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May/June 2021

Fraud and Abuse: ‘Reasonable and Necessary’ Gets Redefined
By Muthukumar Padmanabhan, CRCP
For The Record
Vol. 33 No. 3 P. 8

On September 1, 2020, the Centers for Medicare & Medicaid Services (CMS) sparked a firestorm with a proposal to redefine the guidelines for determining “reasonable and necessary” coverage for items and services furnished under Medicare Parts A and B. For national coverage determinations (NCDs) and local coverage determinations (LCDs) with insufficient evidence to meet the criteria, the plan proposed replacing the existing appropriateness criteria, including accepted standards of medical practice, with a new definition based on whether the item or service is covered “by a majority of commercial insurers.”

While the guidelines for evaluating commercial payers’ relevance to appropriate coverage will not be released until March 2022 and commercial policies are no longer the sole determinant of appropriateness assessments, the change is expected to have repercussions for patients, health information professionals, and health care providers. Potential impacts include reduced Medicare coverage, an increase in claim denials based on medical necessity, extra paperwork to prepare medical records for appeal because of the expected rise in volume, and delayed reimbursements for providers.

Rationale and Reaction
When CMS issued its initial proposal for redefining reasonable and necessary Medicare coverage, the agency justified the change by stating that it had utilized private payer policies in developing NCD guidelines. In the event of a difference between Medicare coverage and the majority of commercial insurance policies, CMS indicated an intention to include its reasoning for the difference in the NCD or LCD. The agency also indicated that it will base its decisions on the “measurement of majority of covered lives.”

The American Hospital Association (AHA) weighed in two months later with a list of concerns. In comments submitted to CMS in November 2020, AHA warned that relying solely on the policies of commercial payers would likely shrink Medicare coverage, create unpredictability, compromise transparency, and cause delays in bringing new therapies to market given that public payers often are the first to cover new treatments. The letter also noted that wide variations in commercial payer policies would create complications in determining coverage.

“While we are not opposed to considering coverage in the commercial market for purposes of Medicare coverage determination, we strongly disagree with making it the deciding factor,” the AHA wrote.

Based on the AHA’s comments and those of other stakeholders, CMS opted not to replace the appropriateness criteria entirely in the final rule it issued on January 14 but instead include it as an alternative if a claim does not meet the other appropriateness criteria. On March 17, the agency delayed the effective date of the rule from March 15 to May 15 and added a 30-day comment period with an April 16 deadline.

As of press time, the rule states that for an item or service to meet the appropriateness criteria, it needs to be the following:

• furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member;

• furnished in a setting appropriate to the patient’s medical needs and condition;

• ordered and furnished by qualified personnel;

• one that meets but does not exceed the patient’s medical need; and

• at least as beneficial as an existing and available medically appropriate alternative; or

• covered by commercial insurers unless evidence supports that differences between Medicare beneficiaries and commercially insured individuals are clinically relevant.

Subregulatory guidance on the methodology for determining when and how commercial insurer policies will be used to determine appropriateness of coverage will be issued for comment on or before March 15, 2022.

Burden of Proof
Regardless of the specific methodology eventually used to consider commercial insurance coverage in deciding whether to pay for specific procedures, the changes to CMS’ reasonable and necessary determinations are expected to reduce Medicare coverage by increasing the volume of denied claims. This in turn will put increased pressure on providers and revenue cycle management teams.

The challenge is the difficulty of proving medical necessity when the commercial insurer criterion is invoked. As the AHA pointed out in its comments on the proposed change last November, commercial payers serve a different population than Medicare and are unlikely to provide coverage of some procedures needed by older and disabled individuals. This increases the likelihood that commercial insurers will have no specific diagnosis codes for a given procedure, triggering large numbers of nondefinitive NCDs and LCDs along with additional overhead in assembling medical records and managing the associated appeals.

In addition, CMS has not yet identified commercial insurers whose policies they will use to decide whether a procedure is reasonable and necessary. Nor is there any standard rationale for defining medical necessity among commercial payers. One commercial insurer may state that a procedure is medically necessary while another may not. If CMS bases its definition on the rationale of a commercial payer that says that the procedure is not medically necessary, the otherwise payable procedure will be denied.

These challenges will be exacerbated by ongoing expansion in the number of Medicare beneficiaries. With more than 10,000 people added to Medicare rolls every day and (as of this writing) congressional Democrats and the Biden Administration considering proposals to lower the Medicare eligibility age, there will be more visits by Medicare patients, more medical charts to code, and less time to choose codes to the highest level of specificity unless medical billing companies add staff. It’s a perfect storm destined to tie up even more claims in the denial and appeals processes.

Revenue Leakage
The other major ramification of the reasonable and necessary change involves delayed reimbursements. This issue can be traced to the greater number of claims likely to require additional documentation to prove medical necessity as well as an increase in the number of denials funneled through the appeals process.

Denied claims are one of the top areas of revenue leakage for revenue cycle management teams. Most hospitals deal with denial rates of between 1.38% and 5.07% of claims on first submission. It’s important to note that the rate of denials has been increasing over the past few years. Costs not only include the delayed or lost revenue from the initial denial but also the expense of reworking and resubmitting the claim, which drains resources that could be spent on other revenue-generating tasks.

The additional claim denials and appeals generated by the new CMS rule can be expected to worsen the problem and further increase providers’ accounts receivables. In cases where a provider tries to bill beneficiaries for services for which they have obtained an advanced beneficiary notice, difficulties in collecting from the patient will cause more delays.

The revised reasonable and necessary definition raises other concerns, including questions about the integrity of the adjudication process given that there is no insight into the factors that commercial insurers use to make coverage determinations. The overall repercussions won’t be known until the final details are set in stone and applied when processing Medicare claims. But unless CMS removes the commercial insurer consideration from the equation altogether, there will inevitably be a degree of disruption. All of us in the revenue cycle management world will be watching.

— Muthukumar Padmanabhan, CRCP, is a training manager and certified revenue cycle professional with Omega Healthcare, a provider of outsourced revenue cycle management services.