MRC135 - ICD10: Diagnostic Coding

Week 6: Medical Necessity for Healthcare Services

Medicare receives about $60 billion of false claims a year.

To learn more about the fraud and abuse program, click the link to visit, and search for “ fraud and abuse.”


The following readings will help you learn about the concepts covered this week.

Required Readings

  • Understanding Health Insurance, Chapter 10, "Coding for Medical Necessity", pp. 369-385.
  • ICD-10-CM, Draft Official Guidelines for Coding and Reporting, Section I.B

Click the link below to access the required readings.

Chapter 10

The Vocabulary of Medical Necessity

You should become comfortable with the terms related to medical necessity to understand and apply the concepts of this course. Click the link below to practice terms through interactive drag-and-drop matching.

Drag-and-Drop Matching

Medical Management vs. Medical Necessity

Medical management is a general term used to describe medical programs that use tools such as utilization management, quality management, and risk management to provide quality, cost-effective care. All of these tools involve examining patient records to determine when and how to give care (or whether care was given appropriately, if the records are being examined after discharge).

Medical necessity is a determination of whether a patient actually needs a device, service, test, surgery, or other procedure. Health insurance companies, including Medicare, will only pay for things that have been proven to be medically necessary.

The Social Security Act, Title 18, Section 1862 is the source for the definition of medical necessity for most payers (including Medicare). Click the link to see what the Act says about when services will be paid and when they will not be paid.

Social Security Act, Title 18, Section 1862

To review medical necessity from a physician’ s perspective, click the link to access the American Association of Family Physicians website, and search for “refresher on medical necessity.” Read the articles which appear.

American Association of Family Physicians

After reading the articles, consider the following questions:

  • What are the four diagnosis coding “habits” that the author recommends to address medical necessity requirements? Which of these are you most likely to adopt?
  • How is a doctor’s perspective on coding different from yours? How does this affect your coding?

Correct Coding to Avoid Fraud

Correct coding helps to ensure payment from insurance companies, who review whether the diagnosis code (the reason for the service) matches the procedure, device, or other code. So when you code a case, your coding must make a clear connection between the diagnosis and what was done as a result. If your coding is unclear, the claim might be rejected because it appears to have been medically unnecessary.

You cannot code what you do not see in the documentation. So it is important for you to ensure that you fully understand the documentation in the patient file, and that the documentation fully supports the diagnosis and other codes. If you code more than you see just so that you can make a case for medical necessity, that is fraudulent.

In 2010, the federal government won $2.5 billion in health care fraud judgments and settlements. Many of these cases involved medical necessity. Click the link to read the government’s Health Care Fraud Report from 2010.

Health Care Fraud Report 2010

Consider this report in light of your reading of the ICD-10-CM General Coding Guidelines.

  • What effect does proving medical necessity have on fraud?
  • What can you as a coder do to prevent this kind of fraud in your workplace?
  • Have you ever been pressured to code something you were not comfortable coding, or change documentation yourself (which is unethical and fraudulent)? What did you do?

If you wish, you can share your ideas in the Questions Forum.

Advance Beneficiary Notice of Noncoverage

An Advance Beneficiary Notice of Noncoverage (ABN) is a document that lists services that providers recognize Medicare might not consider medically necessary (and therefore might not pay for). When patients sign an ABN, they are agreeing to pay for the service even if their insurance does not.

Click the link to see an Office of Management and Budget (OMB)-approved ABN form, called the CMS-R-131.


The government provides instructions about how to use the form. These instructions give you a sense of the kinds of things you should look for as you code your cases and look for medical necessity. Click the link to see instructions about how to use the ABN form.

CMS-R-131 Instructions

After reviewing the instructions and form, consider the following questions:

  • Why is it important for coders to recognize ABNs in the patient record?
  • How are ABNs used in coding and billing? Where have you seen them in patient records, and what did you do about them?
  • When should a patient receive an ABN—before or after the services recorded on the ABN? Why?

Feel free to share your answers or any other questions you might have with others using the Questions Forum.

Championship Game

To help you remember the terms and concepts you have read about, play Championship. Note that this game covers all the material in the chapters you read, not just your required readings. Feel free to use your book as a reference as you play.

Championship is a multiple-choice game. Finish all the questions and see how much money you can win!

  1. Click the link below to play Championship.
  2. When you are asked whether you are playing on your own or against an opponent, click On Your Own.
  3. Enter your first name (no more than 10 characters) and click Continue.
  4. Select the difficulty of the question by clicking on a dollar amount, and answer the question. If you are correct, you receive the dollar amount of the question; if you are incorrect, you lose the dollar amount.
  5. For further instructions on how to play Championship, click the Instructions button in the window.

Championship Game

Coding for Medical Necessity

As you complete your required readings, you will see exercises throughout your textbook. These exercises give you practice on the steps you will need to follow to properly code patient encounter information. They also prepare you for the graded Coding activities.

Complete the following practice exercises found throughout Chapter 10 in your text:

  • Exercise 10-1 (all)
  • Exercise 10-2 (all)
  • Exercise 10-3, nos. 1-3
  • Exercise 10-5, only diagnoses, nos. 1-3

Then click the link to compare the answers to your own work.

Exercise Answers