Laboratory Compliance

Medical Necessity

The Centers for Medicare and Medicaid Services (CMS) is responsible for administering Medicare and other federally mandated healthcare programs throughout the United States. Medicare laws prohibit payment for services and items deemed by local Medicare Carriers as not medically reasonable and necessary for the diagnosis or treatment of an illness or injury. In such cases, documentation of "medical necessity" is required before a claim may be paid. Medicare, with a few excepts, will not pay for routine checkups or screening tests; defined as "diagnostic procedures performed in the absence of signs or symptoms."

To comply with these new guidelines, physicians should:

  1. only order tests that are medically necessary in diagnosing or treating their patients;
  2. be certain to enter the appropriate and correct ICD-9 code in both their patient files and on the test request forms; and
  3. always have their patients sign and date an Advance Beneficiary Notice if they believe that the service is likely to be denied.

Local Coverage Determinations (LCD)

To ensure that services being paid for by the Medicare program are medically necessary, CMS directed its Medicare carriers to establish policies - often referred to as Local Coverage Determinations (LCDs) or Limited Coverage tests - identifying laboratory tests and procedures that require additional medical necessity documentation before the laboratory can be reimbursed. LCDs outline how carriers will review claims to determine if Medicare coverage requirements have been met. National Coverage Determinations (NCDs) have been established by CMS to identify 23 laboratory tests that require additional medical necessity documentation for 66 different CPT codes and ICD-9 codes that are acceptable for each of these tests. LCDs are required to be consistent with National Coverage Determinations.

LCDs can be obtained from the local Medicare Carrier, Novitas Solutions, website, or from the CMS Lab NCD page.

NCDs are contained in the Medicare National Coverage Determinations Manual.

When PCS receives a requisition without an ICD-9 code or diagnosis narrative for a limited coverage test, the lab will contact that physician's office to obtain the missing information or ask for a copy of a properly executed ABN. A properly executed ABN or the ICD-9 code will permit the laboratory to bill and receive payment.

Advance Beneficiary Notice (ABN)

When a physician/provider believes that a test or procedure may not meet medical necessity guidelines, an ABN notifying the patient of Medicare's possible denial of payment must be given the patient. Patients must be notified before the test is ordered, that payment might be denied by Medicare; the patient can then decide if he or she wants the tests performed and accepts responsibility for payment. Without a valid ABN, the laboratory is prohibited from billing the patient for the services provided.

An acceptable ABN must meet the following criteria:

  • The notice must be given in writing, prior to testing or procedures being provided.
  • The notice must include the patient's name, date and description of test/procedure, and the reason(s) the test/procedure may not be considered medically reasonable or necessary and therefore, may be denied.
  • The patient must be asked to sign and date the ABN each time a service is provided, indicating that he or she accepts financial responsibility for payment of the services provided should Medicare deny payment.