc. v.
Sullivan, 931 F.2d 914 (D.C. Cir. 1991), cert,
denied, 502 U.S. 1091 (1992) . . . . 14
Chaves County Home Health Services, Inc. v.
Sullivan, 732 F. Supp. 188(D.D.C. 1990), aff'd,
931 F.2d 914 (D.C. Cir. 1991), cert. denied, 502
U.S. 1091 (1992) . . . . 12
Citizens Bank of Maryland v. Strumpf, 116 S. Ct.
286 (1995) . . . . 11
Dietsch v. Schweiker, 700 F.2d 865 (2d Cir. 1983). . . . 10 
Glick v. Secretary of Health and Human Services,
714 F. Supp. 39 (D. Mass. 1989) . . . . 13
Harper  v. Bowen, 813 F.2d 737 (5th Cir.), cert.
denied, 484 U.S. 969 (1987) . . . . 10
Hummel v. Heckler, 736 F.2d 91 (3d Cir. 1984) . . . . 11 
Illinois Physicians Union v. Miller, 675 F.2d 151
(7th Cir.  1982) . . . . 14
Matlock  v. Sullivan,  908  F.2d 492 (9th Cir. 1990) . . . . 10 

(III)

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IV

Cases Continued:

Mile High Therapy Centers, Inc. v. Bowen,
735 F. Supp. 984 (D Colo. 1988) . . . . 12, 14
Shalala  v. Guernsey,  Memorial  Hosp., 614 U.S. 87
(1995) . . . . 12, 13
Small v. Sullivan, 820 F. Supp. 1098 (S.D Ill.
1992) . . . . 11
Turner v. Bowen, 862 F.2d 708  8th Cir. 1988) . . . . 10 	
Watters  v. Harris, 656  F.2d 234  (7th Cir. 1980) . . . . 10	

Statutes and regulations:

Administrative Procedure Act, 5 U.S.C.. 551 et seq.:
5 U.S.C. 552(a)(1)(D) . . . . 12
6 U.S.C. 553 . . . . 7
5 U.S.C. 553(b) . . . . 12
5 U.S.C. 553(b)(3)(A) . . . . 9, 12
Paperwork Reduction Act of 1980, 44 U.S.C 3501
et  seq . . . .  7
  44 U.S.C. 3512 . . . .  13
Social Security Act, 42 U.S.C. 301  et seq.:
Tit. II, 42 U.S.C. 401 et seq.:
42 U.S.C. 405(g) . . . . 4, 6, 7
Tit. XVIII, 42 U..S.C. 1395 et seq. (Medicare Act) . . . . 2
  42 U.S.C. 13951(a)(1) . . . . 2, 3
  42  U.S.C. 1395l(e) . . . . 3, 14
  42 U.S.C. 1395u . . . . 2
  42 U.S.C. 1395u(a) . . . .  3
  42 U.S.C. 1395u(b)(3) . . . . 3
  42 U.S.C. 1395u(j)(1) . . . .  2
  42 U.S.C. 1395u(l) . . . .  2
  42 U.S.C. 1395x(v)(1)(A)(ii) . . . . 3
  42 U.S.C. 1395y(a)(l)(A) . . . . 2 
  42 U.S.C. 1395ff(b) . . . . 3, 6
  42 U.S.C. 1395ff(b)(1) . . . . 4
20 C.F.R.:
Section 404.900 . . . . 3
Section 404.911 . . . . 8
Sections 404.929 et  seq . . . . 3
Section  404.950(d) . . . . 11

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V

Regulations-Continued:

Section 404.955(a) . . . . 4, 10
Section 404.955(b) . . . . 4, 10
Sections 404.967 et seq . . . . 3
Section 404.971 . . . . 3
Section 404.972 . . . . 3, 7
Section 404.981 . . . . 4
42 C.F.R.:
Sections 405.501et seq . . . . 2, 3
Section 405.502 . . . . 3
Section 405.860 . . . . 3

Miscellaneous:

53 Fed. Reg. (1988):
p. 20,023 . . . . 3
p. 20,024 . . . . 3

Page


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In the Supreme Court of the United States

OCTOBER TERM, 1996

No. 96-1849

JOHN H. LARY, JR., PETITIONER

v.

SHIRLEY CHATER, COMMISSIONER OF
SOCIAL SECURITY, AND DONNA  SHALALA, SECRETARY
OF HEALTH AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al) is
unpublished, but the decision is noted at 98 F.3d 1353
(Table).  The memorandum opinion and order of the
district court (Pet. App. B1-B15) are also unreported.

JURISDICTION

The judgment of the court of appeals was entered
on September 16, 1996. A petition for rehearing was
denied on November 25, 1996. Pet. App. D1.  On
February 20, 1997, Justice Kennedy extended the time
within which to file a petition for a writ of certiorari
to and including March 21, 1997  (Pet. App. El), and the

(1)

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2

petition was filed on that date.  The jurisdiction of
this Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. In 1965, the Medicare program was enacted as
Title XVIII of the Social Security Act, 4.2 U.S.C. 1395
et seq.  Medicare has two components.  Part A
provides primarily hospital insurance, and Part B
provides supplementary medical insurance benefits
relating largely to physician services.  This case
involves only reimbursement of claims under Part B
for services supplied by petitioner, a physician.
In administering Part B of  the Medicare program,
the Health Care Financing Administration (HCFA)
in the Department of Health and Human Services
(HHS) acts through "carriers." 42 U.S.C. 1395u.  As
statutory agents for HCFA, those private entities,
like Blue Cross and Blue Shield of Alabama in this
case, perform a variety of functions, such as deter-
mining billing standards and reasonable charges
for services.  Medicare authorizes reimbursement for
"reasonable and necessary" services only. 42 U.S. C.
1395y(a)(1)(A).  In this regard, the carrier must
monitor the actual charges to Medicare beneficiaries
to determine whether, inter alia, the physician has
billed in excess of the maximum allowable charge or
billed for medically unnecessary services. 42 U.S.C.
1395u(j)(l) and (1).

When a physician files a request for a Medicare
Part B payment, the carrier makes an initial evalua-
tion of the claim.  If the claim appears "reasonable"
under applicable standards, the carrier deter-
mines the amount of benefits to be paid. 42 U.S.C.
13951(a)(l); 42 C.F.R.  405.501  et  seq.  In determining
whether a "reasonable charge" for physician ser-

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3

vices has been billed, the carrier generally considers:
(l) the actual charge; (2) the physician's customary
charge; and (3) the prevailing charge in the locality
for similar services. 42 C.F.R. 405.502; see gener-
ally 42 U.S.C. 1395u(b)(3).  Post-payment audits by
carriers are authorized as a check to ensure that
only "reasonable and necessary" charges were paid.
42 U.S.C. 1395l(a)(l) and (e), 1395u(a); 42 C.F.R.
405.501 et seq.  A Part B physician must supply what-
ever medical records the carrier deems necessary and
appropriate in such an audit to establish the cor-
rectness of the payment made by Medicare.  42 U.S.C.
13951(e).  Retroactive corrective adjustments in pay-
ments may be made when the initial payment proves
inadequate or excessive.  42 U.S.C. 1395x(v) (l)(A) (ii).

A beneficiary or physician who is dissatisfied with
a payment determination may seek administrative and
judicial review. 42 U.S.C. 1395ff(b).  The first level
of administrative review is a carrier fair hearing.
53 Fed. Reg. 20,023,20,024 (1988).  The hearing officer
has authority to review and, if necessary, correct
errors by the carrier in the implementation of the
program, but is bound by HHS policies and guidelines.
42 C.F.R. 405.860.  If the amount in controversy is
greater  than  $500,  then  the hearing officer's decision
may be appealed to an HHS administrative law judge
(ALJ), with additional administrative review available
before the HHS Appeals Council.  20 C.F.R. 404.929 et
seq., 404.967 et seq., as made applicable to the Medicare
Program by 20 C.F.R. 404.900.  If a written request
for Appeals Council review is not filed within 60 days
and the time for filing is not extended, then the
Appeals Council will dismiss the case. 20 C.F.R.
404.971.  By regulation  (20 C.F.R. 404.972), "[t]he dis-
missal of a request for Appeals Council review is

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binding and not subject to further review." In addi-
tion, if the claimant does not seek Appeals Council
review of an ALJ decision within the time allowed, the
ALJ's decision is binding on the claimant on the
merits. 20 C.F.R.  404.955(a) and (b).  By contrast,  if  a
request for review  is timely and the Appeals Council
either reviews or declines to review the case, then its
decision (or the ALJ's decision, if the Appeals Coun-
cil denies a timely request for review) constitutes
the final administrative decision.  20 C.F.R. 404.981.
Judicial review of a final administrative decision must
be taken within 60 days after the mailing to him of the
decision or within such further time as the Secretary
may allow, 42 U.S.C. 1395ff(b)(l) (incorporating 42
U.S.C. 405(g)).

2. Petitioner, a specialist in internal medicine,
practices in Huntsville Alabama. Pet. 5. During
fiscal years 1916 and 1988, petitioner supplied ser-
vices to Medicare patients and then submitted bills to
the carrier for payment. Based upon initial deter-
minations, petitioner was paid for those claims as
billed. Subsequently, the carrier conducted post-
payment  audits of  those years; which  gave rise to the
two overpayment determinations at issue here. See
Pet. App. B1-B2.

The first overpayment dispute concerns peti-
tioner's practice of billing for both endoscopy proce-
dures and office visits for the same patient on the
same day. Pet. App. B2 & n.2. That practice, which
was clearly prohibited by carrier policy, resulted in
an overpayment of $508.47. Id. at B3.  The carrier's
determination was upheld by a fair hearing officer and
subsequently by the ALJ. Ibid. The ALJ held that
the carrier's authority to develop Medicare guidelines
for payment of claims and to determine what evidence

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5

is acceptable to establish  "medical necessity" comes
from section 5240 of the Program Administration
Manual. App.,  infr, 7a-8a.1  The ALJ found further
that carrier policy clearly prohibited double billing
for endoscopy and an office visit on the same day, Id.
at 8a.  Since the local practice established by the
carrier's policy resulted in the lowest cost, the ALJ
agreed with the carrier that the charge for global
services rather than two separate charges for those
services is the "reasonable cost" for those services,
and that petitioner was on notice of that policy. Ibid.
The ALJ also found that petitioner was not without
fault in causing or accepting overcharges because
petitioner should have known that double billing for
same day services was not reasonable as determined
by the carrier. Id. at 9a.

The second overpayment dispute, amounting to
$4,616.43, largely concerns the prohibited practice of
"fragmenting" service codes' by,  for example, billing

___________________(footnotes)

1 See Decision of the ALJ re FY 1986, App., infra, la-l la.

2 Medical services are classified under medical procedure
codes developed by the American Medical Association. See
Decision of the ALJ re FY 1988, App., infra, 17a.  Section
5246.4 of  HCFA's Manual states that when the level of service
reported on the claim form is not reasonable and necessary (i.e.,
when it has been determined that a less expensive level of
service would have met the patient's medical need, or when
a less expensive level of service was actually furnished),
reimbursement must be based on the reasonable charge for
the less expensive level of service.  Id. at 17a-18a.  Section
3045.lA of  the Carriers' Manual prohibits fragmentation of
assigned charges made under Medicare Part B. ld. at 18a.
Other errors found included charging for a higher level of
service than was established to be medically necessary by the
records. Id. at 15a-16a.  That is, there were no test results
or interpretations of tests to verify that the tests were

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6

for a beneficiary's urinalysis conducted on the same
day under multiple subcodes instead of billing once
under the global code for that process. App.,  infra,
15a.  The carrier's determination was upheld by the
fair hearing officer 3 and then by the ALJ. Id. at 15a-
16a.  Petitioner requested Appeals Council review of the
ALJ's decisions in these two disputes well over 60
days after notice of each was mailed to him.  Pet.  App.
B3, B4.  Petitioner was notified that his requests for
review were untimely and would be dismissed unless
he could demonstrate "good cause"  for the late filing.
Ibid.  Petitioner responded in conclusory terms that
he did not receive timely notice of the ALJ's decision
and that his request for review was timely.  Ibid.  He
did not. specify the date on which he received the
ALJ's decision, nor did he submit any postmark
evidence. Id. at C2, C4.  The Appeals Council found
that petitioner failed to demonstrate "good cause" and
dismissed both requests for review,  leaving  the ALJ's
decisions as the final decisions of the Secretary.  Ibid.
3. Petitioner then filed this suit in district court
under 42 U.S.C. 1395ff(b) (incorporating 42- U.S.C.
405(g)), challenging the Secretary's overpayment
determinations on statutory and due process grounds

___________________(footnotes)
                           
indicated or were anything more than routine. Id. at 15a. In
such instances, the Hearing Officer downgraded the services,
with a corresponding reduction in the amount of the insurance
payment that was proper. Id. at 15a-16a.

3 When petitioner refused initially  to submit any documen-
tation to substantiate his charges, the carrier  used a statistical
random sample to project an overpayment of $28,729,30. Pet.
App. B4. However, after petitioner agreed to cooperate, the
overpayment was redetermined on the basis of an analysis of
the sample claims under review for that year.

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and seeking a refund of amounts recouped by the
Secretary.  In particular, petitioner questioned the
authority of the carrier to conduct a post-payment
audit, to rely on its own published policy as to what
constitutes a "reasonable charge," and to establish
the proof requirements, all without following
the notice and comment procedures under the Admin-
istrative Procedure Act (APA), 5 U.S.C. 553. Pet.
App. B11-B12.  Additionally, petitioner challenged the
denial of subpoena power and discovery prior to the
administrative hearing, and the Appeals Council's
dismissal of his requests for review of the ALJ's
decisions as untimely. Id. at B9-B11.  He also chal-
lenged the final overpayment determination in the
second dispute as a prohibited "penalty" under the
Paperwork Reduction Act of 1980, 44 U.S.C. 3501
et seq., because it was based upon an audit of docu-
ments the production of which was not specifically
authorized pursuant to that Act. Pet. App. B12-B14.

The Secretary moved to dismiss the action for lack
of subject matter jurisdiction or for summary judg-
ment, pointing out that judicial review is limited. to
final decisions of the Secretary (42 U.S.C. 405(g));
that, pursuant to 20 C.F.R. 404.972, the Appeals
Council's dismissal of petitioner's request for review
as untimely was not a judicially reviewable "final
decision" (Pet. App. B6); that, even if the Appeals
Council's dismissal were a reviewable final decision,
it was based on a proper exercise of discretion; and
that, in any case, petitioner's legal challenges to the
underlying ALJ decisions were without merit (id. at
B11, B12, B14).

The district court held that it had jurisdiction to
review the Appeals Council's dismissal pursuant to
controlling Eleventh Circuit precedent,  Bloodsworth

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8

v. Heckler, 703 F.2d 1233, 1239 (1983). Pet. App. B7.
The court determined, however, that the Appeals
Council did not abuse its discretion in applying the
"good cause" criteria for excusing a failure to meet
the deadline for seeking administrative review, set
forth in 20 C.F.R. 404.911 (Pet, App. B8), or act ar-
bitrarily or capriciously in denying petitioner's
requests for review based on his failure to demon-
strate good cause for the delay in filing for review (id.
at B10).  The court upheld as reasonable the Appeals
Council's determination that petitioner failed to es-
tablish a credible explanation for the untimely filings,
in the absence of any evidence of the date petitioner
actually  received  notice.  Ibid.
On the merits of the ALJ's decisions, which it held
to be final agency decisions for purposes of judicial
review, the district court granted summary judgment
for the Secretary.  In particular, the court held that
the carrier's post-payment audits were conducted in a
manner consistent with the Medicare Act, the APA,
and due process requirements (Pet. App. B 11-B12);
that neither the Social Security Act nor the APA
provides for preheating discovery at the administra-
tive level, and that such an opportunity is normally
not available (id. at B 11); and that petitioner had no
right to subpoena the Medicare Carrier's Manual or
to subpoena Medicare officials to address petitioner's
coding practices in prior unrelated audits (ibid.).
Additionally, the court rejected petitioner's argument
that the carrier policy statements on which the
overpayment determinations were made were proce-
durally defective. It held that such materials consti-
tute "interpret[at]ive rules, general statements of
policy, or rules of agency organization, procedure or
practice," which are expressly exempt from the

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9

APA's  notice and comment  requirements. Id. at B12
(quoting 5 U.S.C. 553(b)(3)(A)).

Finally, the court rejected petitioner's claim that
the Secretary's overpayment determination in the
second dispute constituted a prohibited "penalty"
under the Paperwork Reduction Act because it was
based upon petitioner's failure to produce medical
records for which no OMB number had been assigned.
Pet. App. B12-B14. Observing that petitioner had
no right to any Medicare payment for which he could
not document "reasonable cost," the court held that
the determination of the amount owing was not a
"penalty" but rather a decision concerning the
amount of Medicare funds incorrectly paid to peti-
tioner. Ibid. The court also upheld the carrier's
right to project an overpayment when no documenta-
tion on the audited random sample is forthcoming,
holding  that "HHS  has authority  to  make projections
concerning overpayments using a random sampling
method when the underlying circumstances do not
permit a case by case review.  The use of a random
sample does not constitute a 'penalty' under the Act."
Id. at B14.

4. In an unpublished per curiam decision, the
court of appeals affirmed the district court's order
affirming the Secretary's determination that peti-
tioner was overpaid. Pet. App. A1.  The court found
his arguments based on the APA, the Paperwork
Reduction Act, and due process to be without merit,
and held that petitioner had waived all other argu-
ments raised on appeal. Ibid.

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ARGUMENT

The arguments petitioner raises are without merit
for the reasons given by both lower courts.  The
holdings of the court of appeals do not conflict with
a decision of this Court or of any other court of
appeals, and raise no important question of general

___________________(footnotes)
                                                 
4 Because petitioner failed to seek review of the ALJ's
decisions within the 60-day period allowed, the district court
lacked subject matter jurisdiction over this action. As the
district court noted (Pet. App. B6), the Eleventh Circuit in
Bloodsworth v. Heckler, 703 F.2d 1233, 1239 (1983), held that,
in the circumstance where a review request to the Appeals
Council is dismissed as untimely, the  ALJ's  decision constitutes
the "final agency decision: and it may be reviewed in district
court so long as review is sought within 60 days of the Appeals
Council's dismissal.  The  court  acknowledged  that the Eleventh
Circuit is the only circuit holding that the district court has
jurisdiction to review an Appeals Council decision dismissing an
untimely appeal from an ALJ decision. Pet. App. B7. Seven
other circuits have rejected that position.  See Bacon v.
Sullivan, 969 F.2d 1517, 1520-1521 (3d Cir. 1992); Matlock v.
Sullivan, 908 F.2d 492, 494 (9th Cir. 1930); Turner  v. Bowen,
862 F.2d 708, 709-710 (8th Cir. 1988); Harper v. Bowen, 813
F.2d 737, 741 (5th Cir.), cert. denied, 484 US. 969 (1987);
Adams v. Heckler, 799 F.2d 131, 133 (4th Cir. 1986);  Dietsck v.
Schweiker,  700  F.2d  865, 867 (2d Cir. 1983); Watters v. Harris,
656 F.2d 234, 238-239 (7th Cir. 1980). Even if a court may
review the Appeals Council's dismissal of an appeal as un-
timely, however, it does not follow that where, as here, the
court upholds the Appeals Council's dismissal of the appeal, it
may nevertheless go on to review the ALJ's decision on the
merits. In that situation, the ALJ's decision is binding on the
claimant, see 20 C.F.R. 404.955(a) and (b), and the claimant's
procedural default in failing to seek timely Appeals Council
review would bar the district court from reviewing the ALJ's
decision on the merits.

                
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11

importance.5  Accordingly, certiorari is not war-
ranted.

1. Petitioner's due process claims (Pet. 23-24) lack
merit. The courts below correctly held that peti-
tioner was not entitled to conduct preheating dis-
covery at the administrative level (Pet. App. Al, B11)6
or to introduce testimony of Medicare officials about
unrelated medical reviews (ibid.). Nothing in either
the Medicare Act or the APA provides such rights,
ibid.; see also Small v. Sullivan, 820 F. Supp. 1098,
1106 (S.D. Ill. 1992); cf. Hummel v. Heckler, 736 F.2d
91, 93 (3d Cir. 1984), and no court has held to the
contrary.

___________________(footnotes)

5 Since petitioner obtained judicial review of both ALJ
overpayment determinations, the question whether the
Appeals Council acted improperly in dismissing petitioner's
request for review as untimely is essentially irrelevant. The
APA, due process and Paperwork Reduction Act arguments
discussed below are the only issues that petitioner preserved
for review.  Pet. App. Al. Accordingly, all of the other
questions presented in the petition should be disregarded. See
Citizens Bank of  Maryland v. Strumpf, 116 S. Ct. 286, 290 n.**
(1995) (Court will decline to address contentions not raised
below).

6 While the issuance of subpoenas in connection with an
ALJ hearing  may  be  appropriate  "[w]hen it is reasonably neces-
sary for the full presentation of a case: 20 C.F.R. 404.950(d),
petitioner failed to establish such a need here.  Petitioner
sought to subpoena the Medicare Carrier's Manual, a published
document that is readily available to the public. Pet. App. B11.
Given petitioner's subsequent reliance on portions of  that Man-
ual (see, e.g., Pet. 22), a subpoena clearly was not necessary.
Nor was carrier testimony as to "technical coding questions"
on unrelated, earlier claims (Pet. 24) relevant to whether peti-
tioner's bill coding on the claims audited here conformed with
the carrier's policy.

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12

2. The courts below also correctly rejected peti-
tioner's contention (Pet. 25; see Pet. App. B11) that
the "Carrier Bulletins, " "periodic publications issued
by the carrier" and "payment guidelines" issued by,
and relied upon by, the carrier failed to comply with
the notice and comment requirements of the APA,
5 U.S.C. 553(b)(3)(A). Pet. App. A1, B11.  The APA's
publication and notice and comment requirements
apply to "substantive rules of general applicability
adopted  as  authorized by law." 5 U.S.C. 552(a)(1)(D),
Section 5530) of the APA requires that an agency
publish a notice of proposed rules in the Federal
Register for public comment, subject to certain ex-
ceptions. 5 U.S.C. 553(b).  The APA exempts from
its notice and comment requirements "interpreta-
tive rules, general statements of policy, or rules
of agency organization, procedure, or practice."
5 U.S.C. 553(b)(3)(A). "Carrier Bulletins,"  "periodic
publications issued by the carrier," and "payment
guidelines" are thus exempt from the WA'S notice
and comment requirements.  See Shala  v.  Guernsey
Memorial Hosp., 514 U.S. 87, 99 (1995); see also  Mile
High Therapy Centers, Inc. v. Bowen, 735 F. Supp.
984, 986 (D. Colo. 1988) (HCFA ruling explaining
Medicare's use of statistical sampling method for
audits and computing overpayments held exempt
from  APA notice and comment requirements); accord
Chaves County Home Health Services, Inc. v.
Sullivan, 732 F. Supp. 188, 191 (D.D.C. 1990), aff'd,
931 F.2d 914, 923 (D.C. Cir. 1991), cert. denied, 502
U.S. 1091 (1992). At the same time, however, those
carrier materials do not have the force and effect of
law, and they therefore do not bind the ALJ or the

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13

Appeals Council in the adjudication of claims. See
Guernsey .Memorial Hosp., 514 U.S. at 99.7

3. Petitioner's Paperwork Reduction Act (PRA)
claim (Pet. 21-23) lacks merit.  Petitioner contends
that the Secretary's overpayment decision regarding
fiscal year 1988 must be set aside as violative of the
PRA because it was based on petitioner's failure to
produce documents as to which the Secretary failed to
obtain a separate OMB control number.  Pet. 22.  In
the absence of a control number for this document
request, petitioner argues, the PRA relieved peti-
tioner of any duty to respond to the audit.

While petitioner is correct in asserting that the
PRA prohibits penalizing a person "for failing to
maintain or provide information to any agency if the
information collection request * * * does not display
a current control number assigned by the Director
[of the Office of Management and Budget]," 44 U.S.C.
3512, the Secretary's overpayment determinations
below did not constitute a "penalty." Pet. App. Al,
B14.  As a physician, petitioner is not required to
participate in the Medicare program, but if he does, he
is subject to program requirements.  As noted above,
a physician may bill Medicare only for medically
reasonable and necessary services and procedures
and must adequately document such medical reason-

___________________(footnotes)

7 Petitioner relies (Pet. 25) heavily on Glick v. Secretary of
Health and Human Services, 714 F. Supp. 39 (D. Mass. 1989),
for the proposition that he was not given adequate notice of the
types of documentation necessary to establish that his bills
constituted reasonable and necessary costs.  Glick is distinguish-
able.  In that case, there were no clear documentation require-
ments for participating psychiatric practitioners. See id. at 41.
Here, by contrast, documentation requirements were explicit.
App., infra, 16a-17a.

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14

ableness and necessity. See 42 U.S.C. 1395I(e).  As
petitioner concedes (Pet. 23), the claim form on which
he submitted his original bills contained an OMB
control number.  Petitioner was on notice of his con-
tinuing obligation under the Medicare Act to substan-
tiate his claims as required by the carrier.  Treating
an inadequately documented bill as medically un-
reasonable or unnecessary for Medicare purposes is
not an imposition of a penalty.  It is merely a finding
that Medicare money was erroneously paid to the
physician  and  must be returned. 8

___________________(footnotes)

8 To the extent petitioner complains about the carrier's
initial assessment of overpayment, an amount derived by
extrapolation from a random sample of claims as to which he
refused to submit any documentation, his contention is without
merit.  The practice of statistical sampling and extrapolation to
determine Medicare overpayments has been upheld by the few
courts that have considered the question.  See Mile High
Therapy  Center, Inc. v. Bowen,  735 F. Supp.  at  986;  Chaves
County Home Health Service, Inc. v. Sullivan, 931 F.2d 914,
918-919 (D.C. Cir. 1991) (upholding statistical sampling audits
in Medicare Part A), cert. denied, 5112 U.S. 1091  (1932); cf.
Illinois  Physicians Union v. Miller,  675 F.2d 151, 156  (7th Cir.
1982) (sampling audits  to recoup  Medicaid overpayments).
Petitioner's objection is also moot.  Once petitioner acquiesced
in an audit, the final overpayment amount was revised to
reflect only the amount due on the sample claims after a claim-
by-claim adjudication.

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15

CONCLUSION

The petition for a writ of certiorari should be
denied.

Respectfully submitted.

WALTER DELLINGER
Acting Solicitor General

FRANK W. HUNGER
Assistant Attorney General

ANTHONY J. STEINMEYER
KATHERINE S. GRUENHECK
Attorneys

JULY 1997

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APPENDIX A

DEPARTMENT OF HEALTH AND HUMAN SERVICES
SOCIAL SECURITY ADMINISTRATION
OFFICE OF HEARINGS AND APPEALS

DECISION

In the case of  Claim for

SUPPLEMENTAL MEDICAL

John H. Lary, Jr., M.D.  INSURANCE BENEFITS
(Appellant)

Multiple Beneficiaries  Multiple
  (Beneficiaries)   (HIC #)

Blue Cross and Blue

Shield of Alabama   000-49-0156
(Carrier)  (Docket Number)

This case is before the undersigned Administrative
Law Judge on a request for hearing filed on February
7, 1989.  An oral hearing was held on February 20,
1992  in Huntsville, Alabama.  The appellant was pres-
ent at the hearing.  Also present was Melissa Kerzic.
of  Blue Cross and Blue Shield of Alabama.  The
Administrative Law Judge has carefully considered
all the documents identified in the record as exhibits
as well as testimony given at the hearing.

ISSUES

The issue in this case is whether the appellant has
been overpaid by $508.57 for medical services provided

(la)

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2a

to multiple Medicare beneficiaries between January
and June 1987.

DECISION

It is the decision of the undersigned Administrative
Law Judge that pursuant to Part B of Title XVIII of
the Social Security Act, the carrier correctly deter-
mined that the appellant had been overpaid by $508.57.
Since the appellant was not without fault in causing
or accepting the overpayment, recovery of the over-
payment cannot be waived.

EVALUATION

Section 1842(a) of the Social Security Act establishes
the carrier's responsibility to audit records and as-
sure that proper  reimbursement  has been made for
medical services.  Section 1861(v) (1)(A)(ii) of the Act
instructs carriers to make suitable "retroactive cor-
rective adjustments"  to  payments when necessary.

The appellant is a specialist in internal medicine who
practices in Huntsville, Alabama. In a letter dated
August 31, 1988, the Medicare carrier, Blue Cross and
Blue Shield of Alabama, notified the appellant that. it
had conducted a postpayment review of claims he
submitted for services provided to multiple Medicare
beneficiaries between October 1, 1986 and September
30, 1987. An overpayment of $1421.09 was identified
and the appellant was instructed to send a check for
this amount to the carrier.  The carrier found that
the appellant had incorrectly been paid for office
visits provided on the same dates as endoscopy proce-
dures in contravention of carrier policy.  Both the
endoscopy  procedures  and  office visits were allowed at
the full reasonable charge profile amounts.

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3a

Since the Administrative Law Judge cannot consider
claims for services provided before January 1, 1987,
the request for hearing for claims involving services
provided before that date has been dismissed. Claims
for 23 beneficiaries are still at issue. The overpay-
ment amount for services provided after January 1,
1987 is $508.57.  Since the remaining overpayment
amount is over the. $500.00 amount in controversy re-
quirement and the claims involve "common issues of
fact and law," the claims can be aggregated under
Section  1869(b)(2)(B) and the undersigned Adminis-
trative Law Judge has jurisdiction to hear the case.

Briefly, the Medicare law and regulations provide
reimbursement to Part B enrollees on expenses for
covered health services and supplies on the basis of a
"reasonable charge" (allowable amount). This "rea-
sonable charge" is determined by the carrier, based
on data collected from previous Medicare claim expe-
rience whenever possible.  The collection process is
accomplished by means of a procedure (service) identi-
fication coding  system  and actual charges for those
procedures which have been billed to the Medicare
program.  This code and charge information is com-
piled during an entire 12  month fiscal year from July
1 through June 30. This data is used to price new
claims for  services rendered  beginning January  1st of
the next year.

The Omnibus Budget Reconciliation Act, Public Law
99-509, provides that services rendered by Medicare
participating physicians during the period January 1,
1989 through December 31, 1989 are to be priced on
claim data received during a 12 month, July 1, 1987
through June 30, 1988, fiscal year period. This legis-
lation also maintained the Social Security Amend-

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4a

ments of 1972 which imposed a economic index limit of
annual fiscal year increases to prevailing charge data
(taken from 1971 claim charges) being the base of
measurement for each subsequent annual increase.

When selecting a reasonable charge for a specific
service, there must be considered 4 primary sources
of charge information:

(1) the provider's median charge for the
service during July 1, through June 30
preceding fiscal year period;

(2) the prevailing charge by other physicians
of the same specialty in the same region
during the same fiscal year period for the
same service;

(3) the fiscal year 1973 prevailing charge for
the service increased by the Medicare
Economic Index (MEI); and

(4) the physician's charge on the claim at
hand.

Reasonable, as used in the term  "reasonable charge",
is strictly defined by the law and  regulation, and not
subject to interpretation.   The reasonable charge, by
law, is the lowest of the above 4 criteria.

The appellant requested a carrier Fair Hearing on
October 23,1988. The hearing was conducted by tele-
phone on January 4, 1989 and a decision was issued on
January 20, 1989. The Hearing Officer upheld the car-
rier's determination of the overpayment, stating

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5a

The endoscopy procedure is considered to be
surgery.  Medicare guidelines do not allow the
payment of medical visits in the office on the
same day that the provider performs surgery
because the surgery fee is considered global in
nature and should include the cost of medical
visits on the same day. Therefore, the carrier
was correct in denying payment for the office
visits . . .

The appellant argues that Medicare should cover
charges for endoscopy and office visits provided on the
same day whenever the charges are for two separate
medical conditions and that Medicare should deny
payment for the visit only when the office visit charge
is for routine pre-operative or post-operative care for
the concurrent surgery.

The appellant cites the 1988 Physicians Current
Procedural Technology (CPT) coding handbook as
supporting his position that an office visit provided on
the same day as an endoscopy can be allowed. He
believes that the carrier should follow the instruc-
tions given in the CPT.  Paragraph 3 of the "Surgery
Guidelines"  section  of  the CPT states:

FOLLOW-UP CARE FOR DIAGNOSTIC PRO-
CEDURES, e.g. endoscopy, injection procedures
for radiography, includes only that care related to
recovery from the diagnostic procedure itself.
Care of the condition for which the diagnostic
procedure was performed or of other concomitant
conditions is not included and may be listed
separately.

However, the undersigned notes that the carrier is
not required to follow the guidelines in the CPT. The

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6a

surgery guidelines are not binding on the carrier but
may be useful in processing surgery claims.

The appellant also submitted responses to questions
he sent to several other Medicare carriers.  He asked
whether the carriers follow the CPT, whether they
pay for both an endoscopy and an office visit per-
formed on the same day when two diagnoses are
listed, and whether they pay for an endoscopy and an
office visit performed on the same day when only one
diagnosis is listed. Most of the carriers who re-
sponded to his inquiry indicated that they would pay
for an office visit provided on the same day as an
endoscopy.  However, several carriers indicated that
they would pay for the office visit and the endoscopy
only if the claim showed different diagnoses for the
two services.  One carrier, Blue Cross and Blue
Shield of North Dakota, indicated that payment for
both the endoscopy and office visit would depend on
what endoscopy procedure was billed.  These re-
sponses indicate that there is some variation in how
other carriers pay these claims.  In addition, several
carriers indicated that they do not strictly follow the
CPT guidelines for surgery.  Equicor of Tennessee
indicated that it has adopted some of the surgical
guidelines listed in the CPT.  However, in some situa-
tions its carrier policy guidelines would differ from
the CPT.

Blue Cross and Blue Shield of Alabama's policy re-
garding this issue was explained in Medicare Bulle-
tins dated May 1982 and January 1984. The Bulletins
state that an office visit performed on the same day as
surgery will be denied because the surgery fee is
considered to be "global" and includes payment for the
office visit.  Since endoscopy is considered to be a

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7a

surgical procedure, no payment can be made for an
office visit provided on the same day.

At the hearing before the undersigned, the appellant
stated that the carrier will allow payment for an
endoscopy and another procedure done on the same
day but it will not allow payment for the endoscopy
and an office visit.  He noted that the office visits
were related to different diagnoses and that he docu-
mented the services he provided.  Also testifying at
the hearing was Melissa Kerzic of Blue Cross and
Blue Shield of Alabama.  She indicated that the allow-
ance for the endoscopy procedure is sufficient to
adequately reimburse a physician for an office visit.
She noted that this policy was based on carrier
guidelines written prior to the dates of service at
issue.  She indicated that the Health Care Financing
Administration (HCFA) gives carriers the right to
develop their own guidelines based on the standard of
practice in the locality.  If HCFA does not state ex-
actly what procedures a carrier must follow, the
carrier can develop its own guidelines regarding how
claims should be allowed.

The carrier states that its authority to develop medi-
cal guidelines for payment for Medicare claims comes
from Section 5240 of the Program Administration
Manual. Section 5240 of the Program Administration
Manual states that carriers retain the authority to
determine medical guidelines for payment and to
determine what evidence is acceptable to establish
medical necessity.

After the reviewing the evidence presented in this
case, the undersigned finds that the carrier correctly
determined that the appellant has been overpaid by

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8a

$508.57 for office visits which should not have been
separately paid.  Carrier policy clearly states that
office visits provided on the same day as surgical
procedures, such as an endoscopy, should be denied as
being included in the global fee for the surgery.
Although, carriers in other jurisdictions may follow
different policies on this issue, Blue Cross and Blue
Shield of Alabama is not required to follow the guide-
lines utilized by carriers in other areas.  Carrier
guidelines are based on medical practice in the
locality, not on practice in other states or areas.  In
addition, the carrier also is not bound to follow the
surgery guidelines provided in the CPT. As stated
above, this publication is- not binding on carriers and
its guidelines may be subject to local interpretation.

Since the overpayment has been upheld, the issue of
whether  the appellant  was "without fault"  in causing
or accepting the overpayment must be considered.
Section 1870 of the Social Security Act states that
repayment of an overpayment cannot be ordered if the
provider of services is without fault. Pursuant to
Section 1870(c) of the Act, repayment will not be
ordered for cases in which repayment would defeat
the purposes of Title XVIII of the Act or would be
against equity and  good conscience.

Section 7100 of the Carriers Manual explains liability
for overpayment and states that "once a determina-
tion of overpayment has been made, the amount so
determined is a debt owed to the United States
Government." Section 7103 of the Carriers Manual
explains physician liability for overpayment. Section
7103 states that a physician is without fault if he or
she exercised reasonable care in billing for and
accepting the payment. Reasonable care is estab-

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9a

lished  if: (1) the physician complied with all pertinent
regulations, and (2) the physician made full disclosure
of all material facts, and (3) on the basis of the
information available, including but not limited to the
Medicare regulations, the physician had a reasonable
basis for assuming that the payment was correct, or if
the physician had reason to question the payment, the
question was brought promptly to the carrier's
attention. Section 7103 Carriers Manual.

Therefore, in order to find that the appellant was
without fault, the appellant must show that he com-
plied with all pertinent regulations and instructional
materials, made full disclosure of all material facts
and had a reasonable basis for assuming that the
payments were correct, or if he did not, he brought
the improper payments to the attention of the carrier.
After a careful examination of the record, the under-
signed finds that the appellant was not without fault
in causing or accepting the overpayment. The under-
signed notes that it is the physician's responsibility
to comply with Medicare policies and rules which are
published in the Federal Regulations, which the car-
rier has circulated among the medical community,
and which the carrier has given to particular physi-
cians. Carrier policy regarding payment for office
visits performed on the same day as an endoscopy has
been communicated to physicians in carrier Medicare
bulletins.  Since the appellant is held to have been
aware of this policy and did not bring the overpay-
ments to the attention of the carrier, he cannot be
considered to be without fault in the overpayment.

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10a

FINDINGS

After a careful consideration of the entire record,
including the testimony given at the hearing and
additional evidence submitted by the appellant, the
Administrative Law Judge finds that:

(1) The appellant, John H. Lary, Jr., M.D.,
received a total overpayment of $508.57 for
medical services provided to 23 Medicare
beneficiaries between January 28, 1987 and
June 9,1987.

(2) The appellant was not without fault in
causing or accepting the overpayment
because he did not comply with Medicare
instructions and regulations regarding
billing for medical services.

(3) Accordingly, recovery of the overpayment
cannot be waived.

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11a

DECISION

It is the decision of the undersigned Administrative
Law Judge that the appellant was overpaid by $508.57
for medical services provided between January 28, and
June 9, 1987. Since the appellant was not without
fault in causing or accepting the overpayment, re-
covery of this amount cannot be waived.

/s/ GEORGE M. JACOBS
GEORGE M, JACOBS
Administrative Law Judge
Office of Hearings and Appeals
P.O. Box 10359
Arlington, VA 22210-9998
Date Mar. 26, 1992

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12a

APPENDIX B

DEPARTMENT OF HEALTH AND HUMAN SERVICES
SOCIAL SECURITY ADMINISTRATION
OFFICE OF HEARINGS AND APPEALS
DECISION

In the case of                              Claim for

John H. Lary, Jr. M.D.           SUPPLEMENTAL MEDICAL
  (Appellant)                           INSURANCE BENEFITS    

Multiple Beneficiaries            Multiple
  (Beneficiaries)                      (HIC #)

Blue Cross and Blue
Shield of Alabama                000-40-1976
  (Carrier)                              (Docket Number)

This case is before the undersigned Administra-
tive Law Judge on a request for hearing filed on
September 5, 1990. An oral hearing was held on
February 20,1992 in Huntsville,  A1abama. The appel-
lant was present at the hearing.  Also present was
Melissa Kerzic of Blue Cross and Blue Shield of
Alabama.  The Administrative Law Judge has care-
fully considered all the documents identified in the
record as exhibits as well as testimony given at the
hearing.

ISSUES

The issue in this case is whether the appellant has
been overpaid by $5616.22 for medical services

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13a

provided to multiple Medicare beneficiaries between
October 1, 1988 and  September 30, 1989.

DECISION

It is the decision of the undersigned Administrative
Law Judge that the overpayment amount is reduced
by $999.79 to $4616.43.  The carrier is instructed to
refund this amount to the appellant.  The remaining
overpayment of $4616.43 is upheld.  Since the appel-
lant was not without fault in causing or accepting the
overpayment, recovery of the remaining overpayment
cannot be waived.

EVALUATION

Section 1842(a) of the Social Security Act establishes
the carrier's responsibility to audit records and as-
sure that proper reimbursement has been made for
medical services. Section 1861 (v)(1) (A)(ii) of the Act
instructs carriers to make suitable "retroactive cor-
rective adjustments" to payments when necessary.

Health Care Financing  Administration  (HCFA) Rul-
ing 86-1 indicates that carriers can use statistical
sampling to project overpayments to providers when
claims are voluminous and reflect a pattern of errone-
ous billing or overutilization, and when a case-by-case
review is not administratively feasible.  HCFA Rul-
ings are decisions of the Administrator that serve as
precedent final opinions and statements of policy and
interpretation.  They provide clarification and inter-
pretation of complex or ambiguous statutory or
regulatory provisions relating to Medicare. They are
binding on all components, including Administrative
Law Judges who hear Medicare appeals (42 CFR
401.108).

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14a

The appellant is a specialist in internal medicine who
practices in Huntsville, Alabama.  In a letter dated
January  8, 1990, the Medicare carrier, Blue Cross and
Blue  Shield of Alabama, notified the appellant that it
would be conducting a postpayment  review of claims
he submitted for services provided to multiple
Medicare beneficiaries between October 1, 1988 and
September 30, 1989.  Medical records for a random
sample of beneficiaries were requested by the carrier.
However, the appellant elected not to comply with
this request, indicating that it would be an unduly
burdensome task. Consequently, the carrier determ-
ined that its recourse in such a case was to declare
all payments made on the total universe of claims
processed during the review period to be in error and
request refired of those payments.  On March 12, 1990,
the carrier notified the appellant of the results of its
review,  The carrier's medical staff projected an over-
payment of  $28,729.30  based on a statistical random
sample.  The appellant was requested to forward a
check for this amount to the carrier.
A carrier Fair Hearing was requested on March 14,
1990.  After several postponements, a hearing was
conducted on. July 2, 1990 in Huntsville, Alabama and a
decision was issued on August  3, 1990.  At the Hear-
ing, the appellant submitted the medical records for
the sample claims that the carrier had previously
requested.  The Fair Hearing Officer in turn asked
the carrier to have its medical staff evaluate the
medical records, give its recommendations, and calcu-
late any appropriate adjustments to the overpayment
previously determined.
After reviewing the medical records, the carrier
Utilization Review Committee  recalculated  the over-

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15a

payment at $5616.22. The carrier provided the Hear-
ing Officer with a revised list of reasons for denying
specific services.  The most common error found dur-
ing the second review was fragmentation of CPT
codes.  For example, the appellant billed for urinalysis
procedures provided to the same beneficiary on the
same day under procedure codes 81015, 81004 and
81005 when the proper code to bill for urinalysis,
(specific gravity, protein, tests for reducing sub-
stances for glucose) was 81000.  Urine culture and
sensitivity tests billed under codes 87086, 87088 and
87184 should have been billed under P7001. Very few
of the services were denied for lack of documentation
to support medical necessity.  Claims for testing of
stool samples were incorrectly billed based on the
number of specimen cards rather than for the
complete test.

Claims billed under procedure code 93000 (routine
ECG with at least 12 leads; with interpretation and
report) were reduced to 93005 when the reviewers
could not find evidence that the appellant had per-
formed the interpretations. The carrier also stated
that ECG services Q0020, Q0021 and Q0022 are in-
cluded in Q0019 and should not be billed separately.
Claims for diagnostic tests which were not supported
by test results were denied even though the appellant
had submitted charge slips for the services. Office
visits were reduced to meet the descriptions in the
CPT manual. The most noticeable error was billing
procedure code 90080 for what appeared to be routine
visits.

The Hearing Officer stated in his decision that in
accordance with instructions from HCFA, the carrier
is required to pay claims under the procedure code

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16a

that reflects the lowest cost to the Medicare program.
Consequently, the Hearing Officer upheld the car-
rier's denials or downgrades of services in all cases
that failed to conform to this policy. For example,
urine culture and sensitivity studies were billed by
the appellant under codes 87086, 87088 and 87184, all
performed on the same patient on the same day.
While, these codes are valid codes, the three services
should have been combined under code P7000, which is
reimbursable at a lower cost to Medicare. The Hear-
ing Officer noted that all Alabama providers were
first notified of the P7000 code for use in billing urine
culture and sensitivity studies in Carrier Bulletin
#84-28 dated June 1984.  Subsequent updates have also
included this code.  The Hearing Officer noted that
the appellant had fragmented charges for urinalysis
procedures by billing codes 81015, 81004 and 81005
when 81000 included all of the services provided. The
October 1986 issue of Providerfax sent to all Alabama
providers, warns providers against fragmenting
claims for laboratory tests.  The Hearing Officer also
stated  that  Section  3045.1A  of  the Medicare Part B
Carriers Manual prohibits fragmentation of charges.

The Hearing Officer upheld the carrier's decision to
downgrade 12  lead  ECG services from 93000 to lower
levels of service because evidence in the file did not
document the medical necessity of the more extensive
service. In discussing the lack of copies of the results
of certain laboratory tests and the fact that the appel-
lant provided charge s  slips for the services, the Hear-
ing Officer noted that carrier policy requires all
providers to submit copies of the actual test results
as verification that the test was conducted.  In addi-
tion, information  contained  in the laboratory reports

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17a

provides evidence regarding the medical necessity of
the services.  Charge slips do not allow the carrier to
determine whether the services were medically
necessary.  Therefore, the Hearing Officer held that
the carrier had correctly denied payment for these
tests.

Accordingly, the Hearing Officer held that carrier
policy should be followed regarding the use of correct
codes for particular services.  Therefore,  the Hearing
Officer held that the overpayment had been correctly
calculated at $5616.22.

In most claims for reimbursement under Medicare
Part B, the medical services in question are classified
by the physician(s) and later by the carrier under
medical procedure codes. These codes were developed
by the American Medical Association and are set
forth in the 4th edition of Current Procedural Tech-
nology  (CPT), and  in the 1990 Health Care Financing
Administration's Common Procedure Coding System
(HCPCS).

Section 410.20 of 42  CFR allows payment for physi-
cian's services.   Section  1862(a)(l)(A) of the Social Se-
curity Act states that Medicare will not pay for items
or services which "are not reasonable and necessary
for the diagnoses or treatment of illness or injury or
to improve the functioning of a malformed body
member".

Section 5246.4 of the Carriers Manual states that
went the level of service reported on the claim is not
reasonable and necessary; i.e., when it has been
determined that a less expensive level of service
would have met the patient's medical need, or when a
less expensive level of service was actually furnished,

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18a

reimbursement must be based on the reasonable
charge for the less expensive level of service. Section
3045.1A of the Carriers  Manual prohibits fragmenta-
tion of  assigned charged made under Medicare Part B.

At the Hearing before the undersigned, the appellant
contended that his billing practices were correct and
that the Medicare carrier was in error in its deter-
minations regarding the use of particular procedure
codes. Specifically, he contended that the carrier had
improperly reduced the coding of specific services and
had incorrectly determined that certain global codes
should have been billed.

The appellant stated that chemical examinations of
stool samples (82270) should be paid by the number of
samples tested rather than as one complete test. He
noted that stool samples may be collected over a
period of days but all of the samples may be tested on
the same day.  Glucose testing was cited as an
example of this type of billing.  Multiple glucose tests
performed on the same day are billed separately.  The
appellant argues that testing of multiple samples
should be billed separately unless Medicare states
that only one test performed on the same day can be
allowed.  The appellant has submitted a letter from
Renate Jordan, Coding Coordinator at Huntsville
Hospital, dated  February 19, 1992. Ms. Jordan states
that the fundamental rule of coding, billing for a
service for as many times as it is performed, would
apply to stool examinations billed under procedure
code 82270. Therefore, if stool examinations are per-
formed two or more times in a single day, each
performance should be coded separately. However, a
carrier "Provider Fax" dated January 1989 contra-
dicts this position and instructs providers to list the

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19a

number of services provided when billing occult blood
screening under code 82270.  Payment of this service
by Medicare and Blue Shield is for the "complete test
rather than the number of specimen cards returned
when the services are medically necessary".   Not-
withstanding the opinion of  Ms. Jordan, who is not
associated with Medicare, the undersigned finds that
the carrier correctly determined that the stool ex-
aminations should have been billed as one complete
test rather than based on the number of samples
submitted.

Regarding billing for urine cultures, he stated that
three separate procedures may be performed, a colony
count (87086), bacterial identification (87088) and
sensitivity test (87184). He noted that it is very
important to identify the bacteria present in the
samples in addition to the colony count. The sensitiv-
ity test is performed to see what antibiotic should be
used. Therefore, he argues that all three codes
should be paid. Nevertheless, Ms. Kerzic stated that
most physicians bill for these tests under one global
fee. There is no code in the CPT for bacterial studies.
However, as noted by the Fair Hearing Officer, the
carrier notified providers in a 1984 publication that
the proper code for these services is P7000.

The appellant states that the carrier incorrectly
determined that urinalysis tests should be combined
under procedure code 81000 as one complete service.
He noted that urinalysis tests may include several
different procedures which should be billed sepa-
rately. Ms. Kerzic testified that procedure code 81000
is a global urinalysis code which includes payment for
multiple components. The 1991 HCPCS defines pro-
cedure code 81000 as "urinalysis, by regent strips,

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20a

any number of components; with microscopy". The
undersigned agrees with the carrier's determination
that the appellant has fragmented his charges for
urinalysis tests. The correct code for these services
is 81000 which includes all of the components of the
services performed by the appellant. This represents
the lowest cost to Medicare.

Ms. Kerzie stated that frequently the appellant did
not adequately document the services he billed. In
many cases, he used a check list and did not indicate
the chief complaint  or  the symptoms which indicated
why he was seeing the patient. In some cases the
documentation was so poor that it was impossible to
determine what service was actually performed.
Rather than denying the service entirely, the carrier
downcoded  the claim to a lower level of service than
was billed.   Apparently, Dr. Lary consistently refuses
to submit medical records requested by the carrier.
However, in reviewing records provided by Dr. Lary
prior to the hearing, Ms. Kerzic acknowledged that
there was sufficient documentation to justify pay-
ment for specified billings for thirteen of the benefi-
ciaries.  Reductions in the overpayments made to
these beneficiaries total over $390.00.   Since the total
overpayment was based on projections made from
sample claims including services which have now
been allowed, Ms. Kerzic agreed that she would have
to recalculate the overpayment. In a letter to the
undersigned dated February 25, 1992, Ms. Kerzic
stated that the revised projected overpayment amount
is $4616.43.  The undersigned accepts this revised
amount and holds that the overpayment is reduced to
$4616.43. The appellant was given an additional 15

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21a

days to respond to the recalculation of the overpay-
ment.

Following the hearing, the appellant submitted an
affidavit dated March 9, 1992 and a brief entitled
"Statement of the Case".  These two documents have
been marked as exhibits and included in the file.
However, the undersigned notes that the documents
repeat the same arguments which the appellant has
presented in previous correspondence and at the
Hearing.

The undersigned has determined that the remaining
overpayment has been correctly calculated by the
carrier based on improper billing and fragmentation
of charges.  A review of the records and the testimony
presented at the hearing reveals that the appellant
consistently fragments bills for separate components
of tests such as urinalysis and urine cultures when
the services should be billed under one global proce-
dure code which includes all components of  the tests.
There are repeated examples in the record where one
or more procedure codes were billed when a different
code would have more accurately described the
services.

The undersigned notes that the appellant has had a
succession of hearings in which he raised the same
issues concerning his billing practices. He argues
that the Medicare practice for establishing the proce-
dure codes to be allowed is incorrect and that he was
justified in billing as he did.  As noted by Ms. Kerzic,
HCFA gives Medicare carriers the right to develop
their own guidelines for billing particular services.
These standards must of course be consistent with
applicable statutes and regulations and should be

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22a

based on standards of -practice in the locality. The
undersigned finds that the carrier acted within its
authority to develop payment guidelines for specific
services such as laboratory tests. The provider com-
munity has been apprised of these guidelines in
periodic publications issued by  the carrier.

Since the overpayment has been upheld, the issue of
whether the appellant was  "without fault"  in causing
or accepting the overpayment must be considered.
Section 1870 of the Social Security Act states that
repayment of an overpayment cannot be ordered if the
provider of services is without fault. Pursuant to
Section 1870(c) of the Act, repayment will not be
ordered for cases in which repayment would defeat
the purposes of Title XVIII of the Act or would be
against equity and good conscience.

Section 7100 of the Carriers Manual explains liability
for overpayment and states that "once a determina-
tion of overpayment has been made, the amount so
determined is a debt awed to the United States Gov-
ernment." Section 7103 of the Carriers Manual ex-
plains physician liability for overpayment. Section
7103 states that a physician is without fault if he or
she exercised reasonable care in billing for and
accepting the payment. Reasonable care is estab-
lished  if:  (1) the physician complied  with all pertinent
regulations, and (2) the physician made full disclosure
of all material facts, and (3) on the basis of the infor-
mation available, including but not limited to the
Medicare regulations, the physician had a reasonable
basis for assuming that the payment was correct, or if
the physician had reason to question the payment, the
question was brought promptly to the carrier's
attention. Section 7103 Carriers Manual.

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23a

Therefore, in order to find that the appellant was
without fault, the appellant must show that he com-
plied with all pertinent  emulations and instructional
materials, made full disclosure of all material facts
and had a reasonable basis for assuming that the
payments were correct, or if he did not, he brought
the improper payments to the attention of the carrier.
After a careful examination of the record, the under-
signed finds that the appellant was not without fault
in causing or accepting the overpayment. The under-
signed notes that it is the physician's responsibility
to comply with Medicare policies and rules which are
published in the Federal Regulations, which the car-
rier has circulated among the medical community,
and which the carrier has given to particular physi-
cians. The appellant has consistently billed for medi-
cal services under incorrect procedures codes which
resulted in incorrect payments. For example, he has
consistently fragmented charges for laboratory tests.
The undersigned notes that the carrier has made a
concerted effort to educate physicians regarding the
correct coding for specific services through Medicare
bulletins. However, it is the physician's responsibil-
ity to be aware of the current usage for particular
procedure codes and the coverage" of particular
services.

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24a

FINDINGS

After a careful consideration of the entire record,
including the testimony given at the hearing and
additional evidence submitted by the appellant, the
Administrative Law Judge finds that:

(1) The appellant, John H. Lary, M.D., pro-
vided medical services to multiple Medi-
care beneficiaries between October 1, 1988
and September 30,1989.

(2) A carrier postpayment review found that
the appellant had been overpaid for these
services by $5616.22.

(3) The overpayment amount should be re-
duced by $999.79 to 4616.43.

(4) The remaining overpayment amount is
upheld.

(5) The appellant was not without fault in
causing or accepting the overpayment
because he did not comply with Medicare
instructions and regulations regarding
billing for medical services.

(6) Accordingly, recovery of the overpayment
cannot be waived,

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25a

DECISION

It is the decision of the undersigned Administrative
Law Judge that the appellant was overpaid by $4616.43
for medical services provided between October 1, 1988
and September 30, 1989. Since the appellant was not
without fault in causing or accepting the overpay-
ment, recovery of this amount cannot be waived.

/s/ GEORGE M. JACOBS
GEORGE M. JACOBS
Administrative Law Judge
Office of Hearings and Appeals
P.O. Box 10359
Arlington, VA 22210-9998
Date Mar. 26, 1992