Coding for evaluation and management services must be supported by the medical necessity of the services provided; services must be appropriate to the patient’s condition.
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AAOS Now

Published 9/1/2014
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Mary LeGrand, RN, MA, CCS-P, CPC

Medical Necessity ≠ Medical Decision Making

E&M code selection depends on understanding the difference

When coding evaluation and management (E&M) services, coders—including physicians—may experience some confusion related to the terms “medical necessity” and “medical decision making.” The two terms are not synonymous for the purpose of selecting E&M codes, and failure to understand the difference between them can lead to incorrect coding of E&M services, as well as cause problems in physician education and billing audit services.

Any service reported to a payer—whether a surgical service, radiologic test, cast application, or E&M service—must be supported by medical necessity. Medical necessity simply means that the diagnosis documented merits the level of investigation and treatment administered to the patient. For instance, it would not be appropriate to perform a level 5 E&M service for a simple ankle sprain because it is simply not medically necessary. Medical necessity is typically communicated to the payer for E&M services using diagnosis codes and is not as well defined for E&M services as it is for surgical procedures.

On the other hand, medical decision making is used to describe the amount of effort the physician must exert to decide how to treat the patient. Medical decision making is well defined in the E&M guidelines. It includes documentation of the following:

  • data reviewed or tests ordered
  • the number of diagnosis and/or management options and the risk of morbidity or co-morbidity associated with the presenting problem
  • diagnostics ordered or treatment options

Selection of the appropriate E&M level of service is based on the category of code (eg, new versus established, initial hospital care versus subsequent hospital care) and the rules related to the key components. The Centers for Medicare & Medicaid Services (CMS) has identified history, examination, and medical decision making as key components for selecting the appropriate level of E&M service. Quantifying the level of medical decision making is often confusing for physicians.

History, examination, and medical decision making are not the only means to substantiate a level of E&M service. Visits that consist predominantly of counseling and/or coordination of care are an exception to this rule. For these visits, time is the key or controlling factor to qualify for a particular level of E&M service.

The amount of history, the extent of the exam, and the level of medical decision making should be based on the problem, the patient’s general condition, the results of the physical exam, and the “work-up,” which includes diagnostic radiologic or laboratory testing, therapy, or therapeutic interventions. The concern is that modern electronic health record (EHR) systems generate a voluminous record for each E&M visit, but most of the information is irrelevant to the diagnosis and does not justify billing a high-level E&M code. Payers and auditors understand this.

Defining medical necessity
Medical necessity for E&M services is not clearly defined in National Coverage Determinations (NCDs), Local Medicare Review Policies (LMRP), or private payer policies. CMS typically defines “medical necessity” in this way: “Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed. Documentation should support the level of service reported.”

For example, a patient with an ankle sprain returns for a follow-up visit. The patient has a negative medical and surgical history and states that the pain lessened following physical therapy. The note includes a 12-point review of systems and a multisystem exam as part of a template documented in every note. Although such extensive documentation has the potential to increase the level of service, medical necessity for an ankle sprain may not support the exam and complete review of systems.

Similarly, medical necessity would not support a complete multisystem exam for a patient who is seen in consultation specifically for carpal tunnel syndrome, particularly in the absence of prescribing medications, ordering invasive tests, or making a decision for surgery.

Autopopulation of electronic records may also be problematic, especially if no one bothers to update the surgical history for a patient who is 6 months postop for a total joint replacement. The risk is that the physician states that he or she has reviewed the information and there are no changes, despite a major change in surgical history that was not noted.

Despite Medicare’s definition of medical necessity, it is not unusual to see so-called ‘auditing’ manuals and countless electronic health record (EHR) vendors selling systems based on “counting bullets to achieve a higher code level.” Instead of making documentation seamless, some EHR systems have created monsters, and physicians do not have time to edit and change what is already in the system.

Medical necessity cannot be quantified using a point or bullet system. Determining it involves several factors and varies from patient to patient. Medicare defines medical necessity as “Healthcare services or supplies needed to prevent, diagnose, or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.”

Medical decision making
Some hospitals and large medical groups have created internal compliance policies that require medical decision making to be a contributing component for selecting the established patient visit levels of service. This is an internal audit compliance decision and must not be confused with coding rules and code selection. A better option is to ensure that physicians and nonphysician providers understand how to use the EHR system and avoid autopopulation of notes without customizing to reflect current conditions and the work performed.

Recently, the Office of Inspector General (OIG) reported on improper payments by Medicare for E&M services. The report noted that “Physicians’ documentation must support the medical necessity and appropriateness, as well as the level, of the E&M service.” In reviewing the claims, the OIG used three certified coders and retained a registered nurse to “assist with determinations on whether documentation supported medical necessity.”

During audit services or coding services, the clinical relationship is significant and used to identify when the documentation associated with the problem, exam findings, or medical decision making does not support the level of service reported. This is where the key component of medical decision making and the concept of medical necessity cannot be confused. Medical decision making involves choosing a level of service based on the documented effort the physician expends in deciding a course of treatment. Medical necessity involves documentation that the patient’s condition actually needed the treatment.

The point is to avoid payment denials or clawbacks that could result from a review of E&M records and a finding that they fail to substantiate either medical necessity for a condition or the level of medical decision making based on the actual physician effort in managing a diagnosis. The physician is lulled into a sense that the multipage record of a visit will justify a high level of E&M billing for a visit. But the fact is that most of the record is simply irrelevant to the treated diagnosis. The following are some suggestions for staying out of trouble.

Action steps

  • Audit consecutive patient visit notes and review what information may be automatically documented in each note with little or no relevance or changes.
  • Examine how the EHR was implemented and what instructions were given to providers.
  • Remove templates that contain information that would never have been documented prior to EHR use (eg, “appears to be breathing” to receive credit for the respiratory system). This type of documentation places the practice at risk during an audit.
  • Review instructions with staff on patient histories and review of systems; work with physicians and providers to determine relevant information for follow-up visits.
  • Use the E&M Analyzer in Code-X to determine the practice’s bell curve distribution; audit those services that are outliers.
  • Conduct an internal audit, perhaps using peer review during a physician meeting, to determine the extent of risk that exists.

Mary LeGrand, RN, MA, CCS-P, CPC, is a nationally recognized coding and reimbursement expert who has been an instructor for AAOS for more than 12 years. This article has been reviewed by members of the AAOS Coding, Coverage, and Reimbursement Committee.