During the past several years, Tom Lambert, president of Maximum Comfort, has sold his house and put his company through bankruptcy reorganization to pay for a drawn-out legal battle over exactly what documentation is required for Medicare DME claims reimbursement. And on June 30, a federal judge in California issued a preliminary ruling in Lambert's favor, stating that a properly completed certificate of medical necessity (CMN) is the only proof needed for claims payment.

In his ruling, Judge Lawrence Karlton of the U.S. District Court for the Eastern District of California said the government cannot require suppliers to obtain beneficiaries' medical records or to make a judgment about whether the equipment is medically necessary.

The decision is the latest bout in a fight that began in late 1999, when, after an audit of the company's 1998 and 1999 claims, the Region D DMERC began investigating Lambert's business for K0011 over-utilization. While CMNs were provided with the claims, post-payment reviewers said the supplier had failed to submit the additional documentation necessary to establish medical necessity for the power wheelchairs, and concluded that Medicare had overpaid Maximum Comfort more than $785,000.

After the company appealed, two administrative law judges (ALJs) ruled in Lambert's favor, saying that, for the supplier, the CMN was indeed the only medical record necessary, but the Medicare Appeals Council subsequently reversed the ALJs' decisions. Lambert then filed suit against the Department of Health and Human Services, and the case ultimately ended up in front of Judge Karlton in federal court.

While Congress granted the HHS Secretary "broad discretion over the criteria required to prove medical necessity," the judge wrote in his ruling, he continued that the existing statute "plainly specifies that Congress intended that whatever information may be required by carriers from suppliers to show the medical necessity and reasonableness of DME must be contained in a CMN."

Technically, the judge's preliminary ruling "has no binding authority to others--only to the parties of this case," explained Jim Walsh, president of VGM Management, Ltd., and general counsel to The VGM Group, Waterloo, Iowa. "But this has a huge psychological impact. Somebody has said the emperor has no clothes."

In fact, the decision has fast become a subject of debate among industry stakeholders. While some say corroborating medical documentation is vital for preventing fraud, others insist the problem lies with the CMN, which should ask the right questions and provide space for doctors to explain the product's medical necessity.

According to Lambert, physicians, not suppliers, should be making the decisions about the medical necessity of DME. "The government can ask the physician, [who would be] under penalty of perjury, anything on that CMN."

"This decision really puts the ethical onus on CMS to either appeal it or live by it," Walsh said, adding that the decision puts the agency in a tough position. If CMS can't police HME providers on medical necessity, whom can the agency police? "The theory Congress relied on was doctors, but doctors are very poor gatekeepers when it comes to medical equipment. They don't know what it is; they don't understand it and have no motivation to fight the patient who wants it. It's a dilemma for CMS ... but its solution to put the providers at risk [by making them responsible] wasn't fair either."

Don Clayback, vice president of networks for The MED Group, Lubbock, Texas, said the decision will focus CMS' attention on its power wheelchair CMN. "We need to work with CMS to give them input on what is the appropriate criteria so that the CMN does prove to be an effective piece of documentation and not something that would create the opportunity for abuse," he said. "We need that appropriate balance between too much documentation and too little."

"We're recommending appeal, of course," said Ana Maria Martel, the assistant U.S. attorney for the Eastern District of California in Sacramento who represents HHS. "The judge is wrong because HHS has the right to audit and request additional medical documentation that shows, in fact, that the CMN was issued correctly. If [the government] can't ask for additional documentation ... [it will] have to audit first before paying, and can you imagine what havoc that will cause on the system?

"It will substantially slow down the processing of claims, and suppliers will have to wait months before [Medicare] pays, as they do with private insurers."

For legal help when the case began, Lambert turned to Bart Fleharty, a partner with the Redding law firm of Wells, Small and Selke. "When we started, this guy didn't know a wheelchair from a flying saucer," Lambert said, but the pair thought the case "was pretty simple if you just read the law."

According to Fleharty, along with fighting the government, a major challenge during the case was for Maximum Comfort "to stay fiscally alive." During the appeals process, the company began paying back what Medicare said it owed. CMS began pre-reviewing all of its K0011 claims, and the company's power wheelchair sales dropped 90 percent. Legal fees topped $130,000 last year. In June 2003, Maximum Comfort filed for bankruptcy and is only now emerging from the action. Lambert sold his home and an investment property. His business has shrunk from five branches to four, and from 48 employees to 22.

In the late 1990s, according to Lambert, the company's gross revenue was about $600,000 a month; today, it is $250,000, and Lambert says he is in debt to some vendors who extended him credit throughout the legal proceedings.

"We're a shell of what we used to be," Lambert said. "[But] we didn't see anywhere we could compromise. I had to keep going, because I knew I hadn't done anything wrong."

Maximum Comfort is now preparing the paperwork to get back the money it repaid to Medicare--and preparing for the government to appeal the case, "which I'm sure they will do," Lambert said. After Judge Karlton offers his final ruling, the government has 60 days to file an appeal.

"I've been getting offers of financial help for the appeals," Lambert said. "I'm hearing people say it's important for the industry that I stay in business. It looks like I won't be on my own anymore."

On Friday, a CMS official said the agency had, at present, no comment.

To view the ruling (Maximum Comfort Inc. v. Thompson, E.D. Cal., No. S-03-1584 LKK/PAN, 6/30/04) click here.