Medicare provides coverage for millions of Americans, but not every service prescribed by a physician is automatically covered. Coverage decisions are governed by federal statutes and administrative policies designed to ensure Medicare funds are spent only on medically appropriate and effective services. Understanding the specific rules that determine reimbursement is essential, as coverage can vary significantly depending on the patient’s location and the nature of the service. These eligibility policies are often determined at the local level, which leads to regional variations in covered care.
Defining Local Coverage Determinations
A Local Coverage Determination (LCD) is a formal policy defining the circumstances under which a specific item or service is covered by Medicare within a defined geographic area. LCDs ensure that Medicare only pays for services that are “reasonable and necessary” for the diagnosis or treatment of an illness or injury, a standard established in the Social Security Act.
The LCD specifies the criteria, such as diagnosis codes (ICD-10) or procedure codes (CPT/HCPCS), required for reimbursement. For instance, an LCD might detail frequency limits for a diagnostic test or require specific clinical documentation. If a service is performed outside the criteria outlined in the relevant LCD, Medicare may deny the claim because the service is considered not medically necessary.
The Role of Medicare Administrative Contractors
Local Coverage Determinations are created and enforced by private companies known as Medicare Administrative Contractors (MACs). The Centers for Medicare & Medicaid Services (CMS) contracts with MACs to manage and process Medicare Part A and Part B claims within specific geographic regions, called jurisdictions. Each MAC is responsible for its designated jurisdiction and acts as the primary operational contact between the federal Medicare program and healthcare providers.
MACs establish LCDs to fill gaps where national policy is silent or requires local interpretation. This allows the MAC to tailor coverage rules to regional variations in medical practice and population health needs. Besides creating these policies, MACs process claims, determining payment based on compliance with the applicable LCD. They also provide education and guidance to providers regarding billing requirements.
LCDs Versus National Coverage Determinations
Medicare coverage rules exist within a hierarchy, with National Coverage Determinations (NCDs) sitting above LCDs. An NCD is a mandatory policy established by CMS that applies uniformly across the entire country. NCDs detail whether Medicare will cover a specific medical item or service nationwide and under what general conditions.
An LCD is only developed and applied when an NCD does not exist for a particular service or when the NCD allows for regional discretion. MACs must adhere to NCDs, and any conflicting LCD is overruled by the national policy. LCDs primarily serve to provide clarification, add specific documentation requirements, or establish coverage for newer technologies. Due to their regional nature, a service covered by an LCD in one jurisdiction might not be covered in another.
How LCDs Affect Claims and Coverage
The requirements of an LCD have a direct impact on both beneficiaries and healthcare providers. Providers must ensure that billed services meet the specific criteria, including required diagnosis and procedure codes, outlined in their MAC’s LCD. Failure to align a claim with the terms of an applicable LCD will likely result in denial by the MAC, shifting financial responsibility to the patient.
To protect beneficiaries from unexpected costs, Medicare requires providers to issue an Advance Beneficiary Notice of Noncoverage (ABN) when a service is expected to be denied based on an LCD. The ABN informs the patient that Medicare may not cover the service because it is not medically necessary, advising them of potential financial liability. Signing the ABN before receiving the service means the patient acknowledges the risk and agrees to pay the provider if Medicare denies the claim.
Current LCDs and associated billing articles can be located through the Medicare Coverage Database (MCD) maintained by CMS. If a claim is denied based on an LCD, the beneficiary has the right to request a reconsideration and appeal the MAC’s decision. This appeal process allows for a formal review of the claim and the application of the LCD to the patient’s specific medical circumstances.