CMS Defines “Reasonable and Necessary” Medicare Coverage

January 15, 2021 - CMS has codified how it defines “reasonable and necessary” coverage for items and services that may be covered under Medicare Parts A and B in a new final rule.

The rule finalized on Jan. 12 updated the definition on the record and applies the definition to National Coverage Determinations and other coverage decisions.

The definition has three main elements, according to the final rule, including that an item or service 1) be safe and effective, 2) not experimental or investigational, and 3) appropriate for Medicare patients.

The codified definition is similar to the one currently published in Chapter 13 of the Medicare Program Integrity Manual, CMS stated in an announcement.

The agency believes the codification of the definition will “bring clarity and consistency” to the coverage determination processes for items and services covered by Parts A and B.

CMS and Medicare Administrative Contractors (MACs) have traditionally determined whether items and services are reasonable and necessary on a case-by-case basis, accounting for clinical appropriateness of claims, or through local and national coverage policies, such as Local Coverage Determinations (LCDs) and National Coverage Determinations (NCDs).

The final rule also stated that CMS will consider coverage for items and services that have insufficient evidence to meet the appropriateness criteria “to the extent the items or services are covered by a majority of commercial insurers.”

CMS plans to issue draft sub-regulatory guidance on how it will determine what commercial insurers to consider for national and local coverage determinations in these situations. The agency did say it will base its decision on the “measurement of majority of covered lives.”

The final rule, which takes effect on March 15, also established a new Medicare coverage pathway for medical devices considered “breakthrough” by the Food and Drug Administration (FDA). The pathway will provide national Medicare coverage for the devices as early as the same day as FDA market authorization and that coverage will last for four years, CMS said.

The American Hospital Association (AHA) expressed concern with CMS’ push to consider coverage in the commercial health insurance market when making Medicare coverage determinations. In comments on the proposed rule in November 2020, the hospital group said the approach could reduce coverage in Medicare and transparency in coverage determinations.

At the time, the rule proposed to codify the Medicare Program Integrity Manual’s definition of “reasonable and necessary” with a modification to the appropriateness factor to allow CMS to refer to commercial coverage.

The rule stated that for an item or service to meet the appropriate criteria, it would need to be:

• Furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member;
• Furnished in a setting appropriate to the patient’s medical needs and condition;
• Ordered and furnished by qualified personnel;
• One that meets, but does not exceed, the patient’s medical need; and
• At least as beneficial as an existing and available medically appropriate alternative; OR

• Covered by commercial insurers, unless evidence supports that differences between Medicare beneficiaries and commercially insured individuals are clinically relevant.

In the final rule, CMS did not replace the appropriateness criteria completely and addressed the concern by offering to release guidance later on about how it will determine when and how commercial coverage will be relevant to an item or service’s coverage in Medicare.

To view the complete definition and final rule, click here.