DEPARTMENT: Regulatory Compliance
Support
PAGE: 1 of 3
EFFECTIVE DATE: June 1, 2007
POLICY DESCRIPTION: Medicare - Medical
Necessity
REPLACES POLICY DATED: 4/1/00, 10/1/00,
3/1/01, 10/1/02, 8/1/03 (GOS.GEN.002), 3/6/06,
7/1/06
REFERENCE NUMBER: REGS.GEN.002
SCOPE: All Company-affiliated hospitals performing and/or billing outpatient services.
Specifically, the following departments:
Business Office
Admitting/Registration
Medical Staff
Central Scheduling
Revenue Integrity
Reimbursement
Service Centers
Nursing
Health Information Management
Physician Office Staff
Ancillary Departments
Utilization/Case Management
Allied Health Practitioners
Patient Access
PURPOSE: To outline Medicare medical necessity screening and related education requirements.
POLICY: Orders for tests and services must be reviewed to determine medical necessity
(according to Local Coverage Determinations (LCD) and/or National Coverage Determinations
(NCD)) in order to facilitate appropriate billing. If a hospital is billing for the professional
services of a physician or allied health practitioner, hospital staff must review orders against their
Medicare Contractor’s LCD.
DEFINITIONS:
Allied Health Practitioner: Any non-physician practitioner permitted by law to provide care and
services within the scope of the individual’s license and consistent with individually granted
clinical privileges by the Board of Trustees. For example, certified nurse-midwives, certified
registered nurse anesthetists, clinical psychologists, clinical social workers, physician assistants,
nurse practitioners, and clinical nurse specialists.
Ancillary Services: Hospital or other health care organization services other than room and board
and professional services. Examples of ancillary services include diagnostic imaging, pharmacy,
laboratory and rehabilitative therapy services.
Local Coverage Determinations: Policies developed by Medicare Contractors that specify the
criteria and under what clinical circumstances an item/service is covered and considered to be
reasonable, necessary, and appropriate. Hospitals are required to use only those LCD that have
been issued by their specific Medicare Contractor.
National Coverage Determinations: Medical review policies as issued by CMS which identify
specific medical items, services, treatment procedures or technologies that can be covered and paid
for by the Medicare program. National Coverage Determinations apply to services paid by all
Medicare Contractors and can be found in the Medicare National Coverage Determinations
Manual (100-03) and the Federal Register.
4/2007
DEPARTMENT: Regulatory Compliance
Support
PAGE: 2 of 3
EFFECTIVE DATE: June 1, 2007
POLICY DESCRIPTION: Medicare - Medical
Necessity
REPLACES POLICY DATED: 4/1/00, 10/1/00,
3/1/01, 10/1/02, 8/1/03 (GOS.GEN.002), 3/6/06,
7/1/06
REFERENCE NUMBER: REGS.GEN.002
Outpatient Services: Outpatient services are those services rendered to a person who has not been
admitted by the hospital as an inpatient but is registered on the hospital records as an outpatient
and who receives services (rather than supplies alone) from the hospital. Outpatient services
include, but are not limited to, observation, emergency room, ambulatory surgery, laboratory,
radiology and other ancillary department services.
PROCEDURE: The following steps must be performed to ensure outpatient services are
reviewed for medical necessity according to LCD and/or NCD.
1. Ancillary Department, Case Management, Service Center and/or Business Office personnel
must obtain the CMS NCD and LCD as issued by their specific Medicare Contractor. The
NCD and LCD must be organized and the material readily available for registration/Patient
Access staff.
2. Ancillary Department, Case Management, Service Center and Business Office personnel must
implement a screening process prior to performing outpatient services to determine if an LCD
and/or NCD applies to the services to be performed.
3. If the services are included in an LCD or NCD, individuals responsible for registering and/or
ordering outpatient services must review outpatient test and/or service orders for medical
necessity according to the LCD and/or NCD.
4. Facility designated personnel, such as ancillary department directors, Case Management,
Health Information Management, physician liaison, Patient Access Director and/or Business
Office Director shall educate all physicians and staff associates responsible for ordering,
referring, performing, registering, charging, coding or billing outpatient services on the
requirements of this policy.
5. Facility personnel must provide all physicians and allied health practitioners with a summary
of the following information:
 Orders for Outpatient Tests and Services Policy (REGS.GEN.004)
 Medical Necessity Guidelines (Local Coverage Determinations and National
Coverage Determinations)
 Advance Beneficiary Notice Policy (REGS.GEN.003)
 Organ & Disease Panels Policy (REGS.LAB.004)
 Custom Profiles Policy (REGS.LAB.007)
 Reflex Orders Policy (REGS.LAB.010)
 Laboratory – Client Billing Practices Policy (REGS.LAB.023)
4/2007
DEPARTMENT: Regulatory Compliance
Support
PAGE: 3 of 3
EFFECTIVE DATE: June 1, 2007
POLICY DESCRIPTION: Medicare - Medical
Necessity
REPLACES POLICY DATED: 4/1/00, 10/1/00,
3/1/01, 10/1/02, 8/1/03 (GOS.GEN.002), 3/6/06,
7/1/06
REFERENCE NUMBER: REGS.GEN.002
6. Facility personnel must provide each physician and allied health practitioner with the
Physician’s Notice Pamphlet regarding Medical Necessity (see Attachment A). The pamphlet
will be provided to each ordering physician/allied health practitioner at least once every two
years during the credentialing process.
7. Facility and Service Center personnel must perform Hospital-based self monitoring following
guidance issued by Regulatory Compliance Support. The tools and instructions for the
Hospital-based self monitoring can be found in the Advance Beneficiary Notice – Outpatient
Services Policy (REGS.GEN.003).
The Facility Ethics and Compliance Committee is responsible for the implementation of this
policy within the facility.
REFERENCES:
OIG Model Compliance Plan for Hospitals (February 23, 1998)
Medicare National Coverage Determinations Manual (100-03)
The Office of Inspector General’s Compliance Program Guidance For Clinical Laboratories
(August 1998) pp. 8-10
Medical Necessity Guidelines (Local Coverage Determinations and National Coverage
Determinations)
Federal Register, 42 CFR Part 410, November 23, 2001
Medicare Claims Processing Manual (100-04), Chapter 30
4/2007
Physician Notice
Regarding Medical
Necessity and Compliance
What is a Physician Notice?
This Physician Notice pamphlet has been designed to
notify you of Medicare, CMS, and OIG rules regarding
medical necessity and billing compliance in order to
protect both you and the hospital from potential
liability.
What is Medical Necessity?
Medicare will only pay for those tests and services that
it determines to be “reasonable and necessary.”
Medicare Contractors may develop a “Local Coverage
Determination” for specific tests and/or services. This
Local Coverage Determination (LCD) indicates which
diagnoses, signs, or symptoms are payable for these
specific tests and/or services. If a test or service is
ordered in which a LCD exists, there must be
documentation of medical necessity on the claim in
order for Medicare to pay for this test or service. In the
case where the Medicare Contractor does not have a
LCD, the National Coverage Determinations (NCD)
still apply. Physicians are advised by CMS to only
order those tests and/or services they believe are
medically necessary. A specific diagnosis, sign,
symptom, or ICD-9-CM code must be provided when
ordering tests or services. If a test or service is not
medically necessary (according to LCD and/or NCD),
an Advance Beneficiary Notice (ABN) must be
obtained from the patient. Please understand that the
guiding principle to determine whether an ABN must
be obtained is not whether you, as a physician believe
that the test or service is medically necessary, but
whether the patient’s diagnosis, signs, or symptoms
are included in an LCD and/or NCD for the specific
test or service being ordered. Note: Medicare
Contractors may have different LCD. Our facility
must follow our Medicare Contractor’s LCD.
What if I need assistance in ordering tests or
services?
The appropriate ancillary department will make
available the services of a clinical consultant to assist
you when you have questions regarding test or service
appropriateness.
Attachment to REGS.GEN.002
What is an ABN & why do we need one?
An ABN is an Advance Beneficiary Notice. The
purpose of the ABN is to give the patient advance
notice that Medicare may not pay for the test or service
ordered. When ordering tests or services that do not
meet LCD or NCD, physicians should explain to the
beneficiary why the test is being ordered and that
Medicare may not pay for the test and therefore an
ABN must be signed. Signed ABNs should be
forwarded to the ancillary service department
performing the tests or services.
How can we work together?
To limit the potential risk for both physicians and
ancillary departments, our facility has adopted several
policies related to Medicare billing. We realize that it
is good medicine to provide certain services and sets of
tests for specific diagnoses and therefore in the
laboratory we will allow you to define Custom Profiles
for use in treating your patients. Please contact our
Laboratory for additional information. We also realize
that there are instances when abnormal values for
specific tests warrant additional testing. Therefore, we
have created laboratory reflex testing guidelines which
will be updated and approved annually by the
Executive Committee of the Medical Staff and
published in the Medical Staff Meeting Minutes.
Attachment to REGS.GEN.002