Medical Necessity

Coding is an abbreviated way to tell the insurance company a story about the patient in order to request reimbursement or payment for services rendered. The story that you tell to the insurance is VERY important. Like any story you ever read, the story we tell to the insurance has to make logical sense.  Accordingly, it needs a beginning or  ‘why it was done’ and an ending or ‘what was done’. The ‘what was done’ has to be a logical solution for the why it was done.

For example, here is a plain language story that makes sense: I have a headache, so I took Advil. The ‘why’ is my headache. The ‘what was done’ is that I took Advil.

Now, let’s look at the same example that doesn’t make sense. I have a headache, so purple unicorns flew me to never-never land. That’s foolish, right? Exactly. That is the basis for one on the most important parts of medical billing and coding. I fancy terms, we call this medical necessity.

ICD-9 codes (diagnosis) are used to explain why a patient sought treatment by a physician and CPT detail the treatment provided. The diagnosis (ICD-9) or the reason for the visit must justify the procedure (CPT) performed. This is called medical necessity. Think of it this way: a doctor wouldn’t cut off a patient’s finger if their toe was infected (at least we hope not!). From a billing stand point a toe infection wouldn’t justify medical necessity of a finger amputation. Unfortunately, it is not always that easy. Many times the differences are not obvious to a non-physician.

Insurance companies have guidelines (rules) in place for CPT and ICD-9 linkage and many offer references on their web sites for selecting the best coding combination. If the specific carriers do not have guidelines readily available the best reference site is your local Medicare or CMS (Centers for Medicare and Medicaid Services). Once on the web site, look for a coding link or one that says LCD (local coverage determinations) or NCD (National Coverage Determinations). The LCD policies spell out code usage, documentation guidelines and very often list the applicable diagnosis codes for each procedure.

As an example, check out the following Medicare web site at (NGS Medicare). The Medicare web sites also offer a link to the NCD (national coverage determinations) which are the coding guidelines created and maintained by CMS on a national level. NCD is also a good resource containing valuable coding information, but often they do not have the ICD-9 codes listed.  Although coding help is available, it is fraudulent to assign a diagnosis on this basis alone. The physician must be the one to choose the patient’s diagnosis based on their findings and use the LCD for correct linkage when you are not sure or to follow up on a medical necessity denial. If you have received a medical necessity denial show the doctor the LCD and ask for clarification.

Several times I have referred to ICD-9 and CPT linkage and code order and I feel that this needs a little something more. So we will begin now to slowly introduce the form used in paper medical billing. Today, most billing is done electronically; however, learning the CMS 1500 form, is the best way to get a tangible understanding of medical billing. 

Look at the example below, the picture is a portion of a CMS 1500 form. The locations for ICD-9 are circled in red. The CPT area is circled in green.

First note the ICD-9 code section (box 21). The first location (location #1) is important. It must always be the “primary diagnosis code”. You should not have supporting diagnosis in the first field. For example, a patient sees the doctor for pneumonia, as a result of the pneumonia the patient is suffering from congestion. The primary diagnosis is always going to be the overall reason for the visit, in this case pneumonia. Congestion is a supporting diagnosis. The diagnosis codes are listed box 21 first and then there is a linkage index (box 24E) next to each of the 6 available service lines (box 24D).

In box 24E, the linkage index, you would list the location  of the ICD-9 to be linked to the service indicated on each service line. To better understand that look again at box 21. See how each of the spaces are numbered 1,2,3,4 – those numbers (1,2,3,4) are the ‘location’.

Now, let’s look at how it looks completed with CPT, ICD-9, and the linkage index or pointer:

HCPCS, just like CPT, require a valid ICD-9 linkage. The ICD-9 states the reason for needing the supply or service and the CPT or HCPCS state the service performed or the supply used/given. CPT and HCPCS are sometimes used at the same time to tell the whole story. CPT and HCPCS can share diagnosis codes and be billed on this same claim form. A good example of a CPT, HCPCS and ICD-9 claim would be for an injection. When a patient has an injection there is the CPT service of administration (sticking the needle in to the patient) and the HCPCS to describe the actual medication or vaccination what was administered.  

Here is something from Medicare that may help you to get a good understanding of the CMS 1500 form: 1500 form at a Glance

To review the while 1500 form follow this link: CMS 1500 Form

Lastly, you can learn more about medical necessity from this Medicare site: Medical Necessity