Medical Necessity Audits Rise for Hospitals and Physicians

Be sure providers are aware of medical necessity criteria and DRG 470 reviews.

In March 2013, Noridian Healthcare Solutions introduced an especially challenging service-specific probe review of diagnosis-related group (DRG) 470 (Major joint replacement or reattachment of lower extremity, without major complication/comorbidity). At the same time, the Medicare administrative contractor for jurisdictions F and E issued several other notices (including those for pacemaker/implantable cardioverter defibrillator medical necessity reviews). These notices sent hospitals scrambling; and, amidst the confusion, many were not prepared for the DRG 470 reviews. The crux of the situation was that the notice required physician office documentation to appear in the hospital chart, or hospitals would not be reimbursed for services.

What DRG 470 Means for Hospitals and Physicians

The criteria in the one-time notice (issued Sept. 17, 2012) were so specific, CMS followed up with MLN Matters® SE1236, repeating the criteria with examples for providers. Let’s take a look at the criteria that SE1236 requires for the hospital medical record.


  • Present illness from onset until present (e.g., patient fell two years ago, osteoarthritis in right knee)
  • Current symptoms and functional limitations (This must be very detailed or your case could be denied (e.g., patient having pain upon movement and weight bearing, limited in exercise.))
  • Outcomes of nonsurgical treatments, such as:
    • Medications (e.g., NSAIDs, analgesics)
    • Intra-articular injections (specify type)
    • Physical therapy and/or home exercise plans, weight loss
    • Assistive devices such as canes, walker, braces (specify type), orthotics, crutches

(There must be an explanation of when treatments were tried, documentation of failure, and documented pain levels.)

  • Comorbidities

Physical Examination

  • Joint examination with detailed, objective findings. They don’t tell you here that they are looking for the following in detail:
    • Deformity
    • Range of motion
    • Crepitus
    • Effusion
    • Tenderness
    • Gait description


  • Preoperative imaging studies: This is the report showing the results of the X-ray, computed tomography, or magnetic resonance imaging from the physician’s office, as well as the physician’s interpretation.

Postoperative records should include:

  • Operative report for the procedure and pathology
  • Daily progress notes in the case of a hip or knee
  • Discharge planning and orders in the case of a hip or knee

Covered conditions include:

  • Osteoarthritis
  • Inflammatory arthritis
  • Failure of previous osteotomy
  • Malignancy of distal femur, proximal tibia, knee joint, soft tissues
  • Failure of previous unicompartmental knee replacement
  • Avascular necrosis of knee
  • Malignancy of pelvis or proximal femur or soft tissues of the hip
  • Avascular necrosis of the femoral head
  • Fractures
  • Nonunion, malunion, or failure of previous hip fracture surgery
  • Osteonecrosis

Documentation Is Key for Hip and Knee

Joint replacement of the knee and hip seem to be the greatest focus of these reviews. Hospitals stand to lose a great deal of reimbursement if they are unable to work closely with physicians to make sure the aforementioned documentation is in the hospital medical record before the surgery takes place.

In keeping with the old adage, “An ounce of prevention is worth a pound of cure,” early education and internal audits on all surgical cases can help to identify if your hospital has a problem. Sitting down with physicians, one on one, and helping them to understand what Medicare wants, is not always easy. Assure the physician that he or she still has the final say in the patient’s care (aside from the patient), but documentation of what is done is a must. Let physicians know also that the hospital is there to serve as a resource for the physician.

Compliance officers, compliance auditors, case management appeals coordinators, clinical documentation specialists, case managers, coders, billers, and physicians all must pull together to make this work. Be willing to share information, and to accept that change is in the air. With the implementation of ICD-10 in October, medical necessity probes and reviews will continue, and more detailed documentation will be required. Auditing is now a way of life.


What Is Medical Necessity?

CNA’s Vantage Point®, 2009, Issue 2, defines medical necessity as, “a legal doctrine by which evidence-based clinical standards of care are used to determine whether treatment or procedure is reasonable, necessary and/or appropriate.” Medicare (and all payers, generally) will reimburse only 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 another statutory authorization for payment applies (Social Security Act § 1862(a) (1) (A)).

Local and national coverage determinations (LCDs and NCDs) may be found in the Centers for Medicare & Medicaid Services (CMS) coverage database to assist providers in understanding and meeting medical necessity criteria. These LCDs and NCDs often provide examples of covered codes and supporting documentation required for a claim. Noridian and other carriers also issue one-time notices to make sure providers are aware of the medical necessity criteria.



Bio: Jacqueline K. Baer, RN, MSN, CPC-H, is a corporate compliance auditor/coordinator for Yuma Regional Medical Center in Yuma, Ariz. She has more than 18 years of clinical experience, with over eight years in clinical documentation and coding. Baer is a member of the in Flagstaff, Ariz., local chapter.

John Verhovshek

John Verhovshek

John Verhovshek, MA, CPC, is Managing Editor at AAPC. He has covered medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University, and a member of the Asheville-Hendersonville AAPC Local Chapter.
John Verhovshek

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About Has 392 Posts

John Verhovshek, MA, CPC, is Managing Editor at AAPC. He has covered medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University, and a member of the Asheville-Hendersonville AAPC Local Chapter.

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