How to Prevent Medicare Claim Denials Due to Medical Necessity

Medical necessity is one of the top reasons for Medicare claim denials through the Recovery Audit Contractor program. To date, CMS has collected over $500 million in overpayments through Medicare RACs. According to the American Hospital Association's May 2011 RACTrac survey, 84 percent of hospitals with complex denials cited medical necessity as a reason for denial, and most medical necessity denials for care provided in the wrong setting were for one-day stays. In addition, recent data from CMS showed that medical necessity for renal and urinary tract disorders was the top issue for Region A and medical necessity for minor surgery and other treatments billed as inpatient services was the top issue for Region D.

The significant cost in dollars, staff and time of claim denials makes medical necessity errors very risky for hospitals. Irene Barron, nTelagent COO and product management officer, explains how hospitals can prevent denials due to medical necessity and thus avoid one of the biggest ways CMS collects overpayments.


In a recent webinar, Ms. Barron listed medical necessity as one of the top five ways hospitals lose accounts receivable at the point of service. In contrast, resolving medical necessity issues prior to or at the point of service is key to preventing claim denials. "A lot of [hospitals] are doing it after the fact or not at all," she says. By attending to medical necessity prior to a service being rendered, hospitals can identify potential problems before they send out claims and receive denials.

One of the reasons hospitals do not capture medical necessity information at the point of service is a lack of awareness and education on the part of physicians and hospital staff. It is important for physicians to provide adequate medical necessity documentation and for hospital staff to confirm medical necessity based on these documents in order to collect appropriately. In addition, hospitals need to provide the staff with the appropriate tools to quickly and accurately note the medical necessity for each patient and communicate with the patient. Equally important is educating and communicating with physicians regarding the role they play in medical necessity denials. "This requires you have a tool that provides individual physician statistics that can be shared," Ms. Barron says.  

Another reason for not gathering medical necessity information at the point of care is disparate systems. Ms. Barron suggests hospitals implement real-time scripted computer programs that can guide registrars through the process of confirming medical necessity, giving patients written notification as required and collecting appropriately.

Learn more about nTelagent.

Related Articles on Medical Necessity:

5 Top Ways Hospitals Lose Accounts Receivable
Iowa Medicaid Saves More Than $23M From Integrity Initiative

RACs Collect More Than $233M in Overpayments

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