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Determining Medical Necessity of Diagnostic & Therapeutic Interventions for Hospital Outpatients

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  • January 1, 2008
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By Lori J. Strauss, RN, MSA, CHC, CPC, CPC-H
The term medical necessity has been a theme of the Office of the Inspector General’s (OIG’s) Work Plan since 2003. On the website www.medicare.gov, the U.S. Department of Health & Human Services defines medically necessary as “Services or supplies that are proper and needed for the diagnosis or treatment of your medical condition, are provided for the diagnosis, direct care, and treatment of your medical condition, meet the standards of good medical practice in the local area and aren’t mainly for the convenience of you or your doctor.”
That doesn’t make it any easier to explain to a Medicare patient that the test the doctor has ordered is not considered medically necessary. Typically, the patient will ask, “Well, if it’s not medically necessary, why do I need the test?” Good question. The simple answer is that not all things a physician considers medically necessary are covered under Medicare. It is the provider’s responsibility to understand the definition of “medically necessary” and recognize when it has or has not been met.

Criteria No. 1

For a diagnostic or therapeutic test to be considered medically necessary, it must have a physician’s (or valid practitioner’s) order. It is difficult to support that a test is medically necessary if you can’t show that the physician ordered the test in the first place.
A physician order can come in many formats. For example, the physician can do the following:

  • Complete a requisition form where he writes the order or marks the test(s) to be performed and signs the form to authenticate the order.
  • Enter the order electronically with his electronic signature attached.
  • Have an office staff person complete the requisition form indicating the tests the physician requested. Make sure to clearly indicate in the signed office note what tests were ordered and why.

Just because a physician orders a test, however, doesn’t mean it meets medical necessity in the eyes of Medicare.

Criteria No. 2

When coding for Medicare patients, you need to be familiar with the national and local coverage determinations that apply, and the type of diagnostic and therapeutic testing done. You can find the national coverage determinations (NCDs) on the Medicare website at www.cms.hhs.gov/ncd. To find the local coverage determinations (LCDs), go to CMS Fiscal Intermediaries website and view the local coverage issues that apply to your state or go to the state carrier’s website for professional billing LCDs.
BEWARE: Medical necessity is not just a Medicare issue. All payers typically have guidelines for which services are covered as determined by medical necessity of that payer.
You can usually find lists of diagnoses that the insurance provider considers to meet medical necessity in national or local coverage determinations. If the physician or facility submits a particular test, and it is not associated with one of the covered diagnosis codes in the determination, the payment for the test will be denied as not meeting medical necessity.
Even if a service is considered reasonable and necessary, and an applicable diagnosis code that supports medical necessity is submitted, coverage still may be limited. The service may be denied if it is provided more frequently than allowed under the NCD or LCD, or lacking a clinically accepted standard of care.

Criteria No. 3

All services reported to the Medicare program by a physician or facility must demonstrate medical necessity through the use of ICD-9-CM diagnostic coding carried to the highest level of specificity. There are times when additional diagnosis codes that meet medical necessity need to be added to the national or local coverage determinations. To do this, coding professionals or physician leaders should contact the medical director of the particular carrier, fiscal intermediary (FI), or Medicare supplying the supporting documentation, and request additional medically necessary diagnosis codes to be added to the national or local coverage determination.
More often, though, tests are ordered without a corresponding covered diagnosis code, and the physician is not aware that the diagnosis code he submitted does not meet medical necessity. Services that do not meet medical necessity can fall into the following general categories:

  • Experimental and investigational
  • Unsafe and ineffective
  • Limited coverage based on certain criteria
  • Obsolete tests

The number of services exceeds the norm, and no medical necessity has been demonstrated for the extra number of services.
If your facility is frequently denied payment due to lack of medical necessity, the physician(s) may need to be educated as to what the covered diagnosis codes are. If a patient has a covered diagnosis and the physician documents this condition in the patient’s medical record but does not submit this diagnosis code as the reason for the test or as part of the claim, this should be brought to the attention of the physician. It is not recommended that a coder “lead” a physician to use a covered diagnosis code. Instead, you should inform the physician of coverage determinations and how these may apply to his patient population. You should also stress the importance of the medical record supporting the diagnosis as well as the ordered interventions.

Criteria No. 4

Medical necessity is not just having the right code or the right frequency of the ordered test. You need supporting documentation in the medical record. You should be able to review the patient’s medical record and know why the test was ordered.

Cut Your Losses

There are several options that can help a facility battle the lost revenue from write-offs not meeting medical necessity. A facility can also evaluate its volume of write-offs; determine if there is a particular test, clinic, physician, etc., with any trending patterns of high medically unnecessary write-offs. Go to the source(s) to ensure the medically necessary diagnosis codes are correct on their encounter forms and in their billing systems. If it is believed there are missing diagnosis codes that a physician feels meets medical necessity, work with the medical director at your FI to request additional codes be added to the LCD that supports medical necessity.
Additional ways to fend off payment denials include:

  • Perform chart audits and make sure your facility has a physician order for services ordered.
  • Ensure the physician documentation stated the test(s) he was ordering and the rationale for ordering the test(s).
  • Provide feedback for positive reinforcement of excellent documentation and provide guidance where assistance could be beneficial.

Have Medicare patients sign an advanced beneficiary notice (ABN) prior to providing a suspected non-covered service. A properly completed ABN allows the facility to bill the patient in the event the test is denied payment by Medicare. This is the only time it is appropriate to bill a Medicare patient for a service denied due to not meeting medical necessity.
Medical necessity continues to be a key component of patient care and reimbursement. It is in the best interest of the coder to understand what it is. Only then can facility providers be certain they are meeting medical necessity criteria. Only then can facility providers be certain they are following proper billing procedures.

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