Compliance Guide
Medical Necessity Explained: NCDs, LCDs, ABNs and Documentation
What 'reasonable and necessary' means under Medicare, how NCDs and LCDs define coverage, when an ABN is required, and how coding and documentation support medical necessity.
In this article
Medical necessity is the question payers ask before they pay: was this service appropriate for this patient's condition? For Medicare, the starting point is the Social Security Act, which generally excludes payment for items and services that are not "reasonable and necessary" for the diagnosis or treatment of illness or injury. Other payers use their own definitions, usually in the member contract and medical policies.
How does Medicare define coverage?
| Tool | Issued by | Scope |
|---|---|---|
| National Coverage Determination (NCD) | CMS | Applies nationwide to Medicare |
| Local Coverage Determination (LCD) | Medicare Administrative Contractor (MAC) | Applies within that MAC's jurisdiction |
| Billing and Coding Article | MAC | Lists codes and billing instructions that accompany an LCD |
Where an NCD exists, it controls. Where there is no NCD, an LCD may define coverage criteria locally — so the same service can have different documentation requirements in different MAC jurisdictions. All of these are searchable in the Medicare Coverage Database.
How do diagnosis codes relate to medical necessity?
Diagnosis codes communicate why a service was performed. Many coverage policies list ICD-10-CM codes that support medical necessity for a service. But a covered diagnosis code is not proof of medical necessity — the documentation must support it.
What is an ABN?
The Advance Beneficiary Notice of Noncoverage (ABN), form CMS-R-131, is given to an Original Medicare beneficiary before a service when the provider expects Medicare may deny it as not reasonable and necessary (or under certain other exclusions). A properly delivered ABN allows the provider to bill the beneficiary if Medicare denies the claim.
Common modifiers associated with ABNs:
- GA — a required ABN is on file
- GZ — an ABN was expected to be required but was not obtained
- GX — a voluntary ABN was issued for a statutorily excluded service
ABNs cannot be used routinely or blanket-signed for every patient; they must be specific to the service and the reason denial is expected.
Practical steps
Key takeaways
Source
CMS — Medicare Coverage Database
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Additional references
Medical coding trainer and author with more than 22 years of experience, an AHIMA Approved ICD-10 Trainer, and the managing editor of MedicalCodingUpdates.com.
Educational information only. Verify coding decisions against current official guidelines, code sets and applicable payer policies. Read the full disclaimer.
