Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-01913/USCOURTS-casd-3_05-cv-01913-1/pdf.json

Nature of Suit Code: 861
Nature of Suit: Social Security - HIA (1395 ff)
Cause of Action: 42:1395 HHS: Adverse Reimbursement Review

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PHILLIP C. PAIK, M.D.,

Plaintiff,

CASE NO. 05CV1913-H (NLS)

ORDER DENYING

PLAINTIFF’S MOTION FOR

SUMMARY JUDGMENT

AND GRANTING

DEFENDANT’S CROSSMOTION FOR SUMMARY

JUDGMENT

vs.

MIKE LEAVITT, in his capacity as

Secretary of the United States

Department of Health and Human

Services,

Defendant.

On October 6, 2005, Plaintiff Phillip C. Paik, M.D. (“Plaintiff”) filed a complaint

for review of the final decision of the Secretary of the Department of Health and Human

Services, Mike Leavitt (“the Secretary”), which determined that Plaintiff was overpaid

Medicare Part B benefits. (Doc. No. 1.) Plaintiff filed a motion for summary judgment

on June 28, 2006. (Doc. No. 12.) The Secretary filed an opposition and cross-motion

for summary judgment on July 31, 2006. (Doc. No. 18.) Plaintiff filed an opposition

and reply on August 15, 2006. (Doc. No. 23.) On August 21, 2006, the Secretary filed

a reply. (Doc. No. 24.) The Court held a hearing on August 28, 2006. Douglas Winter

appeared for Plaintiff and Assistant United States Attorney Robert Plaxico and

Assistant Regional Counsel for the Department of Health and Human Services

Gioconda Molinari appeared for the Secretary. For the following reasons, the Court

Case 3:05-cv-01913-H-NLS Document 29 Filed 09/20/06 Page 1 of 17
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DENIES Plaintiff’s motion for summary judgment and GRANTS the Secretary’s crossmotion for summary judgment.

Background

Plaintiff is a physician specializing in internal medicine, who was at all

relevant times, a Medicare participating physician with offices in San Diego and Los

Angeles. (Administrative Record (“A.R.”) Vol. 1 at 9.) Plaintiff is not licensed in

physical or orthopedic medicine, however, he and his four unlicensed employees

administered physical therapy and osteopathic manipulation services to patients at

both the San Diego and Los Angeles office locations from at least 2000 to 2002. 

(A.R. Vol. 1 at 135.) Plaintiff testified that he and his staff approached treatment

holistically, treating the entire body both physically and psychologically. (A.R. Vol.

1 at 175; 17.) The physical therapy services provided consisted of massage,

ultrasound, electrical stimulation and other therapeutic exercises. (A.R. Vol. 1 at

134-135.)

In March 2002, Plaintiff’s Medicare carrier, National Heritage Insurance

Company (“NHIC”) initiated a study of special practice, family practice, and internal

medicine. (A.R. Vol. 7 at 2143.) NHIC selected Plaintiff for an audit based on the

large volume of physical therapy services his offices ordered. (A.R. Vol. 1 at 10.) 

NHIC reviewed the records from a sample of patients who received physical therapy

services in Plaintiff’s offices in 2001. (Id.) After determining that some of the

physical therapy services administered were not medically necessary, NHIC initiated

a new study for the period of January 1, 2002 to December 31, 2002. (Id.) In that

study, NHIC randomly selected 25 patients whose claims Medicare paid, and who

received physical therapy services in Plaintiff’s office, and conducted an audit. 

(A.R. Vol. 7 at 2143, 2379-2404.) 

During the sample period, NHIC identified 855 claims representing 58

beneficiaries and 6,518 services for which Medicare paid $128,054.13. (A.R. Vol. 7

at 2143.) NHIC randomly selected 40 claims from the sample, pertaining to 25

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beneficiaries. (Id.) NHIC’s medical advisor, Dr. Lawrence Miller, reviewed the

selected records and concluded none of the extensive physical therapy services

provided in Plaintiff’s offices were medically necessary. (A.R. Vol. 7 at 2144.) Dr.

Miller commented that the records did not sufficiently indicate the specified

treatment plans or goals, and did not describe the results achieved. (Id.) 

Furthermore, the record did not document who performed the treatment. (Id.) 

Plaintiff billed for physical therapy services at both his Los Angeles and San Diego

offices, on the same date and at the same time, indicating that Plaintiff’s unlicensed

staff were performing the services. (A.R. Vol. 7 at 2151.) Dr. Miller also found that

a chiropractor affiliated with Plaintiff, Dr. Goon Sik Kang D.C., was billing for

“manual manipulation” at the same time Plaintiff’s office was billing for physical

therapy services, which indicated patient sharing. (A.R. Vol. 7 at 2148.) Finally,

Dr. Miller concluded that the physical therapy services provided by Plaintiff did not

meet the requirements for reimbursable medical services under the relevant

Medicare and Medical Services (“CMS”) regulations, 42 C.F.R. §§ 410.60 and

410.61. (A.R. Vol. 7 at 2153.) Dr. Miller recommended that NHIC conduct a

statistically valid random sample of Plaintiff’s claims from the year 2002. (Id.)

NHIC notified Plaintiff on January 29, 2003 that it would evaluate a new

random sample of beneficiaries treated during the January to December 2002 time

period. (A.R. Vol 7 at 2108-2109.) For that period, NHIC identified 3,108 claims

representing 125 beneficiaries and 23,688 services. (A.R. Vol. 6 at 2010.) These

services represented a total of $572,459.69 billed, of which Medicare paid

$455,385.07. (Id.) From the sample, NHIC randomly selected 49 beneficiaries,

1,507 claims, and 11,517 services. (Id.) After analyzing the information provided

by Plaintiff for the randomly selected services, NHIC concluded that the physical

therapy services Plaintiff’s office provided were not medically necessary and not

covered by Medicare. (A.R. Vol. 6 at 2056-57.) As a result of the audit, NHIC

found that an overpayment of $184,410.80 was made to Plaintiff for the services

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identified. (A.R. Vol. 6 at 2058.) NHIC then extrapolated the sampled overpayment

to the entire universe of 125 beneficiaries to yield a total overpayment of

$370,662.00, with an 83.52% error rate. (Id.) NHIC concluded that Plaintiff knew

of NHIC’s medical policies (and thus the overpayment) because he received

Medicare newsletters and policy issues sent to all providers in the Medicare

program. (A.R. Vol. 6 at 2057.) NHIC notified Plaintiff of the overpayment on

December 17, 2003 in the “Post Payment Medical Review Final Determination

Letter.” (A.R. Vol. 6 at 1762.) Based on additional information provided after the

audit, the overpayment was reduced to $368,914.00. (A.R. Vol. 6 at 1761.) 

Upon receipt of the December 17, 2003 letter from NHIC, Plaintiff requested

review by an NHIC hearing officer and contested the NHIC’s findings. (A.R. Vol. 1

at 221.) On May 19, 2004, NHIC Medicare Hearing Officer Rose Brewer held an

in-person hearing. (A.R. Vol. 1 at 172-84.) Plaintiff testified at the hearing and

reviewed selected documents. (Id.) NHIC issued a written decision on July 22,

2004, upholding the overpayment because the physical therapy services provided by

Plaintiff were not medically necessary and thus, not covered by Medicare. (Id.)

NHIC determined that the documentation evidenced that the physical therapy

services were performed by unlicensed aides. (A.R. Vol. 1 at 180.) NHIC also

concluded that the physical therapy services Plaintiff or his staff provided were

“palliative and not specific and effective treatment for the patients’ reported

conditions.” (A.R. Vol. 1 at 181.) It further found that the treatment plans

established by Plaintiff did not meet the requirements of 42 C.F.R. § 410.61 because

they were not signed by Dr. Paik or a licensed physical therapist. (Id.) 

After NHIC’s notification, Plaintiff requested an in-person hearing with an

Administrative Law Judge (“ALJ”). (A.R. Vol. 8 at 2405-2466.) The hearing was

held on September 7, 2004. (Id.) Plaintiff, represented by counsel, testified at the

hearing. (A.R. Vol. 1 at 38-60.) After the hearing and a review of the record and

law, the ALJ upheld NHIC’s overpayment decision. (A.R. Vol. 1 at 60.) The ALJ

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agreed with NHIC’s reasoning and stated that “[Plaintiff] acknowledged . . . that the

physical therapy that was provided to the sample beneficiaries in this case was

performed by his office employees, none of whom is a licensed physical therapist.” 

(A.R. Vol. 1 at 26-27.) Plaintiff appealed the ALJ’s decision to the Medicare

Appeals Council. (A.R. Vol. 1 at 1.) The Medicare Appeals Council denied his

request for review on August 3, 2005. (A.R. Vol. 1 at 1-2.) Thus, the ALJ’s

decision became the final decision of the Secretary. (Id.) Plaintiff then filed a

complaint in this Court for review of the Secretary’s final decision. (Doc. No. 1.)

Discussion

A. Legal Standard

This Court has jurisdiction to review the final decision of the Secretary of

Health and Human Services pursuant to 42 U.S.C. § 405(g) (made applicable by 42

U.S.C. § 1395ff(b)). The Court may only set aside the Secretary’s final decision

when the ALJ’s findings were based on legal error or were not supported by

substantial evidence. Tacket v. Apfel, 180 F.3d 1094, 1098 (9th Cir. 1999). The

ALJ’s findings are conclusive if supported by substantial evidence. 42 U.S.C. §

405(g). “Substantial evidence is ‘more than a mere scintilla but less than a

preponderance; it is such relevant evidence as a reasonable mind might accept as

adequate to support a conclusion.’” Sandgathe v. Chater, 108 F.3d 978, 980 (9th Cir.

1997) (quoting Andrews v. Shalala, 53 F.3d 1035, 1039 (9th Cir. 1995)). The Court

must review the administrative record as a whole to determine whether substantial

evidence exists. Andrews, 53 F.3d at 1039-40 (citing Magallanes v. Bowen, 881

F.2d 747, 750 (9th Cir. 1989)). It is not limited to the record which the ALJ cited in

its decision. Bustamante v. Massanari, 262 F.3d 949, 953 (9th Cir. 2001). 

“[Q]uestions of credibility and resolution of conflicts in the testimony are functions

solely of the Secretary.” Sample v. Schweiker, 694 F.2d 639, 642 (9th

Cir. 1982). If the evidence is open to more than one interpretation, the Court must

uphold the ALJ’s decision. Id.

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Courts should afford substantial weight to an agency’s interpretation of

statutes or regulations which Congress entrusted the agency to administer. Chevron

U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 844 (1984); see

also Barnhart v. Walton, 535 U.S. 212, 218 (2002). The Court must reject an

agency’s construction that is contrary to Congressional intent, however, where the 

statute is ambiguous or silent, the Court should defer to the agency’s interpretation. 

Barnhart, 535 U.S. at 218.

B. Analysis

1. The Statutory Scheme

The Medicare program, Title XVIII of the Social Security Act, § 1801 et seq.,

42 U.S.C. §§ 1395-1395hhh, created a health insurance program which provides

insurance benefits for eligible elderly and disabled people. Erringer v. Thompson,

371 F.3d 625, 627 (9th Cir. 2004). Part A of the program provides eligible persons

hospital benefits. U.S. v. Mackby, 339 F.3d 1013, 1014 (9th Cir. 2003). Part B, the

Part relevant to this case, “is a voluntary insurance program that pays a portion of

the costs of some services not covered by Part A.” Id. (citing 42 U.S.C. § 1395k; 42

C.F.R. § 410). Part B beneficiaries receive coverage for physicians’ services and

“services and supplies . . . furnished as an incident to a physician’s professional

service, of kinds which are commonly furnished in physicians’ offices . . . .” 42

U.S.C. § 1395x(s)(1)-(2)(A). Medical services covered under Part B must be

furnished to noninstitutional patients in a noninstitutional setting. 42 C.F.R. §

410.26(b)(1). They must also be incidental to the service and commonly included in

the bill, or furnished without charge, and must commonly be done in the physicians’

offices. 42 C.F.R. § 410.26(b)(2)-(4). “Services and supplies must be furnished

under the direct supervision of the physician[,]” and “must be furnished by the

physician, practitioner with an incident to benefit, or auxiliary personnel.” 42 C.F.R.

§ 410.26(b)(6). 

/ / / /

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Medicare Part B provides coverage for certain physical therapy services. 

Mackby, 339 F.3d at 1014-15. Part B covers “outpatient physical therapy services”

furnished by a clinic, public health agency, or rehabilitation agency. 42 U.S.C. §

1395x(p) (first sentence). Part B also covers “outpatient physical therapy services”

provided “by a physical therapist . . . who meets the licensing and other standards

prescribed by the Secretary . . . if the furnishing of such services meets such

conditions relating to health and safety as the Secretary may find necessary.” 42

U.S.C. § 1395x(p) (second sentence). Where physical therapy services are provided

“incident to” a physician’s services, the person providing the services does not have

to be a licensed physical therapist, but must meet “the standards and conditions that

apply to physical therapists, except that license to practice physical therapy is not

required.” 42 C.F.R. § 410.60(a)(3)(iii). Outpatient physical therapy services must

also be provided under a written treatment plan. 42 C.F.R. § 410.61.

Under the Medicare statute, the Secretary contracts with eligible private

insurance carriers to perform claims processing for covered Medicare claims. 42

U.S.C. § 1395u; 42 C.F.R. Part 421. Payment tendered to the provider of services is

considered payment to the individual. 42 U.S.C. § 1395gg(a). Where an incorrect

amount is paid to the service provider, the Secretary assesses an overpayment and

seeks reimbursement from the service provider, unless the service provider was

“without fault with respect to the payment.” 42 U.S.C. § 1395gg(b); 42 C.F.R. §§

405.305(a)(2) and 405.371(a)(2). The Secretary will not pursue an adjustment or

recovery of overpayment where the individual is without fault, or where the

recoupment would defeat the purpose of the Medicare statute or would go against

good conscience and equity. 42 C.F.R. § 405.355(a). 

When the service provider is not satisfied with the Secretary’s determination

of adjustment, he must exhaust the administrative appeals process and exhaust his

administrative remedies. 42 U.S.C. § 1395ff(b); 42 C.F.R. § 405.801, et seq. After

the administrative appeals process is exhausted, and the Secretary has issued a final

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decision, the service provider may pursue his claim in the district court pursuant to

42 U.S.C. § 405(g). See 42 U.S.C. § 1395ff(b)(1)(A). 

2. Was the Secretary’s Decision Supported by Substantial Evidence?

Plaintiff argues that the Secretary’s decision is not supported by substantial

evidence and therefore, the Court should reverse the Secretary’s final decision and

allow him to keep the assessed overpayment. The Secretary asserts that substantial

evidence supports the decision. 

The ALJ’s decision, which became the Secretary’s final decision when the

Medicare Appeals Council denied Plaintiff’s request for review, was based on three

main findings: (1) Plaintiff’s treatment records did not meet the written plan

requirements under the CMS regulations; (2) the physical therapy services were not

performed by qualified personnel; and (3) the physical therapy services provided

were not medically necessary. 

a. Plan of Treatment

For outpatient rehabilitation services to be covered by Medicare, they must be

provided in accordance with a written treatment plan. 42 U.S.C. § 1395x(p)(2); 42

C.F.R. § 410.60(a)(2); 42 C.F.R. § 410.61. Medicare requires “a plan prescribing

the type, amount, and duration of physical therapy services that are to be furnished

such individual has been established by a physician . . . or by a qualified physical

therapist and is periodically reviewed by a physician.” 42 U.S.C. § 1395x(p)(2); 42

C.F.R. §§ 410.60(a)(2) and 410.61. Any changes in the plan must be made in

writing and signed by the physician or the physical therapist and the changes must

immediately be incorporated in the plan. 42 C.F.R. § 410.61(d). The physician

must conduct a review of the plan at least once every thirty days. 42 C.F.R. §

410.61(e). Upon each review, the physician must sign and date the review records. 

Id. 

The ALJ determined that Plaintiff’s records did not meet the criteria for

written plans of treatment set forth in the regulations. See 42 U.S.C. § 1395x(p)(2);

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42 C.F.R. § 410.60(a)(2); 42 C.F.R. § 410.61; (A.R. Vol. 1 at 24.) The ALJ noted

that Plaintiff’s records did not evidence plans created by a physician or other

appropriate individual under the regulations. (A.R. Vol. 1 at 24.) He further stated

that the treatment forms were not signed, that Plaintiff used diagnosis codes rather

than descriptive diagnoses, and that the actual treatment did not follow the planned

treatment set forth in the records. (A.R. Vol. 1 at 25.) Specifically, the ALJ

analyzed the treatment record of Plaintiff’s patient Tu Hyok C., which Plaintiff

presented during the hearing. (Id.) The ALJ determined that the record of Hyok C’s

treatment did not evidence any changes made or monthly reviews conducted, and

further stated that any progress notes that were made did not qualify as a review or

change of the plan. (Id.) Finally, the ALJ noted that the treatment plan for Hyok C.

generally did not reflect any anticipated goals of therapy and where they did, the

goals seemed unrealistic. (Id.) The ALJ concluded that Plaintiff’s treatment plans

did not meet the criteria set forth in the regulations. (Id.)

The ALJ’s decision was based on the testimony presented by Plaintiff at the

hearing and the findings and recommendations made by NHIC. (A.R. Vol. 1 at 9-

31.) At the hearing, Plaintiff testified that he met the requirements of the statute as

he understood them. (A.R. Vol. 8 at 2430-32.) He pointed out that the records

indicated the type, amount, frequency and duration of treatment. (Id.) He also

testified that he reviewed the records every 30 days using the same type of

evaluation form he used in the initial process, and that he made periodic changes in

the plans. (A.R. Vol. 8 at 2438-2439.) Additionally, at the hearing, Plaintiff’s

counsel pointed out that the CMS regulations did not require a signature on the

initial written plan. (A.R. Vol. 8 at 2432: 7-24.) 

While Plaintiff testified that he fully complied with the CMS regulations, the

agency’s interpretation of its own regulations should be given deference. Chevron,

467 U.S. at 844. Furthermore, the Secretary’s final decision was based on

substantial evidence in the record. See Tacket, 180 F.3d 1098. Specifically,

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Plaintiff’s treatment records do not evidence that Plaintiff adequately contemplated

his patients’ treatment goals or potential for achievement. See 42 C.F.R. §

410.61(c). Plaintiff assigned numerical values to the treatment goals section of the

patient’s evaluation form, however, as the ALJ noted, it is unclear how this

translated to an assessment of the goals or potentials of treatment. See 42 C.F.R. §

410.61(c). Additionally, as the ALJ noted, Plaintiff’s treatment records indicate that

the actual therapy provided varied from the therapy prescribed. For example, the

Plaintiff or one of his aides prescribed physical therapy for Hyok C. three times per

week for twelve weeks. (A.R. Vol. 1 at 125.) Plaintiff (or his employees) prescribed

15 minutes of ultra sound therapy for his back, 30 minutes of electrical stimulation

for his back/shoulders, 15 minutes of massage for his knees, thirty minutes

therapeutic exercise for his back/shoulders, and thirty minutes of kinetic activities

and osteopathic manipulation for areas not stated. (A.R. Vol. 1 at 132.) However,

the treatment notes from May 2, 2002 to May 15, 2002, reflect that Hyok C. actually

received only 15 minutes of electrical stimulation solely for his back and received 30

minutes of ultrasound therapy for his back and knees, among other treatments. (A.R.

Vol. 1 at 128.) The Court notes that the prescribed massage therapy and therapeutic

exercises were followed, however it is unclear whether the kinetic and osteopathic

treatment regimens were administered. (Id.) Additionally, Plaintiff testified that he

did not sign the treatment notes, and many of the Adult Progress notes were

unsigned. (A.R. Vol. 1 at 176.) Thus, it is unclear in some instances whether

Plaintiff or his employees created the treatment notes or progress reports. Based on

all of the information in the record, the Court concludes that the ALJ’s determination

that Plaintiff did not follow the treatment plan was based on substantial evidence in

the record. Sandgathe, 108 F.3d at 980. 

b. Performance of Physical Therapy Services

Medicare pays for outpatient physical therapy services provided by a physical

therapist who meets the licensing and other requirements prescribed by the

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Secretary. 42 U.S.C. § 1395x(p). The applicable federal regulations state that

Medicare covers outpatient physical therapy services provided by a physical

therapist or a supervised physical therapist assistant, but only if they are furnished

under one of three conditions: (1) the provider furnishes the services to a beneficiary

while under the care of a medical doctor; (2) they are provided pursuant to a written

treatment plan which meets the requirements of 42 C.F.R. § 410.61; or (3) they are

furnished “incident to the service of a physician.” 42 C.F.R. § 410.60(a)(1)-(3)(iii). 

When the service is provided “incident to” a physician’s services, by a person who is

not the physician, physician’s assistant, nurse practitioner, or nurse specialist, “the

service and the person who furnishes the service must meet the standards and

conditions that apply to physical therapy and physical therapists, except that a

license to practice physical therapy in the State is not required.” 42 C.F.R. §

410.60(a)(3)(iii). The standards for physical therapists are set forth in 42 C.F.R. §

484.4 (“Physical therapist” and “Physical therapist assistant”). The regulation

defines “physical therapist” as a person licensed to practice physical therapy in the

state and who has a physical therapy degree based on an approved curriculum. 42

C.F.R. § 484.4. A physical therapy assistant is a person licensed as an assistant in

physical therapy by the state (if applicable), who has a two-year college degree from

a school accredited by the American Physical Therapy Association, or has two years

of experience as an assistant in physical therapy and has achieved a passing grade on

a proficiency examination given, sponsored, or approved by the U.S. Public Health

Service. Id. 

The ALJ determined that the physical therapy services at issue were

performed by unlicensed, unqualified individuals. The ALJ stated:

[Plaintiff] acknowledged . . . that the physical therapy that was provided

to the sample beneficiaries in this case was performed by his office employees, none of whom is a licensed physical therapist.

Relevant State law prohibits the practice of physical therapy without

appropriate licenses (Cal. Bus. & Prof. Code Sections 2630, 2655.8,

2655.11 and 2670). [Footnote omitted] State law also provides for the

certifying of medical assistants who provide technical support services

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under the supervision of a licensed physician and prohibits the practice of medicine by unlicensed persons (Cal. Bus. & Prof. Code Sections

2052, 2053 and 2069). [Footnote omitted] 

The provision of physical therapy by Appellant’s employees, who were

not licensed as physical therapists is therefore a violation of state law.

CMS regulations provide that physical therapy is a skilled service that

must be of a level of complexity and sophistication or the condition of

the beneficiary must be such that the services required can safely and effectively be performed only by a qualified physical therapist or [by a]

qualified physical therapy assistant under the supervision of a qualified physical therapist (42 C.F.R. 409.44(c)(2)(ii)). In this case the services were performed by unqualified persons, – [Plaintiff’s] unlicensed employees. As such the services provided do not qualify as skilled

rehabilitative physical therapy services.

(A.R. Vol. 1 at 26-27.) 

Plaintiff has four employees performing physical therapy services. (A.R. Vol.

8 at 2443: 20-25.) Plaintiff testified that none of them are licensed physical

therapists or licensed physical therapy assistants in the United States. (A.R. Vol. 8

at 2443-2461.) He further testified that one of his employees performing the

physical therapy services had a massage license in the United States, another had

done physical therapy type work in South Korea, and Plaintiff believed he had an

“Oriental medical doctor degree.” (A.R. Vol. 8 at 2457: 8-22.) The other two

employees performing physical therapy services were not licensed or trained in

physical therapy. (A.R. Vol. 8 at 2443-2461.) Plaintiff also testified that while he

believed he had performed physical therapy personally on at least a number of the

patients from the NHIC sample, he could not remember when or how many of the

patients he personally serviced, and had no record of actually performing the

therapy. (A.R. Vol. 8 at 2451: 15-22.) 

The information in the administrative record supports the ALJ’s conclusion. 

See Tacket, 180 F.3d 1098. None of Plaintiff’s employees who performed the

physical therapy services in the NHIC sample were licensed physical therapists or

physical therapy assistants. See 42 C.F.R. § 484.4. Furthermore, even if the

physical therapy services were performed “incident to” a physician’s services, the

persons performing the services were required to meet the standards that apply to

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physical therapy and physical therapists. See 42 C.F.R. § 410.60(a)(3)(iii). The

standards for physical therapists and physical therapy assistants require that the

person providing the services hold a license in the state if applicable. See 42 C.F.R.

§ 484.4. Therefore, as California required licenses for physical therapists and

physical therapy assistants, the staff members performing the services were required

to be licensed. See 42 C.F.R. § 410.60(a)(3)(iii); see also Cal Bus. & Prof. Code §§

2655.8, 2655.9, 2655.11 and 2670. Accordingly, the ALJ’s determination that the

physical therapy services were not provided by qualified individuals is supported by

substantial evidence in the administrative record. See Tacket, 180 F.3d 1098. 

c. Reasonable and Necessary Services

For physical therapy services to be covered by Medicare, they must be

“reasonable and necessary” as that term is defined by the CMS regulations. 42

U.S.C. § 1395y(a)(1)(A); 42 C.F.R. § 411.15(k)(1). In the Medicare Carrier’s

Manual (“MCM”) the Secretary has set forth requirements for reasonable and

necessary services (to be covered by Medicare):

The services must be considered under accepted standards of medical

practice to be a specific and effective treatment for the patient’s condition.

The services must be of such a level of complexity and sophistication or

the condition of the patient must be such that the services required can be safely and effectively performed only by a qualified physical therapist or under his supervision . . . if in the course of processing

claims you find that the [physical therapy] services are not being

furnished under proper supervision, deny the claim and bring this

matter to the attention of the Division of Survey and Certification . . . .

. . . .

There must be an expectation that the patient’s condition will improve

significantly in a reasonable (and generally predictable) period of time,

or the services must be necessary for the establishment of a safe and

effective maintenance program required in connection with a specific

disease state.

The amount, frequency, and duration of the services must be

reasonable.

MCM, Pub. 14-3, § 2110; (A.R. Vol. 7 at 20.) The Secretary’s determination of

whether medical services are “reasonable and necessary,” and the decision to

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prescribe rules or allow for individual adjudication, is discretionary. Heckler v.

Ringer, 466 US 602, 617 (1984). 

The ALJ concluded that all of the physical therapy services provided by

Plaintiff to the sample beneficiaries were not “reasonable and necessary.” (A.R.

Vol. 1 at 27.) The records from the treatment of the 49 sampled beneficiaries

indicates that each had been given substantially the same treatment and diagnosis. 

(Id.) Furthermore, the ALJ stated that virtually every one of the beneficiaries had

been diagnosed with the same symptoms of back, leg, shoulder or knee pain,

however, there was no record that Plaintiff performed diagnostic tests. (Id.) Also,

each was prescribed physical therapy by his office staff. (Id.) The ALJ further noted

that Plaintiff was not a specialist in physical medicine and rehabilitation nor

neurology or orthopedic medicine. (Id.) The ALJ also noted disparities between the

treatment notes and the physical therapy examinations. (Id.) In sum, the ALJ

concluded that the treatment provided to the beneficiaries in the sample was not

medically necessary and that Plaintiff knew or should have known that it was not

covered based on the information distributed by NHIC. (A.R. Vol. 1 at 28.) 

The ALJ’s conclusion is supported by the administrative record. See

Andrews, 53 F.3d at 1039-40. Applying the criteria set forth in the MCM, it is

evident that the physical therapy services Plaintiff provided the sample beneficiaries

were not reasonable and necessary. (A.R. Vol. 7 at 2072-73.) The regulations

require that the services be so complex that only a qualified physical therapist or a

qualified physical therapy assistant can perform them and if the carrier becomes

aware that services are not being performed under proper supervision, to deny

Medicare coverage. (Id.) As Plaintiff practices internal medicine and his staff are

not licensed physical therapists or physical therapy assistants under the regulations

or California state law, the services were not administered under proper supervision

and therefore violated the regulations. See MCM, Pub. 14-3, § 2110. Furthermore,

from the record it does not appear that the amount, frequency and duration of the

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services were reasonable as Plaintiff diagnosed each beneficiary with substantially

the same conditions and symptoms and prescribed the same course of treatment. At

the hearing on August 28, 2006, the Court noted that it might consider a limited

remand on the issue of the amount of overpayment, however, after careful review of

the Administrative Record after the hearing, the Court concludes that the final

decision of the Secretary was based on substantial evidence and a limited remand is

not appropriate under these circumstances. See Tacket, 180 F.3d 1098. The record

supports the Secretary’s conclusion that the physical therapy services provided by

Plaintiff and his staff were not reasonable and necessary. 

3. Overpayment Recovery and Waiver

Plaintiff argues that even if the final decision of the Secretary was based on

substantial evidence, the Court should find that he is not at fault and deny

Administrative recovery of the overpayment. Plaintiff contends that his use of

unlicensed physical therapists was based on his interpretation of services furnished

“incident to” a physician’s professional services. He testified at the hearing that he

obtained this interpretation from the “Trans America Occidental Life publication,”

provided to him by NHIC, which he claimed defined “incident to” as therapy

provided as an integral aspect of the physician’s services. (A.R. Vol. 8 at 2460: 5-

20.) 

Under the Medicare Act, 42 U.S.C. § 1395gg(c), there shall be no recovery if

the service provider was without fault. Courts review a Secretary’s determination of

fault to see if the Secretary followed the correct legal standard and if the

determination was based on substantial evidence. Quinlivan v. Sullivan, 916 F.2d

524, 526 (9th Cir. 1990). The Secretary will not pursue an adjustment if the

recoupment would defeat the purpose of the Medicare statute or would go against

good conscience and equity. 42 C.F.R. § 405.355(a). Waivers are generally allowed

for overpayments due to clerical errors. Harrison v. Heckler, 746 F.2d 480, 482 (9th

Cir. 1984). 

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While Plaintiff argues that he misunderstood the Medicare regulations, there

is substantial evidence in the record demonstrating that he received publications

from NHIC which clearly defined the “incident to” requirements correctly and which

clearly set forth the “reasonable and necessary” requirements. Recovery of the

overpayment in this case, where Plaintiff should have been aware of the rules and

regulations prescribed by the Secretary, would not defeat the purpose of the statute

or go against good conscience and equity. See 42 C.F.R. § 405.355(a). Based on all

of the information in the record, the Court concludes that the Secretary’s

overpayment decision was based on substantial evidence. See Harrison, 746 F.2d at

483.

Conclusion

Accordingly, as the Court has determined that the final decision of the

Secretary was supported by substantial evidence in the record, the Court DENIES

Plaintiff’s motion for summary judgment and GRANTS the Secretary’s crossmotion for summary judgment. 

IT IS SO ORDERED.

DATED: September 20, 2006

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

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COPIES TO:

Raymond L. Riley

Riley & Reiner

801 South Figueroa Street, 9th Floor

Los Angeles, CA 90071

US Attorney CV

US Attorney’s Office, Southern District of California

Civil Division

880 Front Street, Suite 6253

San Diego, CA 92101

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