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What is medical necessity?

By Nancy W. Miller, Esq.

A physician who bills Medicare for services which he should know are not medically necessary can be prosecuted for fraud by the OIG. Violators face penalties of up to $10,000 for each service, an assessment of up to three times the amount claimed, and exclusion from federal and state health care programs. The problem is that determining medical necessity is not always easy.

The dilemma is due to several factors, the first of which is definitional. There are almost as many definitions of medical necessity as there are payors, laws and courts to interpret them. Generally speaking, though, most definitions incorporate the principle of providing services which are “reasonable and necessary” or “appropriate” in light of clinical standards of practice. The lack of objectivity inherent in these terms often leads to widely varying interpretations by physicians and payors, which, in turn, can result in the care provided not meeting the definition. And last, but not least, the decision as to whether the services were medically necessary is typically made by a payor reviewer who didn’t even see the patient.

For example, Medicare defines “medical necessity” as services or items reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member. While that sounds like a hard and fast rule, consider that CMS (formerly HCFA) has the power under the Social Security Act to determine if the method of treating a patient in the particular case is reasonable and necessary on a case-by-case basis. Even if a service is reasonable and necessary, coverage may be limited if the service is provided more frequently than allowed under a national coverage policy, a local medical policy or a clinically accepted standard of practice.

Claims for services which are not medically necessary will be denied, but not getting paid isn’t the only risk. If Medicare or other payors determine that services were medically unnecessary after payment has already been made, they treat it as an overpayment and demand that the money be refunded, with interest. Moreover, if a pattern of such claims can be shown and the physician knows or should know that the services are not medically necessary, the physician may face large monetary penalties, exclusion from Medicare program, and criminal prosecution.

Protections Against Denial

Considering the potential financial and legal liabilities tied to mistakenly filing a claim the physician believes to be medically necessary, the question becomes what can be done to protect against claims which are denied because they are for unnecessary services. Obviously, the best way to protect yourself is to avoid the denial in the first place. Here are some solutions to the problem.

You should have known. One of the most common reasons for denial of Medicare claims is that the physician didn’t know the services provided were not medically necessary. Ignorance, however, is not a defense because a general notice to the medical community from CMS or a carrier (including a Medicare Report or Special Bulletin) that a service is not covered is considered sufficient notice. If a physician was on Medicare’s mailing list as of a specific publication date, that may be sufficient to establish that the physician received the notice. Courts have concluded that it is reasonable to expect physicians to comply with the published policies or regulations they receive. Thus, no other evidence of knowledge may be necessary.

Another trap for the unwary is that, if a physician doesn’t read Medicare’s publications but delegates that responsibility to others, the physician or the professional corporation may still be held liable for what the physician should have known.

Finding the information. Physicians can obtain up-to-date information on services covered by Medicare from several sources. The good news is that CMS has recently begun releasing a publication called The CMS Quarterly Provider Update, available at www.cms.hhs.gov/providerupdate. These quarterly updates include all changes to Medicare instructions that affect physicians, provide a single source for national Medicare provider information, and give physicians advance notice on upcoming instructions and regulations.

In addition, CMS maintains an official list describing approximately 600 covered items, services and procedures in its “Coverage Issues Manual”. If a procedure isn’t on that list, the local Medicare carrier uses locally acceptable standards of practice, called “Local Medical Review Policy” to determine coverage. This information can be found on a website maintained by CMS at www.lmrp.net.

Carrier bulletins also include coverage notices which provide another way to stay current. CMS recently changed the requirement that physicians had to register with their carrier to get free carrier bulletins sent to their practices. Now carriers will automatically send them unless the physician has not billed Medicare for at least 12 months.

Make the patient responsible for payment. If the physician believes that Medicare will deny a service on the basis of medical necessity, the patient should sign an advance notice which identifies the non-covered service before the service is rendered. This makes the patient responsible for payment if the service is denied. Last July, CMS announced that it had revised the “Advance Beneficiary Notice (ABN) form, called the “CMS-R-131” which may be used by physicians for this purpose. However, at the present time, the final rules for using this revised form have not been published. When finalized, use of these approved forms will become mandatory. In the meantime, physicians can either use the new CMS-R-131 or a form containing the old approved Medicare language.

Once the patient has received an ABN, the physician should file a claim and obtain a denial before billing the patient. The claim should include the modifier “GA” to indicate that an ABN was provided. This is an efficient method for handling these uncertain services because the physician avoids being held liable in the first place.

If the physician fails to use the ABN, he may be precluded from billing the patient, and if payment has already been collected, the physician may be required to refund those amounts to the patient. Absent an emergency medical condition or other extenuating circumstances, the physician may decline to treat the patient based on his/her refusal to accept financial responsibility.

The primary problem with ABNs is that physicians are required to make a judgment regarding the carrier’s view of the medical necessity of the services. If the physician is uncertain whether the services is medically necessary, the patient should be given an ABN. For services which are never covered, such as routine physicals or cosmetic surgery, no ABN is required.

Keep a denial list. Evidence that a physician has knowledge of medically unnecessary services may include prior denials by Medicare. Therefore, it’s a good idea to keep a file of notices and a list of denials for reference in making future claims.

Appropriate supervision level. Medicare claims for over 700 diagnostic tests will be denied on the basis that they are not medically necessary if the physician does not provide the appropriate level of supervision. The three main levels of supervision are: “general” (under the physician’s general control); “direct” (physician is present in the office suite); and “personal” (physician is physically present in the room when the test is performed). Local carriers maintain on their websites a list of these diagnostic tests which identifies the appropriate level of physician supervision.

“Incident-to” services must also be performed under a physician’s direct supervision to be reasonable and necessary. These are services that are performed by a physician’s employee, such as a nurse or physician assistant, but are billed as if the physician furnished them. For this purpose, the direct supervision requirement is satisfied if the physician is present in the office suite and immediately available to provide assistance when the aide is performing the services.

Certificates of medical necessity. A certificate of medical necessity (CMN) is required for Medicare reimbursement for 14 types of DME and supplies. Section B of the CMN must be completed by the treating physician (or a nonphysician clinician or a physician employee) because this section documents medical necessity. While filling out these forms is a chore, section D must be personally signed by the treating physician or midlevel practitioner to attest the accuracy of the information. Signature stamps and date stamps are not permissible.

CMNs are also required for Medicare payments for home health services. The physician must order the home health services prior to the services being furnished and must recertify every two months that the patient is confined to the home, requires certain specified care, has a plan of care prepared and reviewed by the physician, and receives the services while the patient is under the care of the physician. For the CME to be valid, the physician must also sign and date the certification. Physicians who certify the need for home health services knowing that all the coverage requirements have not been met are liable for penalties up to three times the amounts of Medicare home health payments resulting from such false certifications.

Medicare and other payors have taken the position that medical necessity is implicit in every claim for payment, and that the physician is expected to know the rules of medical necessity and abide by them. However, the notion of medical necessity is not adequately defined or uniformly interpreted in a manner which allows physicians to understand their rights and responsibilities. Nonetheless, to avoid denials, refunds, monetary penalties and exclusion from participation in payor programs, the physician must take the time and trouble to deal with this elusive concept.

Nancy W. Miller, Esq. is an attorney with Houston Harbaugh, P.C., in Pittsburgh.

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