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Department of Health and Human Services
Medicare Appeals Council
Gary W. Gibbon, MD

Supplementary Medical Insurance Benefits  

Multiple Beneficiaries

Multiple Account Numbers

Transamerica Occidental Life Insurance Company

* * *
(Docket Number)


By notice dated March 1, 1999, the Medicare Appeals Council informed the appellant that, under authority of the Social Security Administration regulation 20 CFR 404.969, it had decided on its own motion to review the Administrative Law Judge's decision issued January 12, 1999, because it is not supported by substantial evidence (Exhibit MAC-2). In deciding to review the decision, the Medicare Appeals Council considered a memorandum dated February 16, 1999, from the Health Care Financing Administration (Exhibit MAC-1). The Council then issued a Notice of Proposed Decision on November 15, 1999 (Exhibit MAC-3). The Council subsequently received submissions dated November 24, 1999, December 3, 1999, December 24, 1999 and February 15, 2000 from the appellant.

The Medicare Appeals Council adopts the Administrative Law Judge's statements as to the pertinent provisions of the Social Security Act, the issues in the case, and the evidentiary facts, and incorporates them herein by reference. Consequently, the Council affirms the Administrative Law Judge's determination that the services at issue were not covered by Medicare. However, the Council does not adopt the Administrative Law Judge's conclusion finding the physician without fault in incurring the overpayment and in waiving recovery of the overpayment of $609,214.62.

In reaching its decision, the Medicare Appeals Council has considered the entire record before the Administrative Law Judge, as reflected in the hearing exhibit list, the Memorandum from HCFA dated February 16, 1999, as well as Appellant's Brief in Response to Medicare Appeals Council Proposed Decision, dated February 15, 2000 (Exhibit MAC-4). The Proposed Decision noted that Exhibit 15, consisting of a letter dated February 20, 1999 (1), is not the same document that was proffered at the Administrative Law Judge hearing as Exhibit 15. The appellant's February 15, 2000 letter enclosed a copy of Exhibit 15 as it was proffered at the hearing, and is hereby also entered into the record (see Exhibit MAC-4, pp 26-37).

Appellant has requested an appearance to present oral argument on the issues presented in his February 15, 2000 brief. We have carefully considered this request in light of that brief, as well as the brief submitted to the Administrative Law Judge (Exhibit 14) and the arguments advanced during the hearing. A request for an appearance will be granted, in accordance with 20 CFR 404.976(c), where the Medicare Appeals Council decides that a case raises an important question of law or policy or that oral argument would help to reach a proper decision. The Council has concluded that no important question of law or policy is presented in this case, and, in the Council's opinion, oral argument is not required to reach a proper decision. The Council, therefore, denies the request for an appearance.


During the period of January 1995 through May 1997, the appellant, Dr. Gary W. Gibbon, employed several licensed respiratory therapists along with various nurses to render treatment to his patients outside of his office, in board and care facilities. The appellant testified before the Administrative Law Judge that he would send his employees out to treat patients who were unable to come into his office. The services rendered were initial aerosol inhalation, and/or initial chest manipulation, and their repeat treatment on the same day. (2) The physician was not physically present at the board and care facilities when the services were provided to the beneficiaries by the respiratory therapist and nurse.

By letter dated August 4, 1997, the appellant was notified by the carrier that he had been overpaid Medicare payments in the amount of $609,214.62, and the carrier requested repayment. The carrier stated that to be covered, each of the respiratory services reflected by the procedure codes must have been rendered under circumstances where the physician was physically present in the patient's home or place of residence to supervise the respiratory therapist who administered the treatments. The appellant was further informed that he was not eligible to receive consideration under � 1879 of the Social Security Act because the services were not denied under � 1862(a)(1).

The appellant filed a timely request for a decision by a carrier hearing officer. In an on-the-record decision issued on October 15, 1997, the hearing officer found that the services were not covered services under � 1861(s)(2)(A) and thus the overpayment had been correctly assessed. The hearing officer also found the appellant liable for the overpayment under � 1870, as the appellant was not without fault in causing the overpayment.

The appellant then asked for a hearing before an Administrative Law Judge. According to the transcript of the hearing, the appellant previously filed an action in the United States District Court. However, the case was apparently dismissed because all administrative remedies had not yet been exhausted. (3)

The appellant in a letter dated June 30, 1998, to the Social Security Administration, requested utilization of the expedited appeals process. There is no indication that a determination was ever made upon his request, and it does not appear that the issue was raised thereafter. The Medicare Appeals Council has considered the request since no decision on it had been rendered at the lower level of review. The requirements for an expedited hearing are contained in 42 CFR �� 405.718 and 405.853. The Medicare Appeals Council denies the Appellant's request for expedited review because he fails to meet the requirements of 42 CFR � 405.853(b), by alleging that:

"the only factor precluding a decision favorable to the party is a statutory provision that is unconstitutional or a regulation, national coverage decision under section 1862(a)(1) of the Act, or HCFA Ruling that is invalid".

The appellant is contending that Medicare Manual section 2050 is unconstitutional. Medicare Manual section 2050 is not a statutory provision, regulation, national coverage decision, or HCFA Ruling. Therefore, the appellant is not entitled to an expedited appeals process.

In the body of his decision, the Administrative Law Judge found that the overpayment was based on the Social Security Act � 1861(s)(2)(A), which provides that the services of auxiliary personnel are covered if they are incident to a physician's services. Services covered under this section must meet the additional requirement that the physician be physically present when the services are rendered. Since the appellant conceded that he was not present during treatments, the service would not be covered under Medicare. The Administrative Law Judge also concluded that limitation of liability under the Social Security Act � 1879 was not applicable. However, the Administrative Law Judge waived recovery of the overpayment under � 1870(c).

The Medicare Appeals Council concurs in the Administrative Law Judge's conclusion that the services at issue were covered, if at all, only under � 1861(s)(2)(A), and that limitation of liability under � 1879 does not apply. However, we conclude that the Administrative Law Judge erred in finding the physician without fault, and in waiving the recovery of the overpayment.


The ALJ erred in waiving the recovery of the overpayment under � 1870(c). Section 1870(c) allows for waiver of recovery only for the individual beneficiary, not for a provider or other person. The term "individual" as used in � 1870 does not include the physician. This is evident when � 1870 is examined as a whole; both terms are used separate from one another, and therefore it cannot be inferred that the term individual is meant to encompass the physician. Furthermore, the Medicare Carrier's Manual � 7100(d) makes clear that � 1870(c) only applies to beneficiaries; and it is � 1870(b) of the Act that is the applicable section which provides for waiver of recovery of an overpayment to a physician whenever the physician is without fault in incurring the overpayment. (4)

"Without fault" is defined in the Medicare Carrier Manual � 7103 as follows:

Consider a physician without fault if he exercised reasonable care in billing for and accepting the payment; i.e., he made full disclosure of all material facts, and on the basis of the information available to him, including, but not limited to, the Medicare regulations, he had reasonable basis for assuming that payment was correct or, if the physician had reason to question the payment, he promptly brought the question to your attention.

The Medicare Appeals Council has thoroughly reviewed the administrative hearing by way of a transcript prepared from the original audio recording of the hearing. The Administrative Law Judge, in his decision, stated that he had relied on the appellant's subjective understanding of HCFA policy in concluding that he was without fault. The Medicare Appeals Council did not find any such testimony from the appellant in its review of the transcript of the hearing, and the appellant has not directed our attention to any such testimony. (5) We therefore conclude that there is not substantial evidence in the record to support the Administrative Law Judge's finding.

In addition, the Administrative Law Judge's reasoning that the appellant's state of mind is controlling for purposes of applying the waiver provisions of � 1870(b) does not comport with the applicable standard for determining without fault. The Medicare Carriers Manual at � 7103.1 provides that a physician is not without fault in situations where the physician furnished erroneous information, or failed to disclose facts that he knew or should have known were material to payment, and situations where the physician billed for items or services which he should have known were not covered. A physician should have known of a policy or rule if the policy is in the regulations, or was included in a general notice to the medical community. The appellant was overpaid in this case because he was not physically present when the services at issue were rendered. As we discuss below, the requirement for physician presence is a longstanding policy of Congress and has been embodied and interpreted in several HCFA manuals that were in effect or published during the time period at issue (January 1995 through May 1997). Nationwide HCFA instructions were published in Medicare Bulletins and as a National Coverage Determination in the Coverage Issues Manual. Therefore, an allegation by a physician that he was without fault because he was not aware of coverage provisions, where there is such clear notice, is not a basis for finding him without fault. Reading the issuances as a whole, we conclude that the appellant does not provide a reasonable basis for believing that the items billed were covered. Thus, the Administrative Law Judge's decision is erroneous as a matter of law.

A. Medicare Carrier Manual Section 2050.1 is a valid interpretation of the Social Security Act and Regulations.

Appellant asserts that the requirement of physician presence for coverage of incident to services is without foundation in the Act, and that he could not have known of this longstanding policy. He further asserts that the "personal presence" requirement of Medicare Carrier Manual � 2050.1 is an unauthorized and void substantive addition to the statute and regulations. We find these assertions misplaced.

Appellant argues that the "personal presence" requirement only occurs in Medicare Carrier Manual � 2050.1, and is not embodied in either the Act or the regulations. Appellant contends that this section creates a substantive requirement which is subject to the notice and comment requirements of the Administrative Procedure Act (APA), and that it is void because its promulgation did not comply with the APA. The appellant cites three cases in support of his argument: Linoz v. Heckler, 800 F.2d 871 (9th Circuit, 1986); American Ambulance Service v. Sullivan, 911 F.2d 901 (3rd Circuit, 1990); and Cedars Sinai Medical Center v. Shalala, 939 F. Supp. 1437 (C.D. of CA, 1996). The cases found manual instructions void because they were substantive rules, in that they effected a change in existing law or policy or removed previously existing rights or carved out an exception to a standard instead of simply clarifying the standard. In Shalala v. Guernsey Memorial Hospital, 115 S.Ct. 1232 (1995), we note that the Supreme Court further indicated that APA rulemaking would be required if a manual provision adopted a new position that was substantively inconsistent with any of the Secretary's existing regulations.

We conclude that appellant has not shown that the manual section effected a change in existing law or policy or removed previously existing rights, carved out an exception to a standard instead of simply clarifying the standard, or was substantively inconsistent with existing regulation. As discussed in the proposed decision, the manual provision simply implements the requirement for direct physician presence that was contemplated by Congress in the original Medicare Act.

Specifically, the Senate added the "incident to" coverage provision to the original Medicare Act in 1965 at the request of the Department, to provide for coverage of services and supplies incident to a physician's personal services regardless of whether the physician performs his personal services in his office or in another location. See, e.g., S. Rep. 404, pt. 1, at 42, 89th Cong. 1st Sess (1965); Senate Comm. On Finance, Text of and Justifications for Amendments to H.R. 6675 Recommended by the Department of Health, Education, and Welfare 5 - 6 (Comm. Print June 3, 1965); Conference Comm., Brief Description of Senate Amendments to H.R. 6675, at 9 (Comm. Print 1965); and H.R. Conf. Rep. 682, at 44 (July 26, 1965). Congressional recognition of the requirement for direct physician presence was further reflected in the legislative history of the 1972 Social Security Amendments during the 94th Congress, 2d session. Senate Finance Committee Report 1230 (at p. 329) reflects the understanding of Congress that a service rendered by a nurse employed by a physician in the patient's home could only be covered as a physician service if the physician accompanied the nurse to the patient's home, or if the physician personally performed the service.

Appellant has not contended that our reading of the legislative history, which was also set forth in the proposed decision, is flawed. Additionally, appellant has not shown that the manual section changes any existing laws or contravenes any existing regulations. Rather, that section merely explains and lends content to the meaning of services incident to a physicians services. The manual section is interpretive not substantive, and the cases cited by appellant are inapposite.

The Administrative Law Judge suggested that the Medicare Carrier's Manual was first revised to spell out the requirement for direct personal supervision in May of 1997. Thus, he apparently discounted the relevance of these instructions because he believed that the operative language was added after the services in question occurred. This is incorrect. When HCFA makes changes to a Medicare Carrier's Manual section, the location of the precise language that was changed is indicated by a vertical line or bracket in the left margin of the manual section (Medicare Carriers Manual, Part 3, page i). Although the Medicare Carrier's Manual was revised in May of 1997, it did not revise any of the operative language applying to direct personal supervision (Medicare Carriers Manual, Transmittal No. 1566). All relevant revisions were made in or prior to October of 1996. Therefore, the pertinent language was in existence during the period in which the services in question were rendered.

The Medicare Carrier Manual � 2050.2, entitled "[services] commonly furnished in a physicians' offices", is dated August 1993. The section states that coverage of services and supplies incident to the professional services of a physician in private practice is limited to situations in which there is direct physician supervision. The section goes further to state that if auxiliary personnel perform services outside the office setting, their services are covered as incident to a physician's service only if there is direct personal supervision by the physician.

The Medicare Carrier Manual sections 2050 and 2050.1 were updated in October 1996. Section 2050.1 described in greater detail direct personal supervision. The section specifically states that coverage of services and supplies incident to the professional services of a physician in private practice is limited to situations in which there is direct personal physician supervision. Section 2050 was revised to restate the proposition that, in order for services to be covered as incident to the services of a physician, services and supplies must be furnished under the physician's direct personal supervision.

B. The National Coverage Determination 45-15 also provided valid notice of the physician presence coverage requirement.

National Coverage Determination (NCD) 45-15, published in the Federal Register on August 21, 1989 (54 FR 34555, 34577), further states that services performed by employees of the physician outside of the office must be directly supervised by the physician.

The appellant argues that NCD 45-15 does not apply to the present case and therefore could not give notice of the personal presence requirement because this case does not involve a "Physician's Office Within An Institution." As a general proposition, publication in the Federal Register conveys constructive notice. The title of the NCD extends to the issue of "Coverage of services and supplies incident to a physician's services." This extension in the title specifically relates to the services in question, services of employees incident to a doctor's services. Moreover, the content of NCD 45-15 specifically concerns services performed outside the physician's office, as they were here, and states that services performed outside the office would be subject to the coverage rules applicable to services furnished outside the office setting. NCD 45-15 further directs consideration of the criteria in MCM 2050.1 in determining such coverage.

Even if NCD 45-15 were to apply to this case, the appellant further argues, nothing in the NCD requires the physician's personal presence each time routine therapy is administered by auxiliary personnel. In making this argument, he relies upon the statement in the NCD, "the physician must perform or have performed a personal professional service to the patient." The appellant interprets this statement to mean that as long as the physician has performed some service to the patient at some point in time, he need not be present to supervise all future routine treatment given to the patient by auxiliary personnel.

The appellant's argument misrepresents the content of the NCD. The complete quote from the NCD is as follows:

Finally, services performed by the employees of the physician outside the "office" area must be directly supervised by the physician; his presence in the facility as a whole would not suffice to meet this requirement. [In any setting, of course, supervision of auxiliary personnel in and of itself is not considered a "physician's professional service" to which the services of the auxiliary personnel could be an incidental part, i.e., in addition to supervision, the physician must perform or have performed a personal professional service to the patient to which the services of the auxiliary personnel could be considered an incidental part.] Denials for failure to meet any of these requirements would be based on section 1861(s)(2) of the Act. [Emphasis in original.]

Construed as a whole, it is clear that what this statement actually contemplates is that the auxiliary personnel's services outside the office must be directly related, or incident, to the professional services of the physician, and that the auxiliary personnel's services must be performed in the course of the same patient encounter by the physician. If a physician supervises auxiliary personnel but there have been no professional physician services rendered during that encounter, then the auxiliary services cannot be paid. This statement does not mean, as the appellant argues, that after one physician service is delivered, that coverage under the "incident to" rule then extends to all future services by auxiliary personnel, including those that are rendered without direct physician supervision or the provision of a physician service.

C. A September 1993 Medicare Bulletin provided further notice.

In addition to the manual sections and National Coverage Determination, in September of 1993, the Carrier issued a Medicare Bulletin to the physician community. This bulletin further describes the requirements for covering the services of a physician's auxiliary personnel. Appellant's February 15, 2000 Brief raises no objections with respect to this Bulletin. Among those requirements, the services rendered must be provided under the physician's direct supervision, and they must be incident to the physician's professional services. The Bulletin states:

Direct personal supervision in the office setting does not mean that the physician must be present in the same room with his aide. However, the physician must be present in the office suite and immediately available to provide assistance and direction throughout the time the aide is performing the service(s).


Reading all of these publications together, we conclude that a reasonable physician knew or should have known that services provided by auxiliary personnel without the direct supervision and presence of a physician would not be covered. Accordingly, we conclude that the appellant was not without fault, and that recovery of the overpayment may not be waived.


After careful consideration of the entire record, the Medicare Appeals Council makes the following findings:

1. Between January 1995 and May 1997, services were provided outside the physician's office to beneficiaries in board and care facilities by respiratory therapists and nurses who were employees of the physician.

2. The physician was not present while the services were being rendered.

    3. The services were billed and allowed under � 1861(s)(2)(A), as "incident to" a physician's services.

    A requirement of services being "incident to" a physician's services is that the physician be physically present while the services are being rendered.

    The physician incurred an overpayment of $609,214.62.

    The physician did not use reasonable care when he did not read published provisions relating to services rendered incident to a physician's services.

    The physician's assertion that he had a reasonable basis for believing that payment was correct is not credible.

    The physician had no reasonable basis for assuming that payment in these cases was correct.

    9.The physician is not without fault in causing the overpayment, and recovery of the overpayment may not be waived under � 1870(b) of the Social Security Act.


For the reasons stated above, we conclude that the claims at issue were not covered under any provisions of the Medicare Act or regulations. We conclude that the physician was not without fault in billing Medicare for these services as covered physician services, and recovery of the overpayment under � 1870(b) of the Act is not waived.

Clausen Krzywikci

Administrative Appeals Judge

M. Susan Wiley

Administrative Appeals Judge

Date: March 8, 2001


1. The letter is addressed to George Garcia, Chief Medicare Officer of Transamerica Occidental Life Insurance Company, and is from Alysson Blake, Associate Regional Administrator, Division of Medicare, HCFA.

2. These services were billed with place of service code 33 (custodial care facility) or 12 (home). The appellant has conceded that his use of place of service code 12 was incorrect. Most of the services were also billed with modifier YB (a non-purchased diagnostic service (global or technical)). The significance of the appellant's use of this modifier is not explained in the record. Appellant has asserted that the services at issue were therapeutic, and there is no suggestion that they were diagnostic.

3. Appellant's counsel offered the Administrative Law Judge one or more documents relating to the District Court action during the hearing, which were not entered into evidence, and their contents are not otherwise known to the Council.

4. The appellant argues that it has been specifically held in Faith Hospital Association v. Blue Cross Hospital Service, 537 F.2d 295 (8th Cir. 1976), that the "equity and good conscience" standard of section 1870(c) applies to providers. It does not behoove the appellant to have the Medicare Appeals Council consider this argument, in that a finding that the appellant was without fault under � 1870(b) of the Act would result in waiver of recovery of the overpayment. On the other hand, if we were to accept appellant's argument he would bear a greater burden of proof, i.e., waiver under � 1870(c) would require a finding that the appellant was without fault and a finding that recovery would be against equity and good conscience.

5. A copy of the transcript of the hearing, was sent to the appellant on December 13, 1999, and is cited in his brief.