Today, it is more essential than ever that health care providers take great care when assessing a patient’s clinical needs and determining which care and treatment is medically necessary. Once this decision is made, it is imperative that health care providers submitting claims to governmental and private payors fully understand their obligations under the law and under the terms of their participation contracts, prior to billing a payor for those medical services. Generally, we refer to this process as the “Eight Elements of a Payable Medical Claim.” As set out below, non-hospital health care providers can often use this approach to determine whether specific services billed to Medicare, Medicaid, and/or private payors should be paid. A discussion of the eight elements is provided below.
Element #1 — The Medical Service or Supplies Provided were Medically Necessary:
In addressing this element, a treating health care provider should ask the following question: “Were the medical services or supplies providers medically necessary?”
When considering this question, it is important to keep in mind that the medical necessity is essentially a “standalone” determination, separate from each of the other elements. In other words, a physician may find that a specific course of treatment is medically necessary in light of a patient’s clinical profile and needs. Nevertheless, just because a certain treatment regime is medically necessary does not mean that it will be covered by one or more payors. Over the years, we have seen numerous instances where a physician determined that a course of treatment was medically necessary but it was not covered by Medicare, Medicaid, or a private payor plan.
We believe that this element constitutes the most important question to be answered by a provider. Services which are not medically necessary should never be performed. However, a provider may choose to provide medically necessary services regardless of whether he or she anticipates a payor to find that the care qualifies for coverage and payment.
Element #2 — The Medical Services of Supplies Were Actually Provided:
The second issue addressed is whether the services at issue were actually provided. As you can imagine, regardless of the fact that services ordered were medically necessary, the services must actually be administered in order for those services to be billed and paid. Absent clear, unambiguous evidence that services were provided, they should not be submitted for reimbursement. Equally important, services must actually be provided at a level of quality consistent with Medicare’s expectations or the expectations of the covering payor.
Element #3 — No Other Statutory Violations Were Committed in Connection with the Medical Services or Supplies Provided:
In other words, were the medical services or supplied provided “tainted” by any statutory or regulatory violation, such as the Stark Law, Federal Anti-Kickback Statute or a False Claims Act violation? When examining whether a claim is properly payable, you need to remember that even though the medical service at issue may have been medically necessary and qualified for payment, if it is the result of an illegal activity, it will be tainted and will likely not qualify for payment.
Therefore, when you are reviewing a service or claim, you must consider whether there is any indication of possible statutory or regulatory violations. For instance, is there any evidence that the service or claim is linked in any way to a breach of the Federal Anti-Kickback Statute or Stark’s prohibition against improper self-referrals? Similarly, is the service or claim associated with a possible violation of the civil False Claims Act? The bottom line is fairly straight-forward: it is insufficient to merely show that a claim appears to meet the payor’s basic billing rules. Rather, a broad view of the service or claim should be made to better ensure that it is not otherwise non- payable due to a statutory breach.
Element #4 — All Applicable Coverage Requirements are Met:
Traditional Medicare, Medicare Advantage plans, traditional Medicaid, Medicaid Advantage plans and each of the private payor plans all have similar, but in many instances different, coverage requirements. Therefore, it is essential that when you are auditing a claim, you need to determine whether or not it is covered under the patient’s insurance plan. You need to keep in mind that a service or claim can be medically necessary yet still not qualify for coverage and payment. Ultimately, every service or claim, regardless of whether the beneficiary is a Medicare, Medicaid, or private plan participant, must be examined to see if it qualifies for coverage.
In making coverage determinations, CMS has interpreted the phrase “reasonable and necessary” to reflect that the item or service in question is safe and effective and not experimental or investigational.  CMS stated that the relevant tests for applying these terms are whether the item or service has been proven safe and effective based on authoritative evidence, or alternatively, whether the item or service is generally accepted in the medical community as safe and effective for the condition for which it is used.  A device is investigational if it has not been approved by the Food and Drug Administration (FDA) through a premarket approval process or the “510(k) certification process.” 
- National Coverage Determinations.
In its most general form, the Secretary of the U.S. Department of Health and Human Services (HHS) may articulate “reasonable and necessary” standards through formal regulations that have the force and effect of law throughout the administrative process.  More specifically, the Secretary may publish a formal administrative ruling in the Federal Register setting forth how Medicare statutes and regulations are to be applied in particular circumstances.  These regulations and administrative rulings are binding at all stages of the administrative process. 
The first type of formal regulations are publications known as National Coverage Determinations (NCDs).  NCDs are national policy statements that grant, limit, or exclude Medicare coverage for a particular item or service and apply nationally to all Medicare beneficiaries who meet the criteria for coverage.  More precisely, NCDs are “determination[s] by the Secretary with respect to whether or not a particular item is covered nationally” by Medicare.  NCDs “generally outline the conditions for which a service is considered to be covered (or not covered)” and “are usually issued as a program instruction.”  NCDs are often published detailing how a particular patient population may or may not receive Medicare reimbursement for a covered item or service.  Therefore, NCDs relate only to issues of coverage. NCDs do not reflect a determination of the amount of payment made for a particular item or service. 
Moreover, any interested party, including beneficiaries, may make an external request for a new NCD.  Most of these external requests, however, are made by organizations such as drug, device, or medical product manufacturers or by professional medical organizations, providers, or suppliers.  In addition, CMS may make its own internal request if it determines that an NCD is “in the interest of the general health and safety of Medicare beneficiaries.” 
Importantly, because of the judicial deference given to the Secretary in making his or her coverage determinations, all requirements set forth within an NCD are binding on coverage determinations made by Medicare Administrative Contractors (MACs) and Administrative Law Judges (ALJs) during the appeals process. 
Finally, the Secretary may “further define when and under what circumstances services may be covered (or not covered)” under the reasonable and necessary standard through “coverage provisions” in “interpretive manuals.”  Manual instructions are often issued in the form of program memoranda, such as the “Medicare Program Integrity Manual.”
- Local Coverage Determinations.
The Secretary of HHS may also delegate its responsibilities to Medicare contractors under section 1395y(a).  Therefore, in the absence of an NCD, MACs are responsible for promulgating their own reasonable and necessary coverage determinations.  These determinations are published as Local Coverage Determinations (LCDs). LCDs are defined as “determination[s] by a [contractor] under. . . part B. . . respecting whether or not a particular item or service is covered. . . in accordance with section 1395y(a)(1)(A).”  MACs make these coverage determinations by applying the Act and Federal regulations, as well as additional guidance provided by CMS in the form of Rulings, Medical Manual Provisions, and other forms of guidance.  In fact, the vast majority of coverage decisions are made at the local level by clinicians who work with the MACs during the claims review process. CMS’s Medicare Program Integrity Manual (PIM) outlines how LCDs are to be promulgated. Each LCD must reflect local medical practice within the contractor’s jurisdiction and must be supported by substantial medical evidence.  MACs develop LCDs by considering medical literature, the advice of medical societies and consultants, public comments, and comments from the Medicare provider community.  Like NCDs, an LCD’s coverage guidance on whether an item is medically “reasonable and necessary” means that the item is safe and effective and not experimental or investigational as determined by the FDA approval process.  The contractor must also ensure that LCDs are consistent with the Medicare statute, regulations, NCDs, and other applicable Federal guidance.  The PIM also requires that contractors engage in a notice and comment process before publishing coverage policies. 
Unlike NCDs, ALJs and the Medicare Appeals Council (Appeals Council)—not to be confused with the Medicare Administrative Contractor (MAC)—are not bound by LCDs or CMS program guidance, such as program memoranda and manual instructions.  However, they will give substantial deference to these policies if they are applicable to a particular case.  This deference is due to interpretations that arise under a “complex and highly technical regulatory program,” where even “the identification and classification of relevant criteria necessarily require significant expertise, and entail the exercise of judgment grounded in policy concerns.”  If either an ALJ or the Appeals Council declines to follow a policy in a particular case, the ALJ and/or Appeals Council decision must explain the reasons why the policy was not followed.  An ALJ or Appeals Council decision to disregard that policy applies only to the specific claim being considered and does not have precedential effect.  Furthermore, an LCD made by one MAC is not binding on the other Medicare contractors across the country. 
The Secretary of HHS is also responsible for overseeing the evaluation of new LCDs to determine whether they should be adopted nationally and to what extent can consistency be achieved among LCDs.  Because LCDs are established by each individual MACs, variances between LCDs are common. Notably, while assessing common coverage and documentation requirements from one region to another, we have found that the differences between one LCD and another can be significant. Finally, if there is no NCD or LCD in place, “contractors may make individual claim determinations,” including whether a particular item or service meets the statutory requirement of being “reasonable and necessary.”
- Challenging NCDs and LCDs:
When a beneficiary is confronted with a denied claim and wishes to challenge that denial, the beneficiary has the option of pursuing review through the claims appeal process, seeking review of the applicable LCD or NCD, or both.  However, any challenge to an NCD or LCD is distinct from the general Medicare claims appeal process set forth in 42 U.S.C. § 405(g).  In fact, challenging these determinations permits an aggrieved beneficiary to seek review of an entire policy or provision rather than just a specific claim denial.  Nevertheless, when the LCD review process was created, the existing claims appeal procedures remained unaltered. As a result, a beneficiary who wishes to challenge an NCD or LCD still has access to a de novo review by ALJ or to Federal district court review, if necessary. 
When challenging an NCD or LCD, ALJs and the Appeals Council are responsible for reviewing the reasonableness of these determinations under certain guidance. In determining whether LCDs or NCDs are valid, the adjudicator must uphold a challenged policy (or a provision or provisions of a challenged policy) if the findings of fact, interpretations of law, and applications of fact to law by the contractor or CMS are reasonable based on the LCD or NCD record and the relevant record developed before the ALJ or the Appeals Council.  As previously indicated, NCDs are determinations promulgated by the Secretary and are therefore given substantial deference when challenged. Nevertheless, the administrative appeals process affords this same level of deference to LCDs, despite the fact that these determinations are published by independent, private MACs. 42 C.F.R. § 405.1062(a) affirms that ALJs and the Appeals Council are not bound by LCDs or CMS program guidance, such as program memoranda and manual instructions but will also give substantial deference to these policies if they are applicable to a particular case. In doing so, the ALJs or the Appeals Council must apply the same “reasonableness standard” when conducting a challenge to an LCD as it does to an NCD. 
What exactly constitutes a “reasonableness standard”? In Subject: NCD Complaint—Intraocular Lens (CMS Ruling 05-01),  the Appeals Council acknowledged a complaint challenging an NCD that barred coverage of presbyopia-correcting intraocular lenses (PC-IOL) inserted after cataract surgery. After reviewing the NCD Record and the challenger’s contentions, the Board upheld the validity of the NCD. 
The Board outlined its standard of review for an NCD appeal and acknowledged that Section 1869(f)(1)(A)(iii)(I) of the Act limited its review of an NCD “to evaluat[ing] the reasonableness” of the NCD.  Section 1869(f)(1)(A)(iii)(III) also provides that the Board “shall defer only to the reasonable findings of fact, reasonable interpretations of law, and reasonable applications of fact to law by the Secretary.”  The Board recognized that this reasonableness standard required it to uphold the challenged NCD “if the findings of fact, interpretations of law, and applications of fact to law” by CMS are reasonable based on the NCD record and the relevant record developed before it. 
The Board also noted that Federal regulations provide a two-stage process for reviewing a challenged NCD. First, if it found the NCD record to be complete and adequate to support the validity of the NCD, it would issue a decision to uphold the NCD. This would effectively end its review process. On the other hand, if the Board found that the NCD record was incomplete and inadequate to support the validity of the challenged NCD, it would conduct a review process that permitted discovery and evidence submission, as well as a formal hearing, if necessary. 
“Policy Articles” are closely related to LCDs, though they are distinct documents. While LCDs contain only the reasonable and necessary language, Policy Articles contain any non-reasonable and necessary language a Medicare contractor wishes to communicate to providers. These Articles essentially provide additional details for coverage requirements and reimbursement procedures. And while Policy Articles are not LCDs, the Appeals Council has recognized a “long-standing practice to afford some deference” to these articles published by the MACs.  Ultimately, while challenges to the specific claims denials and challenges to the various coverage determinations follow different administrative appeals processes, the adjudicatory entities all afford the Secretary’s decisions substantial deference due to the complex nature of the Medicare program. As a result, beneficiaries have a significant hurdle in trying to overturn any adverse decision.
To be clear, there is no “silver bullet” that can be used by a provider to avoid the scrutiny of contractors and law enforcement. Every small- and mid-sized provider should expect to be audited. Rather than wait for such an eventuality, your organization should affirmatively review its operations, coding, and billing practices to ensure that its practices fall within the rules.
Element #5 — The Medical Services and Supplies Provided Were Properly and Fully Documented:
It is essential that you pull each and every regulatory issuance, along with any guidance issued by the state, that sets out the documentation requirements associated with a particular service or claim. After auditing thousands of claims, we found that the majority of audited health care providers never fully researched and reviewed applicable documentation requirements. As clinical reviewers of both Medicare and Medicaid program integrity contractors are quick to state, “If it isn’t documented, it didn’t happen.” When a UPIC or RAC makes this point during a hearing before an Administrative Law Judge (ALJ), this point is quite effective—it is extremely difficult for a provider to prove that a service was provided if there is insufficient documentation of the work conducted in the patient’s medical records. Therefore, research, review, and confirm the precise documentation requirements, then ensure that you take the time to fully and accurately document the work you have performed.
UPIC auditors are excellent at identifying one or more ways in which your claims do not meet applicable coverage requirements. While you may very well disagree with their assessments, especially in “medical necessity” determinations (when you file a request for redetermination appeal and later, a request for reconsideration appeal), you will find that your MAC and your Qualified Independent Contractor (QIC) agree with the UPIC’s denial decision. Rather than endure significant costs and stress when defending an overpayment assessment, you need to take steps to avoid a denial in the first place. To that end, health care providers should ensure that clinical staff members are fully trained and educated regarding Medicare’s documentation, coding, and billing processes.
We recognize that “perfect documentation” is neither required nor realistic to expect from your clinical staff. Nevertheless, using published reports of other cases, you can show your clinicians that UPICs enforce a strict application of Medicare’s documentation and coverage requirements. Through education and training, your clinical staff will understand why it is imperative that they review, understand and comply with:
- Any applicable National Coverage Determinations (NCDs).
- Any applicable Local Coverage Determinations (LCDs).
- Any Local Medical Review Policies (LMRPs).
- The Medicare Policy Benefit Manual (MPBM).
- The Medicare Program Integrity Manual (MPIM).
- Any statutory provisions which cover the medical services or supplies provided.
- Any additional guidance issued by Medicare must also be carefully reviewed.
Element #6 — The Medical Services or Supplies Were Properly Coded:
Unfortunately, even if the foregoing rules have been met, it is quite simple to make a coding mistake, therefore invalidating the claim. The coding rules are both complicated and dynamic, potentially changing from year to year. We recommend that you either engage a qualified third-party billing company to assist you with coding and billing or ensure that your in-house staff members handling these duties are experienced and provided regular opportunities for updated training.
Element #7 — The Medical Services or Supplier Were Properly Billed:
Health care providers must ensure that the services or claims performed fully meet Medicaid and Medicare’s billing rules. Once again, you need to ensure that your staff is properly trained to handle the organization’s billing responsibilities. As you review your billing practices, you should abide by the following: First, “If it doesn’t belong to you, give it back.” Conversely, “If you don’t owe the money, don’t automatically throw in the towel.” One of the attorneys in our firm is regularly asked to speak at provider conventions around the country. For years, he has told providers “If it doesn’t belong to you, give it back.” This simple concept covers a lot of ground when it comes to Medicare overpayments and is the single best policy you can employ as a good corporate citizen.
Element #8 — The Medical Services or Supplies Were Properly Paid:
Remarkably, even if your claims fully meet the first seven elements, that doesn’t necessarily mean that a claim has been properly paid. Over the past year, we have handled several cases where the claim was properly coded and billed but still resulted in an improper payment amount due to software processing errors or mistakes made by a clearinghouse. It is therefore imperative that you check to ensure that the reimbursement amounts made by a CMS administrative contractor are correct.
In summary, in order to qualify for payment, a claim must meet each of the eight components set out above.
Handling Deficiencies Should You Determine that a Service was Not a Payable Medical Claim:
The likelihood that your practice or organization will be subjected to a Medicare or Medicaid audit increases every day. As a participating provider in one or more Federal health care programs, you have an affirmative obligation to ensure that your claims are properly documented, coded, and billed. Unfortunately, many providers have never researched and reviewed the proper rules covering the work they provide. When conducting a gap analysis of your organization, a sample of your claims is an important proactive step you can take to help ensure that your current practices are fully compliant with applicable laws and regulations; such analyses do not have to be statistically significant.
Should you identify deficiencies, remedial steps should be taken (immediately) so that future claims will meet all applicable requirements. Keep in mind—any identified overpayments must be repaid promptly to the government in order to avoid possible False Claims Act liability. For a detailed discussion of your obligation to repay identified overpayments, please see our page titled: “Overpayment Considerations When You Owe Monies to Medicare, Medicaid or a Private Payor Overpayment Monies.”
We strongly recommend that you foster a corporate culture which encourages coding and billing compliance. UPICs, SMRCs and RACs have increased their audit activities dramatically around the country. Your organization’s compliance with Federal and state regulations, coupled with a consistent message to your employees, is essential. Establishing effective internal auditing and monitoring practices can greatly facilitate your organization’s ability to ensure that only a payable medical claim is submitted to government and private payors for payment.
NATIONWIDE REPRESENTATION Call: 1 (800) 475-1906.
Liles Parker attorneys and staff have extensive experience conducting assessments of medical claims and supplies Our attorneys are both seasoned health care lawyers AND have undergone special training and education so that they could become Certified Professional Coders (CPCs), Certified Medical Reimbursement Specialists (CMRSs) and / or Certified Medical Compliance Officers (CMCOs). Questions? For a free consultation, give us a call. We can be reached at: 1 (800) 475-1906.
 See 54 Fed. Reg. 4302, 4304 (Jan. 30, 1989); see also United States ex. rel. Colquitt v. Abbott Labs., 2012 WL 1081453, 29 (N.D. Tex. March 30, 2012); 42 C.F.R. §411.15(o).
 See 60 Fed. Reg. 48417-01 (Sept. 19, 1995).
 In the case of medical devices, under the § 510(k) certification process, a manufacturer must submit to the FDA a premarket notification submission, commonly known as a 510(k) notice, before a device may be introduced into interstate commerce. See 21 U.S.C. § 360(k); 21 C.F.R. § 807.81 (2010 For additional information on the FDA § 510(k) certification process, see:
 See Willowood of Great Barrington, Inc. v. Sebelius, 638 F.Supp. 2d 98, 105 (D. Mass. 2009); 42 U.S.C. §§ 1395ff(a)(1), 1395hh.
 See 42 C.F.R. §401.108.
 See 42 C.F.R. §§401.108(c), 405.1063.
 See 42 U.S.C. §1395ff(f)(1)(B); See also 42 C.F.R. §§400.202, 405.1060.
 See 68 Fed. Reg. 55,634-01 at 6354 (Sept. 26, 2003).
 42 U.S.C. §1395ff(f)(1)(B).
 Medicare Program Integrity Manual, Ch. 13, § 13.1.1.
 68 Fed. Reg. 55,634 at 55,635.
 42 C.F.R. §405.106 (2005).
 See 68 Fed. Reg. at 55,638 (Sept. 26, 2003); see also Section 522 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), Pub. L. No. 106-554, 114 Stat. 2763 app. at 2763A-534 to -543.
 Sandra J. Carnahan, Medicare’s Coverage With Study Participation Policy: Clinical Trials Or Tribulations?, 7 Yale J. Health Poly, L. & Ethics 229, 238 (2007).
 68 Fed. Reg. at 55,635-36.
 See 42 U.S.C. §1395ff(f)(1)(A); see also 42 C.F.R. §405.211.
 Medicare Program Integrity Manual, Ch. 13, §13.1.2.
 See 42 U.S.C. §1395h.
 See 42 U.S.C. §1395ff(f)(2)(B).
 See 42 C.F.R. §§405.803, 421.200, §405.836.
 See 64 Fed. Reg. 22,619, 22,621 (Apr. 27, 1999) (stating that the purpose of local medical review policies is to explain to the public and the medical community “when an item or service will be considered ‘reasonable and necessary’ and thus eligible for coverage under the Medicare statute”); PIM Ch.1, §§2.1.B, 188.8.131.52, 2.3.2.
 PIM, supra note 17, at §1.2.
 See Abbott Laboratories, at 29.
 PIM, supra note 17, at §2.1.B.
 See Erringer v. Thompson, 189 F. Supp. 2d 984, 987 (D. Ariz. 2001).
 42 C.F.R. §405.1062.
 Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994).
 42 C.F.R. §405.1062.
 See 65 Fed. Reg. 31124, 31126 (May 16, 2000).
 See 42 U.S.C. §1395y(1)(5)(A).
 68 Fed. Reg. 63,693 (Nov. 7, 2003).42 C.F.R. §405.1060(a)(4), (b) – (c) (2005).
 See 68 Fed. Reg. 63692, 63693-94 (Nov. 7, 2003)(comparing the claims appeal process and the NCD and LCD review processes).
 Bailey v. Mut. of Omaha Ins. Co., 534 F.Supp.2d 43, 47 (D.C. Cir. 2008).
 See 68 Fed. Reg. 63692, 63693; see also 42 U.S.C. §§405(g), 1395ff(b)(setting out these procedures).
 See 42 U.S.C. §405.1062(a).
 See Subject: NCD Complaint – Intraocular Lens (CMS Ruling 05-01), DAB No. 2418 (2011).
 See id. at 1.
 Id. at 2.
 42 C.F.R. §426.110.
 See 42 C.F.R. §§426.525(c), 426.531.
 Am. Med. Techs., 2010 WL 2994395, at 4 (claim for supplemental medical insurance benefits (Part B)).