Practice Economics

The Bare Necessities


Medicare reimburses for procedures and services deemed “reasonable and necessary.” By statute, Medicare only may pay for items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member,” unless there is another statutory authorization for payment (e.g., colorectal cancer screening).1 Medical necessity is determined by evidence-based clinical standards of care, which guide the physician’s diagnostic and treatment process for certain patient populations, illnesses, or clinical circumstances.

National Coverage Determinations

The Centers for Medicare and Medicaid Services (CMS) develop national coverage determinations (NCDs) through an evidence-based process with opportunities for public participation. In some cases, CMS’ own research is supplemented by an outside technology assessment and/or consultation with the Medicare Evidence Development and Coverage Advisory Committee (MEDCAC).

Tip of the Month:

The first line of defense in proving medical necessity is the ICD-9-CM diagnosis code. This code represents the reason for the service or procedure, and may be a sign, symptom, or condition with which the patient presents for evaluation and management. Do not select a diagnosis code that represents a probable, suspected, or “rule out” condition for physician claim submission. Although hospitals may consider these unconfirmed conditions for the facility bill (when necessary), physician reporting prohibits this practice.

When selecting the ICD-9-CM code(s), consider the primary reason for performing the service. This will prove most effective when the same or a different physician, as in concurrent care, provides multiple services for the same patient on the same date. Concurrent care occurs when physicians of varying specialties, and different group practices, participate in the patient’s care. Each physician manages a particular aspect while still considering the patient’s overall condition. When submitting claims for concurrent care services, each physician should report the appropriate subsequent hospital care code and the corresponding diagnosis each physician primarily manages. If billed correctly, each physician will have a different primary diagnosis code, and, therefore, will be more likely to receive payment.11 For example, a hospitalist manages and reports uncontrolled diabetes (250.02); a cardiologist manages and reports uncontrolled hypertension (401.0); and a nephrologist manages and reports moderate chronic kidney disease (585.3). Although each physician may address and report all three conditions, the primary condition being managed should be listed first on the claim form.

To ensure the diagnosis code is valid and complete, update billing sheets or electronic systems at least once a year. Code changes are introduced annually, at a minimum, and implemented on Oct. 1. Code changes include ICD-9-CM additions (new codes), deletions (codes no longer in use) or revisions (descriptor changes). For more info, visit

All Medicare contractors must adhere to NCDs and cannot create additional limitations or guidelines. As an example, the NCD for pronouncement of death states an individual only is considered to have died as of the time he orshe is pronounced dead by a person who is legally authorized to make such a pronouncement, usually a physician; and medical services rendered up to and including pronouncement are considered reasonable and necessary.2 Further guidance authorizes physicians to report discharge day management codes (99238-99239) for the face-to-face pronouncement encounter.3 See the Medicare National Coverage Determination Manual ( IOM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sort Order=ascending&itemID=CMS014961&intNumPerPage=10) for other applicable NCDs.

Local Coverage Determinations

In the absence of a national coverage policy, an item or service may be covered at the discretion of the Medicare contractors based on a local coverage determination (LCD).4

An LCD, as established by Section 522 of the Benefits Improvement and Protection Act (BIPA), is a decision made by a fiscal intermediary or carrier to cover a particular service on an intermediary-wide or carrier-wide basis, in accordance with Section 1862(a)(1)(A) of the Social Security Act (i.e., a determination as to whether the service is reasonable and necessary).5 LCDs may vary by state, causing an inconsistent approach to medical coverage. Non-Medicare payers do not have to follow federal guidelines, unless the member participates in a Medicare managed care plan. A list of Medicare contractor LCDs can be found at

Frequently Asked Questions

Q: Is a preoperative consult on a healthy patient considered medically necessary?

Answer: Preoperative consultations are payable for new or established patients performed by any physician or qualified non-physician provider (NPP) at the request of a surgeon, as long as all of the requirements for performing and reporting the consultation codes are met and the service is medically necessary and not routine screening.10 In some instances, payers can consider preoperative clearance for a healthy patient unreasonable and unnecessary, disallowing separate payment for these services. Services may be denied as being part of the preoperative process included in the surgeon’s perioperative services. Preoperative consultations are considered more reasonable and necessary when the patient has a co-existing condition (e.g., hypertension, diabetes, emphysema, etc.), which poses a risk to perioperative management.

Certain payers develop coverage requirements for frequent or problematic procedures or services. Coverage requirements identify specific conditions (i.e., ICD-9-CM codes) for which the services or procedures are considered medically necessary. For example, echocardiography (99307) may not be considered medically necessary for a patient who presents with chest pain unless documentation also supports suspected acute myocardial ischemia and baseline electrocardiogram (ECG) is nondiagnostic; or in cases when the physician suspects aortic dissection.6

Medical Review Program

It is insufficient to develop billing compliance policies and standards without enforcement of these guidelines. In an effort to verify the appropriateness of claims and payment, CMS contracts with Medicare Administrative Contractors (MACs), Fiscal Intermediaries (FIs), and Program Safeguard Contractors (PSCs) to perform medical reviews. The goals of the Medical Review Program are reducing Medicare claims payment errors; decreased denials and increased timely payments; and increased educational opportunities.7

In order to determine which providers should be subject to medical review, contractors must analyze provider compliance with coverage and coding rules and take corrective action when necessary. The corrective action aims to modify behavior in need of change, collect overpayments, and deny improper payments.8 Several types of review exist:

  • Prepayment review: The Medicare contractor requests medical records prior to payment;
  • Postpayment review: The contractor requests medical records after payment has been received by the physician; this may result in upholding or reversing the initial payment determination;
  • Probe review: The contractor requests medical records associated with 20 to 40 claims based upon provider-specific issues; and
  • Comprehensive error rate testing (CERT) review: CMS measures the error rate and estimates improper claim payments by randomly selecting and reviewing a sample of claims for compliance.9

Prepayment reviews seem to be expanding as a response to the error rate for certain services. For example, high-level consultation services (99245 and 99255) have prompted review over the last several years to ensure documentation and medical necessity are appropriately supported and maintained. Hospitalists may have noticed a recent increase in prepayment record requests for subsequent hospital care (99232 or 99233) and discharge day management (99239) services. Responses to these and other record requests must be timely in order to prevent claim denial or repayment requests. TH

Carol Pohlig is a billing and coding expert with the University of Pennsylvania Medical Center, Philadelphia. She is on the faculty of SHM’s inpatient coding course.


1. Exclusions from coverage and Medicare as a secondary payer. Social Security Online. OP_Home/ssact/title18/1862.htm. Updated October 28, 2008. Accessed October 15, 2008.

2. Centers for Medicare and Medicaid Services. Medicare national coverage determination manual: chapter 1, part 1, section 70.4. downloads/ncd103c1_Part1.pdf. Accessed October 14, 2008.

3. Centers for Medicare and Medicaid Services. Transmittal 1460: Subsequent hospital visits and hospital discharge day management services (Codes 99231-99239). Accessed October 14, 2008.

4. Centers for Medicare and Medicaid Services. Medicare coverage determination process: overview. www. Updated August 5, 2008. Accessed October 15, 2008.

5. Centers for Medicare and Medicaid Services. Medicare coverage determination process: local coverage determinations. 04_LCDs.asp. Updated October 7, 2008. Accessed October 15, 2008.

6. Highmark Medicare Services. LCD L27536: transthoracic echocardiography. www.highmarkmedicareservices. com/policy/mac-ab/l27536-r3.html. Updated Septem-ber 23, 2008. Accessed October 16, 2008.

7. Centers for Medicare and Medicaid Services. The Medicare medical review program. www.cms. Published September 2004. Accessed October 15, 2008.

8. Rudolph P, Shuren A. Dealing with Medicare. In: coding for chest medicine 2008. Northbrook, IL: Am Coll of Chest Physicians. 2008;23-35.

9. Centers for Medicare and Medicaid Services. Comprehensive error rate testing: overview. www. Updated December 14, 2005. Accessed October 16, 2008.

10. Centers for Medicare and Medicaid Services. Medicare claims processing manual: chapter 12, section 30.6.10G. Updated July 9, 2008. Accessed October 16, 2008.

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