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CMS to Provide Prior Determination of Coverage

March 11, 2008:
The Centers for Medicare and Medicaid Services (CMS) has issued a final rule providing for medical necessity determination of coverage for certain physician services before these services are rendered. The intention is to enable the physician and beneficiary to know the financial liability for a service before expenses are incurred.

Medical necessity denials cost physicians and hospitals time and resources spent resolving them, and cause lost revenue. Because of the risk of financial liability involved in receiving and resolving denials, many organizations have turned to expensive software programs to facilitate compliance with medical necessity guidelines and to check for medical necessity before providing the medical service rather than after the patient has gone home. If the provider believes that a service may not be covered as reasonable and necessary and does not want to accept financial responsibility, it must give the patient an advance beneficiary notice, or ABN, in writing in advance of providing the service. If the physician or hospital does not provide an ABN and subsequently receives a denial, it may not bill the patient.

Medical necessity is required by section 1862(a)(1)(A) of the Social Security Act, which states that no Medicare payments will be made for services that are not reasonable and necessary for the diagnosis and treatment of an illness or injury.

Under the new process, “Prior Determination of Medical Necessity” is a decision by a Medicare contractor, before a physician’s service is furnished, as to whether or not the physician’s service is covered in relation to medical necessity. The beneficiary must provide consent if a physician wants a prior determination. Certain services for which there is already a national coverage determination (NCD) or a local coverage determination in effect would not be eligible for prior determination.

Medicare contractor websites will include the list of services by the Healthcare Common Procedure Coding System (HCPCS) procedure code and code description for which a prior determination may be requested. Only those services listed are subject to prior determination. Each contractor’s list will include the national list provided by CMS of the most expensive physician services performed at least 50 times annually; and plastic or dental surgeries that have an average allowed charge of at least $1,000 and that may be covered by Medicare. CMS may also periodically revise or increase the number of services that are eligible for prior determination periodically.

Medicare contractors will accept requests for prior determinations of medical necessity from eligible requesters. An “eligible requester” is defined as a participating physician or a physician who accepts assignment with respect to physicians’ services to be furnished to an individual who is entitled to receive benefits and who has consented to the physician making the request for those physician’s services; and an individual entitled to benefits for which the individual receives, from a physician, an ABN.

The detailed procedures to be followed by Medicare contractors will be published in manual instructions. However, CMS will not accept these requests for a prior determination electronically. The agency may require that the request be accompanied by supporting documentation relating to the medical necessity of the physician's service and other appropriate documentation such as a copy of the ABN involved.

The Medicare contractor will provide a written notice of a determination as to whether the service is covered (i.e., is consistent with the requirements relating to medical necessity) or the service is not covered. The notice will include a brief explanation of the basis for the determination, including any national or local coverage determination on which the determination is based. The statute requires that contractors mail the requester the decision no later than 45 days after the request is received.

Obviously, once a beneficiary is provided services, there will be no prior determination. The decision not to request prior determination will not affect claims submission or appeal rights.

Sarah A. Serling, CPC, CPC-H, CPC-I, CCS-P, CCS
Clinical/Technical Editor


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