In order for Medicare and Medicare contractors to cover medical services and items, the item or service must be medically necessary for the diagnosis or treatment of an illness or injury.[1]  Two options are now available for determining whether or not a service will be covered.  The first is to receive the service and submit the claim to Medicare.  The second option, newly in place, allows beneficiaries and physicians to request a prior determination of coverage for certain services and items.

When a beneficiary seeks an item or service that a physician thinks might not be covered by Medicare, the physician provides an Advance Beneficiary Notice (ABN) to the beneficiary.  The ABN informs the patient of the details of the service sought, explains that Medicare might not pay for the service, and makes an estimation of the cost of the service.  While the ABN allows the beneficiary to make a more informed decision about whether or not to receive the service, there is no way of knowing whether Medicare will pay for the service until the service has been received and a claim submitted.  A beneficiary who is given an ABN could receive the service or item and ask the doctor to submit the claim to the Medicare carrier.  If the claim is denied, the beneficiary can appeal through the appeals process. 

The Medicare Modernization Act of 2003 authorized the Centers for Medicare & Medicaid Services (CMS) to create a process that allows beneficiaries to get a decision about Medicare coverage prior to actually receiving the service.  In August of 2005 CMS published a proposed rule for the process by which a prior determination could be requested.[2]

On February 22, 2008 CMS published the final rule regarding prior determination of coverage for certain medical services and items.[3]  The rule creates a process by which a beneficiary can ask his or her Medicare contractors about the coverage and cost of certain services and items before they receive the expensive service.  The rule retains the ABN process, and places limits on the physicians' services for which prior determination may be requested.  Beneficiaries who have received an ABN, and service-providing physicians acting on behalf of beneficiaries, may request a prior determination of coverage.  A physician failing to issue an ABN or request prior determination for a service that he should have known would not be covered by Medicare may be financially liable for the service, if the beneficiary did not know that the service was not covered.

The final rule limits prior determination requests to physicians' services with the highest average allowed charges that are performed at least fifty times annually, and plastic and dental surgeries that have an amount of at least $1,000 in the Medicare Physician Fee Schedule.  While the proposed rule limited the number of eligible services to fifty, CMS removed that restriction in response to comments, allowing CMS to expand and contract the number as seen fit.  CMS rejected taking denial rates into account when determining which services are eligible for prior determination because denial rates are contractor specific.  CMS claims three reasons for placing a limit on physicians' services based on the price of the service, and including plastic and dental surgeries:

• Beneficiaries are less likely to obtain the most expensive services when uncertainty exists as to their own financial liability if Medicare does not pay for the service;
• Since most of the services are non-emergency in-patient surgical procedures, beneficiaries have adequate time to request a prior determination; and
• Limiting prior determination to certain services reduces strain on administrative resources.

Any favorable prior determination by Medicare is binding upon Medicare contractors. A beneficiary who receives a favorable prior determination may have the service, and the claim will be paid.  If a beneficiary receives a prior determination denying coverage, the beneficiary has no appeals rights with respect to that prior determination.  The beneficiary may, however, still receive the service or item and submit the claim to Medicare.  When the claim is denied, the individual can appeal through the regular appeals process.  An individual who does not seek prior determination can also receive the service, submit his or her claim, and appeal through the appeals process now in place if the service is denied.

Contractors must mail the requester the final decision no later than forty-five days following the determination request.  The rule instructs contractors to consider the beneficiary's physical condition, the urgency of the service, and the availability of documentation in the speed of responding to the request.  If a Local Coverage Determination (LCD) or National Coverage Determination (NCD) provides specific information regarding coverage of services, the NCD/LCD can serve as the prior determination. 

As required by the new rule, each contractor must post the list of eligible services for prior determination on the contractor's website.  The list of such services will also be available from 1-800-MEDICARE and at www.medicare.gov.  While the rule went into effect on March 24, 2008, neither 1-800-Medicare nor www.medicare.gov had a list of eligible services available as of April 3, 2008.