Chapter 6
Medicare Coverage and Medical Necessity

 6.1 Overview

This chapter will address Medicare coverage and medical necessity. We will outline various scenarios regarding services not covered by the Medicare Part B Program and explain how these noncovered services affect billing and patient liability. We also outline the issue of medical necessity and how services determined by the carrier as not medically necessary affect billing and patient liability.

6.2 Examples of Non-covered Services

A service that is not covered in the Medicare program is one that is a program exclusion (one that is never covered), such as a routine annual physical. Non-covered services are not subject to Medicare's fee schedule or limiting charge provision and do not need prior written notification of non-coverage.

This list of non-covered services is not all inclusive.

6.3 Medical Necessity
a. Services Denied as not Reasonable and Necessary

Some services that are covered under the Medicare Part B Program may be limited in coverage due to certain diagnoses, frequency parameters, etc. For example, the payment for a vitamin B-12 injection is limited to diagnoses such as: pernicious anemia, gastrointestinal disorder, neuropathies, etc. Therefore, if the criteria are not met, the service will be denied. A procedure may be denied as not reasonable and necessary if it is considered investigational, experimental, or of questionable usefulness. A service may be denied as not reasonable and necessary if it is done more frequently than HCFA/Medicare Medical Policy guidelines specify. If you are aware of a situation which Medicare may deny and you have given prior written notice to your patient, as shown in the example of advance notice, you may charge your Medicare patient what you would charge your other patients. If you were unaware of Medicare’s position on a particular issue and the services were denied, there may be certain provisions, as discussed below, which protect the physician and Medicare beneficiary.

a.1 Waiver of Liability Provision (applies to assigned claims only)

If an initial assigned claim is denied as “not reasonable and necessary,” the carrier will presume the beneficiary did not know and could not have been expected to know that Medicare would not pay for the service. At this point in the process, the carrier will presume the provider did know the service would be denied. In these situations, the provider can appeal both the denial of the service and/or the presumption that he or she knew or could have been expected to know the service would be denied. If the original denial is reversed, or it is decided the provider could not have known the service would be denied, the provider’s liability is waived, and payment is made to the provider. Once the provider’s liability is waived (i.e., prior denial for same or similar service/circumstances, letters, articles published in Medicare Reports, Special Notices or Bulletins), the provider is held accountable for future services of the same nature.


The original finding in favor of the beneficiary can be rebutted if there is evidence in the file to show that the beneficiary knew that Medicare would not pay for the item or service (based on his or her prior receipt of a Medicare denial notice involving the same or similar circumstances); or if you informed the beneficiary in writing before the item or service was furnished that Medicare is likely to deny payment for the item or service rendered, and obtained his or her agreement to pay.

The following chart illustrates all possible scenarios of liability:

 
Who is Liable? Services Denied as not Reasonable and Necessary
Provider Liable If the beneficiary did not have such knowledge, but the 
provider could have been expected to know that the services 
were not eligible, liability is waived for the beneficiary.  No 
payment is due from Medicare, and the provider may not bill 
the beneficiary.
Beneficiary Liable If the provider did not have such knowledge, but the beneficiary 
could have been expected to know that the services were not 
medically reasonable and necessary, liability is waived for 
the provider.  Medicare will not make payment, but the provider 
may bill the beneficiary.
Both Provider and 
Beneficiary Liable
Prior to furnishing the service, you properly notified the beneficiary 
in writing that Medicare would not pay for the service and, after 
being so informed, the beneficiary signed an agreement to pay for 
the service. This agreement should be dated.
Neither Provider nor 
Beneficiary Liable
The Medicare program makes payment to the provider if neither 
the beneficiary nor the provider knew or could have known that 
the services were not medically reasonable or necessary.
 

b. Prohibition against Billing for Medically Unnecessary Non-assigned Services

Under the “prohibition against billing for non-assigned services which are determined to be not reasonable and necessary” provision, the physician is generally required to refund any amounts collected from the beneficiary (including coinsurance and deductible) for services denied as not reasonable and necessary. The physician is not required to refund any money if either of the following conditions are met:

If a physician has collected any amounts from the beneficiary for the denied service and the above conditions are not met, he or she must refund the collected amount to the beneficiary within the following time limits:

A physician who knowingly and willfully fails to make a refund within these time limits may be subject to sanctions.

c. Advance notice

When you believe Medicare will not make payment due to a service being not reasonable and necessary, an advance written notice to the beneficiary can protect you from liability.

The provisions on advance notice are only effective when the advance notices are in writing, signed by the beneficiary, and dated. In cases where you elect to use advance written notices, you must use modifier GA, which replaces modifier BA, with the procedure code for dates of service on and after October 1, 1995. The use of modifier GA will indicate that an advance written notification was provided to the beneficiary.

Receipt of a claim with procedures modified with a GA modifer eliminates the need for us to notify the beneficiary that a refund may be due or to consider further the question of whether or not a refund is required in the event it is determined the services are not reasonable and necessary. This method is the most efficient, since you would avoid being held liable in the firstplace.

 

PHYSICIAN NOTICE 

Medicare will only pay for services that it determines to be reasonable and necessary under section 1862(a)(1) of the Medicare law. If Medicare determines that a particular service, although it would otherwise be covered, is "not reasonable and necessary" under Medicare program standards, Medicare will deny payment for that service. I believe that, in your case, Medicare is likely to deny payment for (specify particular service(s)) for the following reasons, (give your reasons for your belief)

BENEFICIARY AGREEMENT 
I have been notified by my physician that he or she believes that, in my case, Medicare is likely to deny payment for the service(s) identified above, for the reason(s) stated. If Medicare denies payment, I agree to be personally and fully responsible for payment 

 

SIGNED (beneficiary signature)  

DATE SIGNED_________________________  

An advance notice may be applied to an extended course of treatment provided the notice identifies each service for which Medicare is likely to deny payment. A separate notice is required, however, if additional services for which Medicare is likely to deny payment are furnished later in the course of treatment.

A notice given out on a routine basis which does no more than state Medicare payment denial is possible is not an acceptable advance notice.

c.1 Examples of acceptable statements for advance notice

We do not accept statements like, “I never know if Medicare will deny payment,” and similar generalizations for advance notice purposes. Following are some examples of acceptable statements that Medicare is likely to deny payment on the basis that the services were not reasonable and necessary. You may use these or similar statements of reasons, as appropriate to the particular case.

Note: Medicare Report and Medicare Special Bulletin articles may be used as notification in applying the limitation of liability provision. They may also be used at administrative hearings, trials, and other legal proceedings as evidence to establish a provider’s familiarity with specific medical policies and regulations as they appear in the newsletters.

In hearings, copies of Medicare Report and Medicare Special Bulletin articles have been submitted as evidence that a provider was advised of a specific medical policy or regulation.

Because the Medicare Report and Medicare Special Bulletins are mailed to all physicians and suppliers on our records, showing that a physician or supplier was on record during a specific publication date may be sufficient to establish receipt of a specific newsletter. Courts have concluded that it is reasonable to expect providers to comply with the published policies or regulations they receive.

c.1a Example of Advance Notification

For your convenience, we have developed a beneficiary advance notification form that you may photocopy and use in your office. This notice should be maintained in your patient’s files and should be submitted when requesting a review on a service.

 

 

ADVANCE NOTICE 

Medicare will only pay for services that it determines to be "reasonable and necessary" under section 1862(a)(1) of the Medicare law. If Medicare determines that a particular service, although it would otherwise be covered, is "not reasonable and necessary" under Medicare program standards, Medicare will deny payment for that service. I believe that, in your case, Medicare is likely to deny payment for ______________________ (specify particular service(s)) for the following reason(s): (please check the reason(s) 

o Medicare does not usually pay for this many visits, treatments or manipulations. 
o Medicare usually does not pay for this service. 
o Medicare usually does not pay for this shot. 
o Medicare usually does not pay for this many shots. 
o Medicare usually does not pay for this because it is a treatment that has yet to be proven effective. 
o Medicare does not pay for this office visit unless it was needed because of an emergency. 
o Medicare usually does not pay for like services by more than one doctor during the same time period. 
o Medicare usually does not pay for this many services within this period of time. 
o Medicare usually does not pay for more than one visit a day. 
o Medicare usually does not pay for such an extensive procedure. 
o Medicare usually does not pay for like services by more than one doctor of the same specialty. 
o Medicare usually does not pay for this equipment. 
o Medicare usually does not pay for this lab test. 
o Medicare usually does not pay for this service for the reported condition. 
o Other (
describe) _________________________________________________________ 

BENEFICIARY AGREEMENT 
I have been notified by my physician that he or she believes that, in my case, Medicare is likely to deny payment for the service(s) identified above, for the reason(s) stated. If Medicare denies payment, I agree to be personally and fully responsible for payment. 

 

SIGNED_______________________________ DATE SIGNED________________  

d. Elective Surgery

The Omnibus Budget Reconciliation Act (OBRA) of 1986 requires that when a nonparticipating physician does not accept assignment for elective surgery on a Medicare beneficiary, you must provide certain information, in writing, to the beneficiary before the surgery. You must furnish Medicare beneficiaries with a notice similar to the one below. This requirement only applies to elective surgery for which charges are $500 or more. Elective surgery for Medicare purposes is defined as surgery that can be scheduled in advance, is not an emergency and, if delayed, would not result in death or permanent impairment of health.

To be considered an emergency, the condition for which surgery is needed must meet the definition of ‘emergency medical condition’ as specified in 1903(v)(3) of the Social Security Act. Section 1903(v)(3) of the Act defines ‘emergency medical condition’ as .....a medical condition....manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in – (A) placing the patient’s health in serious jeopardy, (B) serious impairment to bodily functions, or (C) serious dysfunction of any bodily organ or part.

Notification to the beneficiary is required prior to furnishing the services. You must refund any money collected from the beneficiary in excess of the Medicare payment if you have not provided prior notice. Failure to refund the money may subject you to civil money penalties and/or exclusion from the Medicare program.

Be sure to document the beneficiary’s receipt and acknowledgment of the required information contained in the notice by having the beneficiary or his/her representative sign and date the notice. Keep a copy of the notice in your files. You are required to produce copies of these notices upon request.

If you are performing surgical procedures with estimated actual charges of at least $500 for which we have not provided the Medicare allowed amount, please contact us and identify the procedure for which you need charge information. (This requirement also applies to anesthesia services personally administered by the primary or assistant surgeon.)

The actual billed or collected charge may not be greater than the limiting charge amount; i.e., 115 percent of the Medicare approved amount for nonparticipating physicians. The sample letter to the beneficiary and the worksheet shown below should display an amount within the limiting charge. The beneficiary is not financially liable for a higher amount even though he or she agrees to the elective surgery on an unassigned basis. Beneficiaries are entitled to a refund of money billed or collected above the limiting charge.

The following is a worksheet to determine your patient’s estimated Medicare payment for elective surgery:

 

1. Your actual charge: (Limiting Charge Amount) ___________ 

2. The Medicare allowed amount: ____________ 

3. The Medicare approved amount: -  ____________ 
(The lowest of 1 or 2 above) 

4. The difference between your actual charge 
and the Medicare approved charge: (1 - 3) = _____________ 

5. Twenty percent coinsurance: (.20 x 3) + ______________ 

6. Beneficiary's out of pocket expense: (4 + 5)  = _____________ 

Assume the $100 deductible has already been met. 

Include the amounts in items 1, 3, and 6 in your letter to the beneficiary.  


 

"SAMPLE BENEFICIARY LETTER" 

Dear (Beneficiary's Name)

I do not plan to accept assignment for your surgery. The law requires that where assignment is not taken, and the charge is $500 or more, the following information must be provided prior to surgery. These estimates assume that you have met the $100 annual Part B Medicare deductible. 

Type of Surgery . ________________________________ 

Estimated Charge . _______________________________ 

Medicare Estimated Payment . ______________________ 

Your estimated payment (includes your Medicare coinsurance) . _____________________  Sincerely, (Physician's Signature) 

e. Experimental /Investigational Services

Only clinically proven effective procedures are reimbursable under the Medicare program. Services performed in connection with research or experimental studies are excluded from payment. The following procedure codes are considered investigational. Therefore, Medicare will not pay for these procedure codes.

J3520
J3570
M0301
P2031
32491
37250
37251
48160
50559
50578
50959
50978
52510
55870
55970
55980
62268
62269
63615
64553
64560
64565
64580
64905
64907
72159
72198
73225
75556
75945
75946
76390
76800
78351
78608
78609
78647
78710
78807
78810
82286
82485
82523
85337
86243
86343
86378
86602
86619
86723
86732
86741
88358
92502
92520
92548
93784
93786
93788
93790
94014
94015
94016
95078
95961
95962
97020
97033
97780
97781

f. Routine Screening Procedures

Generally, routine screening procedures which are done as part of an asymptomatic annual examination are non-covered services, and the physician may bill the patient.

However, screening mammographies and screening pap smears for asymptomatic patients are reimbursable within specified periodic time frames. Refer to Chapter 25, Preventive Services under section 25.1.f for Screening Pap Smears and Pelvic Examinations and
section 25.2.a for Screening Mammographies. Specific policy can be obtained by calling our Faxback system at (717) 763-5700 or by writing to Freedom of Information. (Please refer to the address in Chapter 1, section 1.8.)

g. Certificate of Medical Necessity (CMN)

Claims for durable medical equipment home use and related supplies may be paid only if items meet the Medicare definition of covered items and are found to be medically necessary. The beneficiary’s physician is required to complete the certificate of medical necessity, to establish that the durable medical equipment items being ordered are medically necessary for the beneficiary’s unique condition and that coverage criteria are met.

Physicians may not charge either the beneficiary or the supplier for completing the
certificate of medical necessity.

Note: Please contact the Durable Medical Equipment Regional Carriers (DMERC) if you have any questions concerning the certificate of medical necessity. (See Chapter 16.)