Medicare Part B: Regional Variation in Denial Rates for Medical Necessity
(Letter Report, 12/19/94, GAO/PEMD-95-10).

To determine whether Medicare carriers in various parts of the country
differed significantly in denying coverage for medical treatment they
consider unnecessary, GAO analyzed Medicare Part B data on claims
processed by six Medicare carriers for 74 services that were either
expensive or heavily used.  The carriers GAO studied included California
Blue Shield, Transamerica Occidental Life Insurance, Connecticut General
Life Insurance Company, Blue Shield of South Carolina, Illinois Blue
Cross and Blue Shield, and Wisconsin Physicians' Service.  GAO found
that the magnitude of carrier denial rates for Medicare Part B claims
was generally low and persistent for two consecutive years, although
rates for some services shifted.  Medical necessity denial rates for 74
services across six carriers varied substantially.  The main reason was
that some carriers used computerized screening criteria for specific
services while others did not.  Further, a small proportion of the
providers accounted for half of the denied claims.  To a lesser degree,
the varying interpretation of national coverage standards across
carriers, differences in the way carriers treated claims with missing
information, and reporting inconsistencies also explained the variation
in carrier denial rates.  GAO summarized this report in testimony before
Congress; see: Medicare Part B: Factors That Contribute to Variation in
Denial Rates for Medical Necessity Across Six Carriers, by Terry E.
Hedrick, Assistant Comptroller General for Program Evaluation and
Methodology, before the Subcommittee on Regulation, Business
Opportunities, and Technology, House Committee on Small Business.
GAO/T-PEMD-95-11, Dec. 19, 1994 (17 pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  PEMD-95-10
     TITLE:  Medicare Part B: Regional Variation in Denial Rates for 
             Medical Necessity
      DATE:  12/19/94
   SUBJECT:  Claims processing
             Claims settlement
             Medicare programs
             Evaluation criteria
             Health care cost control
             Insurance companies
             Medical expense claims
             Health care services
             Beneficiaries
             Medical information systems

             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Regulation, Business
Opportunities, and Technology, Committee on Small Business, House of
Representatives

December 1994

MEDICARE PART B - REGIONAL
VARIATION IN DENIAL RATES FOR
MEDICAL NECESSITY

GAO/PEMD-95-10

Medicare Part B


Abbreviations
=============================================================== ABBREV

  CWF - Common Working File
  HCFA - Health Care Financing Administration
  MCM - Medicare Carriers Manual
  NCH - National Claims History
  PSA - Prostate specific antigen

Letter
=============================================================== LETTER


B-257799

December 19, 1994

The Honorable Ron Wyden
Chairman, Subcommittee on
 Regulation, Business Opportunities,
 and Technology
Committee on Small Business
House of Representatives

Dear Mr.  Chairman: 

You asked us to assess whether there are significant differences
among carriers in denial rates for lack of medical necessity for
Medicare Part B claims and to identify factors that contribute to
intercarrier variations.  Carrier differences in the treatment of
claims denied for reason of medical necessity is an important issue,
one that has implications for the appropriate management of Medicare
program expenditures as well as the consistency of treatment of
providers and beneficiaries. 

In response to your request, we analyzed 1992 and 1993 Medicare Part
B data on claims processed by six Medicare carriers for 74 services
that were either expensive or heavily utilized.  We computed denial
rates for services that carriers determined to be not medically
necessary.  This report presents the results of our analysis of these
denial rates and identifies and examines five factors that
contributed to the observed rate differentials among the six
carriers. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although denial rates for lack of medical necessity for 74 expensive
or heavily utilized services were generally low, there were
substantial variations across the six carriers we examined.\1
Moreover, these variations were persistent for most services from
1992 to 1993, even though the denial rates for some specific services
may have increased or decreased.\2 Five factors help explain carrier
variations in denial rates.  For one, they stemmed primarily from
carriers' differing prepayment screens--that is, some carriers
screened specific services while others did not, and those that
screened the same service used different criteria.  For another, only
5 percent of providers accounted for 50 percent of the denied claims. 
Three other factors were the varying interpretation of certain
national coverage standards across carriers, differences in the way
carriers treated claims with missing information, and reporting
inconsistencies. 


--------------------
\1 The following six carriers were included in this study: 
California Blue Shield (jurisdiction:  Northern California),
Transamerica Occidental Life Insurance (jurisdiction:  Southern
California), Connecticut General Life Insurance Company
(jurisdiction:  North Carolina), South Carolina Blue Shield, Illinois
Blue Cross and Blue Shield, and Wisconsin Physicians' Service. 

\2 See U.S.  General Accounting Office, Medicare Part B: 
Inconsistent Denial Rates for Medical Necessity Across Six Carriers,
GAO/T-PEMD-94-17 (Washington, D.C.:  March 29, 1994). 


   MEDICARE COVERAGE CRITERIA
------------------------------------------------------------ Letter :2

In accordance with section 1842 (42 U.S.C.  1395u) of the Social
Security Act, the Health Care Financing Administration (HCFA)
contracts with 32 insurance carriers to process and issue benefit
payments on claims submitted under Medicare Part B coverage. 
Carriers are required to process claims in a timely, efficient,
effective, and accurate manner.  During fiscal year 1993, carriers
processed about 576 million Part B claims submitted by about 780,000
physicians and 136,000 suppliers. 

Section 1842 of the Social Security Act provides that carriers pay
only for services that are covered and that they reject a claim if
they determine that the service was not medically necessary.  In
fiscal year 1993, carriers denied 112 million Part B claims in whole
or in part (19 percent of all claims processed) for a total of $17
billion in denied claims (which represented 18 percent of all billed
charges, a figure unchanged from the previous year).  Services deemed
not medically necessary constituted about 9 percent of the dollar
amount denied by carriers.  A claimant (provider or beneficiary) who
is dissatisfied with a carrier's claims decision has the right to
appeal. 

Although most claim denials are the result of routine administrative
checks made during claims processing (for example, denials for
duplicate claim submissions or ineligible claimants), a significant
portion of denials are the result of coverage determinations. 
Coverage under Medicare is determined by three criteria:  Medicare
law, national coverage standards developed by HCFA, and local
coverage standards developed by individual carriers. 

According to section 1832 (42 U.S.C.  1395k) of the Social Security
Act, Medicare Part B covers a wide range of health services, such as
physician services, outpatient hospital services, the purchase of
durable medical equipment, prosthetic devices, and laboratory tests. 
At the same time, the act limits or excludes certain services:  It
places limits on podiatric, chiropractic, and dental services and
specifically excludes some categories of service, such as routine
physical checkups and cosmetic surgery.  Medicare law is best viewed
as a framework for making coverage determinations:  It is not, as
HCFA has observed, "an all-inclusive list of specific items,
services, treatments, procedures or technologies covered by
Medicare."\3

Recognizing that the law could not anticipate all possible coverage
issues, the Congress provided the following guidance to HCFA for
making decisions: 

     "Notwithstanding any other provisions of this title, no payment
     may be made under part A or part B .  .  .  for any expenses
     incurred or items of services .  .  .  which .  .  .  are not
     reasonable and necessary for the diagnosis or treatment or
     illness or injury or to improve the functioning of a malformed
     body member."\4

For a service to be covered, it must meet

     "a test of whether the service in question is `safe' and
     `effective' and not `experimental'; that is, whether the service
     has been proven safe and effective based on authoritative
     evidence, or alternatively, whether the service is generally
     accepted in the medical community as safe and effective for the
     condition for which it is used."\5

Although carriers make most coverage decisions, HCFA has set national
coverage standards for some specific services, the guidelines of
which are found in the Medicare Carriers Manual, the Medicare
Coverage Issues Manual, and other program publications.\6 Where HCFA
has issued a national coverage decision, carriers are expected to
enforce it.  Although national coverage standards are for the most
part straightforward, some standards may require clarification or
interpretation.  In such instances, carriers are advised to consult
with a HCFA regional office, which may in turn ask the HCFA central
office for guidance. 

In the absence of national coverage standards, HCFA has, consistent
with Medicare law, given carriers the discretion to develop and apply
their own medical policies based on local standards of medical
practice.  Since national coverage standards have been issued for
only a small portion of all services, carriers often "must decide
whether the service in question appears to be reasonable and
necessary and therefore covered by Medicare."\7 HCFA has given
carriers broad latitude in this area--that is, it has given them
primary responsibility for defining the criteria that are used to
assess the medical necessity of services.  Such local medical
policies allow carriers to target specific services that may need
greater scrutiny.  For example, local medical policies may be
developed in response to excessive utilization of a service or
inappropriate billing patterns. 

To implement medical policies, carriers develop prepayment screens
that suspend a subset of claims for manual review.  Screens are
computer algorithms that use certain claim information (such as
diagnostic code or frequency of services performed) to channel
certain types of claims to examiners for further review.  The
criteria used to flag claims for medical review are less exhaustive
than the criteria used in making the final determination. 

For example, a screen for chiropractic treatment may suspend claims
of beneficiaries who have received more than 12 treatments within the
past year.  At this point, the suspended claims are reviewed by
claims examiners, who make a determination based on medical policy. 
A carrier's medical policy defines the conditions under which
chiropractic treatments beyond the threshold are medically necessary. 
It is, however, important to note that the proportion of claims that
carriers review for medical necessity is determined by the amount of
money available to HCFA for allotment to carriers for the purpose of
medical review.  In fiscal year 1994, HCFA allotted enough funds for
5 percent of claims to be medically reviewed. 

Despite the importance of carrier vigilance over Medicare claims,
budgetary constraints have led to a decrease in program safeguard
activities such as prepayment screening of claims for medical
necessity.  The proportion of claims that are reviewed for medical
necessity has decreased from 20 percent of all claims in 1989 to 5
percent in 1994.  Because carriers now have fewer resources to review
the appropriateness of claims, it is essential that carriers use what
resources they do have in the most effective way possible.  Yet, we
found that HCFA has not compiled information, nor does it have a
systematic method that would allow it to assess the adequacy of
current carrier safeguard controls.\8

We conducted our study between April and November 1994 in accordance
with generally accepted government auditing standards.  See appendix
I for a description of our analytical methodology. 


--------------------
\3 54 Fed.  Reg.  4304.  (Preamble to proposed rules that, although
not yet final, are generally looked to for guidance.)

\4 Title XVII of Social Security Act, sec.  1862(a)(1)(A)[42 U.S.C. 
1395y (a)(1)(A)]. 

\5 54 Fed.  Reg.  4304. 

\6 For a general description of how HCFA makes coverage decisions on
new medical technologies, see U.S.  General Accounting Office,
Technology Assessment and Medical Coverage Decisions,
GAO/HEHS-94-195FS (Washington, D.C.:  July 1994). 

\7 54 Fed.  Reg.  4304. 

\8 U.S.  General Accounting Office, Medicare:  Funding and Management
Problems Result in Unnecessary Expenditures, GAO/T-HRD-93-4
(Washington, D.C.:  February 1993). 


   ANALYSIS OF DENIAL RATES
------------------------------------------------------------ Letter :3

This section presents the results of our analysis of 1992-93 medical
necessity denial rates for six carriers across 74 expensive or
heavily utilized services.  We examined the (1) magnitude, (2)
variability across carriers, and (3) annual changes of denial rates
for 2 consecutive years. 


      DENIAL RATES WERE GENERALLY
      LOW
---------------------------------------------------------- Letter :3.1

Table 1 summarizes 1993 denial rate information from appendix III
(appendix II gives 1992 data) and shows the frequency distribution of
denial rates for the 74 services across six carriers.  This table
shows that within this group of 74 services, denial rates were
generally low--a finding that was consistent across all carriers. 
For example, the Northern California carrier had 47 services with a
denial rate of zero, 19 services with a denial rate of between 1 and
10, 6 services with a rate of between 11 and 100, and 2 services with
a denial rate of over 100 per 1,000 services allowed.\9 Furthermore,
the Southern California carrier, which had the largest number of
services with denial rates over 10 per 1,000 allowed, still had a
majority of services (46 of 74) with denial rates of less than 10 per
1,000 services allowed. 



                                     Table 1
                     
                        Distribution of Top 74 Services by
                          Denial Rate and Carrier, 1993


                       Northe  Southe
Denial rate per 1,000      rn      rn   North   South
services               Califo  Califo  Caroli  Caroli  Illino
allowed\a                rnia    rnia      na      na      is  Wisconsin   Total
---------------------  ------  ------  ------  ------  ------  ---------  ------
0                          47       8      15      52      38         36     196
1 to 10                    19      38      48      22      20         28     175
11 to 100                   6      23       7       0      14          9      59
100+                        2       5       4       0       2          1      14
================================================================================
Total                      74      74      74      74      74         74     444
--------------------------------------------------------------------------------
\a We classified three codes with no allowed services as 0 for the
purpose of this tabulation.  Denial rates were rounded to the nearest
whole number. 


--------------------
\9 Services that exhibited high denial rates included those of the
following types:  ambulance service, eye examination, chiropractic
treatments, myocardial perfusion imaging, percutaneous transluminal
coronary balloon angioplasty, and duplex scan of extracranial
arteries.  Services that exhibited minimal variation in the range of
denial rates across carriers were those that pertained to digestive
procedures (endoscopy and colonoscopy); nursing facility services;
office and outpatient visits; and cardiovascular, musculoskeletal,
anesthesia, and urinary procedures. 


      DENIAL RATES FOR MEDICAL
      NECESSITY VARIED ACROSS
      CARRIERS
---------------------------------------------------------- Letter :3.2

The denial rates for 1992 and 1993 show notable variability across
six carriers.  Figure 1, which displays 1993 carrier denial rates for
5 different services, illustrates this point.  For example, the range
of denial rates across carriers for a chest x-ray varied between 0.1
and 90.2 (per 1,000 services allowed).\10

   Figure 1:  Denial Rates for
   Medical Necessity Across Six
   Services, 1993

   (See figure in printed
   edition.)


--------------------
\10 The formula for calculating denial rates is as follows:  denial
rate = (number of services denied for reason of medical necessity) /
(number of services allowed) * 1,000.  We used the number of allowed
services in the denominator rather than the number of submitted
services because the latter includes services denied for other
reasons (for example, duplicate line item) and thus would add
spurious variation to our estimate. 


      CARRIER DENIAL RATES FOR
      1992 AND 1993 WERE STABLE
      FOR MOST SERVICES
---------------------------------------------------------- Letter :3.3

The denial rates for at least two thirds of each carrier's services
did not significantly change between 1992 and 1993.  In general, the
magnitude of carrier denial rates was persistent for 2 consecutive
years.  Services that had high denial rates in 1992 also tended to
have high rates in 1993.  Conversely, services with low denial rates
in 1992 also were generally low in 1993.\11 (See table 2.)



                                     Table 2
                     
                      Change in Denial Rates for the Top 74
                           Services by Carrier, 1992-93

                       Northe  Southe
                           rn      rn   North   South
Change in denial       Califo  Califo  Caroli  Caroli  Illino
rate\a                   rnia    rnia      na      na      is  Wisconsin   Total
---------------------  ------  ------  ------  ------  ------  ---------  ------
Increased                  12      14      18       2      14          2      62
Decreased                   4       7       1       5       3         20      40
No change                  58      53      55      67      57         52     342
================================================================================
Total                      74      74      74      74      74         74     444
--------------------------------------------------------------------------------
\a A chi-square test of statistical significance was used to test
whether 1992 rates differed from 1993 rates.  Rate differences
significant at p < 0.01 were considered to have changed between
years. 

For two jurisdictions--South Carolina and Wisconsin--the number of
services that had decreased denial rates in 1993 exceeded the number
of services for which rates increased.  Conversely, four
carriers--Northern California, Southern California, North Carolina,
and Illinois--had more services whose denial rates significantly
increased than decreased.  For Northern California, Southern
California, and Illinois, the difference in the number of services
with higher denial rates in 1993 was slight, from 7 to 11 services. 
However, denial rates for the North Carolina carrier significantly
increased between 1992 and 1993 for 18 services; the denial rate was
significantly decreased for only 1 service. 


--------------------
\11 For example, Southern California had a denial rate of 83.2 for
nonemergency ambulance service (code A0150) in 1992 and a rate of
81.2 in 1993.  The difference between denial rates for these 2 years
is 2 and is not statistically significant.  In other words, the
Southern California carrier's denial rate for this ambulance code did
not decrease significantly in 1993, and the difference between these
2 years is likely to be due to chance variation.  We used a
chi-square test of statistical significance to test whether 1992
rates differed from 1993 rates.  Rate differences significant at p <
0.01 were considered to have changed between years. 


   FACTORS THAT CONTRIBUTED TO
   INTERCARRIER VARIATION IN
   DENIAL RATES
------------------------------------------------------------ Letter :4

The significant differences in denial rates for medical necessity
across carriers give rise to the following question:  What accounts
for the variations in denial rates?  To address this question, we met
with carrier representatives and HCFA officials, who identified five
factors that could help explain the variation in denial rates across
carriers. 


      CARRIERS DIFFERED IN HOW
      THEY IMPLEMENTED PREPAYMENT
      SCREENS
---------------------------------------------------------- Letter :4.1

The Medicare program has since its inception acknowledged the
existence of regional variations in medical practice standards and
has sought to accommodate these differences in adjudicating claims. 
One practical consequence of this policy is that HCFA has delegated
to carriers the authority to determine whether a rendered service was
medically necessary.  Making such determinations requires that
carriers first develop a local medical policy.  Computer screens are
used to suspend a subset of claims, which are then reviewed by claims
examiners, who in turn follow local medical policy in making their
determinations.\12

Utilization and diagnostic screens are two of the more common types
of screens.\13 Utilization screens measure the number of times a
service has been performed against a standard (for example, services
per year), and diagnostic screens compare the diagnosis listed on a
claim with a defined set of diagnoses that would usually warrant
performance of that service.\14

Differences in the way that carriers use screens can affect the
variability of denial rates in two ways.  First, in the absence of an
applicable local medical policy or a coverage directive from HCFA to
assess the validity of a claim, carriers usually assume that a claim
is valid and thus should be approved.  It follows that, given
comparable billing patterns, a carrier with a screen in place for a
specific medical service will deny more claims than a carrier without
such a screen in place.\15

Carriers differ in the number of services they screen; we reported
earlier that the total number of local screens carriers used in 1988
ranged from 5 to 177.\16 Second, different carriers screening the
same service may use different criteria to suspend claims.  Thus,
although two carriers may screen the same service for medical
necessity, their respective criteria may result in differing denial
rates. 

To gauge the effect of medical necessity screens on carrier denial
rates, we asked the carrier with the highest denial rate for medical
necessity for 5 selected services to identify the specific reason for
denial for a small sample of 15 to 20 claims denied for lack of
medical necessity.\17 In this way, we were able to identify the key
screens that most directly caused denial.  We selected the 5 services
because carrier denial rates for each one exhibited significant
variation.  For each service, we selected the carrier with the
highest denial rate and determined the reason for the denial:  x-ray
and multichannel blood test (Illinois), myocardial perfusion imaging
and echocardiography (Southern California), and opthalmologic exam
(Wisconsin). 

For example, for the automated multichannel blood test, the Illinois
carrier had a denial rate of 138.9 per 1,000 services allowed in
1993, while the other carriers had negligible denial rates of 0, 0.1,
0.5, 1.4, and 1.7.  After examining a sample of claims, the Illinois
carrier concluded that the majority of its denials for reason of
medical necessity resulted from a joint utilization and diagnostic
screen.  That is, a provider in the Illinois carrier's jurisdiction
could order this type of blood test for a patient up to two times per
year with no condition attached.  On the third and subsequent tests,
however, the carrier checked the appropriateness of the test against
a set of diagnostic codes specified by its local medical policy.  If
the diagnostic codes on the claim matched codes on this list, the
service was approved.  Conversely, if a diagnosis was not provided or
did not match the accepted codes, the claim was denied and returned
to the provider.  The provider could then resubmit the claim with a
different diagnostic code if appropriate. 

We then asked the other carriers (Northern California, Southern
California, North Carolina, South Carolina, and Wisconsin) if they
had similar utilization and diagnostic checks to assess the medical
necessity of multichannel blood tests.  Their responses indicated
that two carriers used only a diagnostic screen and the remaining
three did not have either a utilization or a diagnostic screen for
this service.  The carriers' responses for this service, as well as
for the 4 other services selected for analysis, are summarized in
table 3. 



                                                                       Table 3
                                                       
                                                       Pattern of Carrier Screen Use and Denial
                                                         Rates, by Selected Services, 1993\a


Service and                   Denial                Denial               Denial                  Denial                  Denial                Denial
procedure code  Screen          rate  Screen          rate  Screen         rate  Screen            rate  Screen            rate  Screen          rate
--------------  ----------  --------  ----------  --------  ----------  -------  -----------  ---------  ------------  --------  ----------  --------
Echocardiograp  None             1.7  Diagnostic     173.3  None\c          1.1  None\d             4.4  None                 0  None               0
hy                                    \b
(93307)

Myocardial      None               0  Diagnostic     248.4  None            6.4  None\d             6.0  None                 0  None               0
perfusion                             \b
imaging
(78465)

Chest x-ray     Diagnostic       7.6  Diagnostic      14.6  Diagnostic      1.2  None               0.2                    90.2  Diagnostic       0.1
(71020)         \a                    \b                                                                 Diagnostic\b            \b


Multichannel    None             0.1  None             1.7  Utilizatio      0.5  Utilization        1.4  Utilization      138.9  Diagnostic         0
blood test                                                  n                                            +                       \b
(80019)                                                                                                  diagnostic\b

Ophthalmologic  Diagnostic      19.2  Diagnostic       4.2  Diagnostic      1.2  None                 0  Utilization       19.6  Diagnostic     108.4
exam            \a                                                                                       +                       \b
(92004)                                                                                                  diagnostic\b
-----------------------------------------------------------------------------------------------------------------------------------------------------
\a Services that were not screened by carriers could have denial
rates greater than zero because of postpayment review or other
reasons.  Edits for bundling and duplicate line items are not
considered to be utilization screens in this table. 

\b The screen autoadjudicates. 

\c Carrier requires diagnostic code but does not require a specific
one. 

\d South Carolina also reported screens for codes 93307 and 78465;
however, they were implemented on December 13, 1993, and November 18,
1994, respectively. 


--------------------
\12 We did not examine whether differences in the criteria used in
carrier medical policies affect denial rates.  However, HCFA has
acknowledged the need to promote consistency in medical policy across
carriers and has undertaken the following initiatives to promote
consistency:  (1) developing a database that allows carriers to share
information on medical policies, (2) establishing a technical
advisory committee for each carrier that informs the carrier of
current issues and technological developments in the medical
community, and (3) distributing copies of model medical policy and
encouraging carriers to use this model as a guide for developing
their own policies. 

\13 Carriers have a limited number of autoadjudicating computer
screens.  Such screens do not suspend claims for manual review but,
rather, make the final determination of medical necessity.  That is,
claims not meeting certain criteria are automatically denied without
being manually reviewed by claims examiners. 

\14 For example, with regard to utilization screens, if a carrier's
medical policy stated that only one office visit for eye exam per
year is medically necessary, the carrier might construct a screen
that would suspend a beneficiary's claims for eye examinations that
exceed this limit.  Diagnostic screens compare the diagnosis listed
by the provider on a claim with a set of diagnoses determined by the
carrier to indicate the medical necessity of performing a service. 

\15 A recent demonstration project sponsored by HCFA underscored this
point.  Additional funds were allocated to four carriers for the
purpose of improving their systems of medical review.  Participating
carriers used these funds to upgrade their computer systems, develop
additional medical policies, and conduct more medical reviews.  These
improvements led to significant Medicare savings, in part caused by
the carriers' appropriately denying a greater number of billed
services.  This project showed that savings in Medicare expenditures
could be achieved by improving and expanding medical review
activities.  See U.S.  General Accounting Office, Medicare:  Greater
Investment in Claims Review Would Save Millions, GAO/HEHS-94-35
(Washington D.C.:  March 1994). 

\16 U.S.  General Accounting Office, Medicare:  Improving Quality of
Care Assessment and Assurance, GAO/PEMD-88-10 (Washington, D.C.:  May
1988), p.  119. 

\17 Because the computer systems of most carriers can retrieve claim
records for only the preceding 12 to 18 months, we sampled claims
from the last quarter of 1993. 


         VARIATION FROM THE
         PRESENCE OF A PREPAYMENT
         SCREEN
-------------------------------------------------------- Letter :4.1.1

We found that the types of services screened for medical necessity
varied across carriers.  For example, as shown in table 3, only one
of the six carriers (Southern California) screened echocardiography
and myocardial perfusion imaging services.  Similarly, while four
carriers screened multichannel blood test services, the types of
screens they used varied.  For example, the North Carolina carrier
used a utilization screen, the Wisconsin carrier used a diagnostic
screen, and the Illinois carrier used both. 

Table 3 also provides evidence that carrier denial rates were
associated with the presence or absence of a screen.  For two
services, echocardiography and myocardial perfusion imaging, the only
carrier (Southern California) that had screens in place had much
higher denial rates.  While denial rates greater than zero do not
always imply the presence of a medical necessity screen (some medical
necessity denials may stem from postpayment review activities),
denial rates are higher when a carrier has a screen. 

For the 3 other services--chest x-ray, multichannel blood test, and
opthalmologic exam--the relationship between screening and carrier
denial rates was less clear cut.  With respect to multichannel blood
test, it is possible that the reason the Illinois carrier had the
highest denial rate stemmed from the fact that it used two types of
screens, consisting of both a utilization and a diagnostic check,
while the other carriers either had no screen (Northern California,
Southern California, and South Carolina) or had only a diagnostic
check (North Carolina and Wisconsin).  This explanation, however, is
less satisfactory when attempting to account for carrier variation in
denial rates for chest x-rays and ophthalmologic exams.  In sum,
although the presence or absence of a screen was not sufficient to
account for all variation in denial rates across carriers, it is
important to note that the highest denial rates were invariably
associated with screens. 


         VARIATIONS FROM
         DIFFERENCES IN THE
         STRINGENCY OF THE SCREEN
         CRITERIA
-------------------------------------------------------- Letter :4.1.2

Beyond the simple presence or absence of a screen, the stringency of
the screen criteria can also contribute to variation in denial rates
across carriers by suspending a greater or lesser number of claims
that are then subject to a medical review.  We found that, even when
screening the same service, carriers used different criteria for
suspending claims.  For example, the first 12 visits to a
chiropractor for spinal manipulation to correct a subluxation must
meet certain basic HCFA coverage criteria, such as the following:  An
x-ray demonstrating the spinal problem must be available, signs and
symptoms must be stated, and the precise level of subluxation must be
reported.  The six carriers had all incorporated these criteria into
their medical policies for chiropractic spinal manipulation.  HCFA
requires that carriers assess the necessity of visits in excess of 12
per year, but carriers diverged in how they assessed such treatments. 
One carrier stated that, after 12 visits, additional documentation on
medical necessity would be required.  Another carrier based the
number of additional visits allowed on the injured area of the spine. 
When that number of additional visits was reached, this carrier
required additional documentation from the provider.  Still another
carrier stated that, while it reviewed visits beyond 12, it usually
did not require additional documentation until the 30-visit mark. 


      CARRIERS DIFFERED IN HOW
      THEY INTERPRETED CERTAIN
      NATIONAL COVERAGE STANDARDS
---------------------------------------------------------- Letter :4.2

While we anticipated variation in denial rates on account of
differences in carriers' implementation of screens, we expected less
variation to result from carriers' differing interpretations of
national coverage standards.  However, we learned that carriers
interpreted and applied the same standards in different ways because
some standards leave key elements of the policy undefined. 

In 1993, Transamerica Occidental Life, in coordination with HCFA,
studied claims that it had processed for 17 different services for
which Transamerica showed variation in denial rates in 1992 among the
six carriers.\18 The following discussion highlights some problem
areas uncovered by the Transamerica study that relate to the
implementation of national coverage standards. 

Although national coverage standards allow Medicare carriers to pay
for diagnostic tests, these standards significantly restrict
particular tests for routine screening.  Hence, in determining
whether a claim should be paid by Medicare, carriers must judge
whether the tests were performed for diagnostic or screening
purposes.  Making such judgments is often difficult, especially for
certain types of tests.\19 Transamerica, for example, found
differences across carriers in how they assessed chest x-ray and
mammography claims.  With regard to chest x-rays, the Transamerica
study reported the following: 

     "There is a continued trend toward diagnostic screening for
     asymptomatic patients which we feel necessitates a formal
     policy.  There is also wide variation among carriers as to the
     necessity for pre-operative diagnostic testing, and whether it
     falls within the `medical necessity' coverage of the program. 
     Review of various carriers' policy indicates that some deny as
     `routine physical examination,' and not as a medical necessity
     denial.  HCFA needs to clarify their position on this issue so
     there is more consistency on a national basis."\20

Similarly, the Transamerica study reported difficulty in implementing
HCFA's coverage guidelines for mammographies: 

     "HCFA needs to re-evaluate its screening mammography billing and
     coverage requirements.  Many screening services are being
     performed by nonscreening centers under the nonscreening
     procedure code.  This may reflect a lack of, or inaccessibility
     to, screening mammography centers.  There are also differences
     among carriers as to what constitutes a screening test.  Some of
     the encounter codes used by HCFA as an indication for screening
     are also being used for diagnostic tests.  Further clarification
     is needed."\21

Findings from the Transamerica study suggest that, at least with
respect to chest x-rays and mammographies, carriers found it
difficult to distinguish whether these procedures were performed for
screening or diagnostic purposes.  It is likely that this difficulty
may extend to other types of test procedures. 

This example illustrates the fact that simply issuing a national
coverage standard for a service is not sufficient to ensure
consistency of application.  While it is probably not feasible for
HCFA to develop coverage standards that anticipate every conceivable
circumstance under which a claim might be filed, we have identified a
coverage issue for chest x-ray and mammography that appears to be in
need of further clarification by HCFA. 


--------------------
\18 The services were ambulance service (A0010 and A0020),
chiropractic (A2000), cataract removal (66984), chest x-ray (71020),
mammography (76091), surgical pathology (88305), percutaneous
transluminal coronary angioplasty (92982), echocardiography (93307),
Doppler echocardiography (93320), duplex scan of extracranial
arteries (93880), and hospital care (99222, 99231, 99233, 99238,
99283, and 99332).  HCFA provided Transamerica with a sample of claim
numbers drawn from the data set used in our preliminary analysis of
denial rates.  Claims were extracted from Transamerica's computer
system and then examined to determine the reason why a claim was
originally denied. 

\19 This issue also applies to carriers' determinations of when a
test ceases to be experimental.  A carrier representative told us
that, prior to 1993, her company denied all claims submitted for
prostate specific antigen (PSA) test, used for detecting cancer of
the prostate.  It was considered to be an experimental procedure with
low reliability.  However, following technical refinements to the
test that improved its reliability, PSA gained greater acceptance
among physicians as a diagnostic tool.  As a consequence, this
carrier changed its policy and now pays for PSA testing under certain
conditions.  Because such decisions are made carrier by carrier,
denial rates for certain types of tests are likely to vary across
carriers. 

\20 Transamerica report to HCFA on denial rates (May 1994), p.  2. 

\21 Transamerica, p.  2. 


      CARRIERS DIFFERED IN HOW
      THEY TREATED INCOMPLETE
      CLAIMS
---------------------------------------------------------- Letter :4.3

The manner in which carriers treated claims with billing errors or
missing information affected denial rates.  For example, if a
carrier's medical policy required that the provider indicate the
diagnosis when submitting a claim for a particular type of service,
and the claim lacked this information, the carrier had several
options.  The carrier could (1) return the claim to the provider, (2)
"develop" the claim (that is, delay adjudication and try to obtain
the required information by contacting the provider), or (3) deny the
claim. 

If the first option was exercised and the claim was returned, it was
as if the claim had never been submitted.  If the second option was
exercised and the carrier received the requisite claim information,
then the claim was adjudicated.  If the third option was selected and
the carrier denied the claim, the provider had either to resubmit the
claim or go through the appeal process to obtain payment for this
service.\22 The resubmitted claims might well be paid, but the
carrier's records would still show that the claim had been denied. 
(See table 4.)



                           Table 4
           
               Options Carriers Used to Process
                      Incomplete Claims

Option              Description
------------------  ----------------------------------------
Return, delete,     Return: Used for hardcopy claims
reject              screened in the mailroom. Rejected
                    claims were never given an internal
                    claim control number; they were
                    physically returned to the provider or
                    supplier. A message was sent to the
                    provider informing it that the claim was
                    not processed. For budgetary purposes,
                    returned claims were not counted as part
                    of the workload.

                    Delete: Used for electronically
                    submitted claims screened by computer.
                    Deleted claims were not given an
                    internal claim control number and a
                    message was sent to the provider or
                    supplier informing it that the claim was
                    not processed. For budgetary purposes,
                    deleted claims were not counted as part
                    of carrier workload.

                    Reject: Claims (both hardcopy and
                    electronic) were assigned an internal
                    claim control number. Claims were
                    entered into the computer system and
                    screened. When missing information was
                    detected, the claim was rejected and a
                    message was sent to the provider or
                    supplier informing it that the claim was
                    not processed. For budgetary purposes,
                    rejected claims were counted as part of
                    carrier workload.

Develop             Carriers suspended judgment on claims
                    and requested missing information from
                    physician or supplier. If requested
                    information was not received within 30
                    to 45 days, the carrier denied the
                    claim.

Deny                Claim was completely processed through
                    the system and a Medicare explanation-
                    of-benefits message was sent to the
                    claimant (beneficiary or provider) that
                    indicated the basis of the denial.
                    Denied claims were given full appeal
                    rights.
------------------------------------------------------------
Source:  HCFA. 

Although carriers had several ways of processing incomplete claims,
the option they selected for any given claim depended on such factors
as the cost incurred to develop the claim, the capability of their
computer system, and special instructions from HCFA.  For example, a
carrier might have developed incomplete claims involving surgical
procedures while denying incomplete claims involving chiropractic
treatments, or the carrier might have rejected claims missing
beneficiary health insurance numbers while developing claims with
missing provider identification numbers. 

Because the preceding examples highlight only a handful of the
numerous possible combinations that may have been used to process
claims with incomplete information, it is difficult to characterize
any one carrier's approach, much less systematically compare
differences.  However, it is reasonable to infer that carriers that
emphasized claim denial over claim development (or rejection) for
incomplete claims had higher denial rates than carriers that did not. 

HCFA has examined this issue and has asked its Office of the General
Counsel for advice that would bring consistency to the way that
carriers process claims lacking basic information.  In brief, HCFA
recommends eliminating the denial option for incomplete claims. 
Claims that lack the requisite information would be returned or
deleted and the provider or supplier would be notified. 

HCFA has noted that carriers have expressed concern over this
proposal.  Some carriers are against the elimination of the denial
option because (1) it would negatively affect their administrative
budgets (because deleted or returned claims do not count in their
workload statistics), (2) the cost of returning claims can be high,
and (3) physicians and suppliers learn how to bill correctly faster
when a claim is denied rather than returned.  HCFA has responded by
asserting that "these costs will be more than offset by fewer denied
claims, fewer beneficiary inquiries, and fewer unproductive and
expensive appeals." Standardizing the handling of incomplete claims
would also improve the accuracy of carrier workload statistics by
making them more comparable across carriers. 


--------------------
\22 Earlier this year, HCFA surveyed all carriers and concluded that
there was significant variation in the way the carriers were treating
missing information. 


      CARRIERS DIFFERED IN HOW
      THEY REPORTED THE REASON FOR
      A CLAIM DENIAL TO HCFA'S
      CENTRAL DATABASE
---------------------------------------------------------- Letter :4.4

Because carriers used different computer systems to process claims,
their internal action codes--which indicate the reason for denying a
service--were not identical.  To facilitate comparisons, HCFA has
required that each carrier translate its own set of internal action
codes into 10 broad categories when transmitting data to HCFA's
central database.  (See table I.2.) However, because HCFA has given
carriers little guidance in performing this task, carriers are
uncertain as to how denials should be classified for reporting
purposes.  This, in turn, has affected the reliability of estimated
denial rates. 

Transamerica identified two service categories that carriers have
tended to use interchangeably:  "noncovered" and "medically
unnecessary" care.  Its study found that "medically unnecessary" was
used to classify denials for 3 service codes (of 17 studied) that
should have been classified as "noncovered" care.  The misclassified
codes related to evaluation and management, ambulance, and cataract
services.  With regard to ambulance services reported to HCFA as
denied for reason of medical necessity, the Transamerica study noted
that

     "Changes were made to the reporting classification of messages
     as a result of our review of Medicare Carriers Manual (MCM)
     coverage criteria, shifting some of the denials from a medical
     necessity classification to a coverage classification.  There is
     a great deal of variation among carriers as to whether certain
     types of ambulance denials are based on medical necessity or
     coverage.  There needs to be more definitive information from
     HCFA as to how they want the denials to be classified."\23

We collected and analyzed reporting protocols for the six carriers in
this study, and our analysis of these data corroborates
Transamerica's findings.  (See appendix IV.) We found that while
reported misclassifications of this type do not affect the actual
outcome of claims, they can affect the reliability of estimated
denial rates for certain services.  For this reason, we calculated
separate denial rates for "medical necessity" and "noncovered" care
and the combined total (see appendixes II and III) and assessed the
degree of intercarrier variability for each category of denial.  We
found significant intercarrier variability for all three types of
denial categories.  Reporting inconsistencies of this type affects
HCFA's ability to accurately monitor program operation activities and
is thus an area where additional guidance from HCFA could improve the
quality of the data it collects. 


--------------------
\23 Transamerica report, section headed "Detail Analysis."


      A FEW PROVIDERS ACCOUNT FOR
      A SIGNIFICANT PROPORTION OF
      THE VARIATION IN CARRIER
      DENIAL RATES
---------------------------------------------------------- Letter :4.5

HCFA officials advanced several hypotheses that might help explain
variations in carrier denial rates.  They focused on provider billing
practices as they relate to (1) geographic differences in the level
of fraud and abuse, (2) differences across carriers in provider
education (that is, efforts aimed at increasing provider awareness of
appropriate billing procedures), and (3) high denial rates caused by
the aberrant billing practices of a minority of providers.  HCFA has
not systematically studied this issue and did not provide us with
empirical evidence that would support any of these hypotheses.  Using
claims data, however, we were able to examine one of these
hypotheses--whether the billing practices of a minority of providers
were responsible for a disproportionate share of service denials. 

To test this hypothesis, we examined four services that exhibited
wide variation in carrier denial rates for medical necessity.\24

Although HCFA did not specify the criteria for identifying providers
with aberrant billing practices, we assumed that providers that
submit claims that are denied at a high rate have aberrant billing
practices.  However, such providers may not submit enough claims to
substantially affect a carrier's denial rate for that service.  For
this reason, we defined providers with aberrant billing practices in
two ways:  (1) those with the highest denial rates and (2) those with
the largest number of denials.  We then calculated a carrier's denial
rate for a service excluding the contribution of the top 5 percent of
providers (in terms of both rate and total) to determine whether
variations in denial rates were still observable. 

Table 5 shows that the top 5 percent of providers, in terms of the
highest denial rates and highest number of services denied,
contributed substantially to carrier denial rates for each of the 4
services.  However, excluding these providers did not eliminate the
variation across carriers.  For example, the actual range of carrier
denial rates for echocardiography was 0 to 173.3; excluding the
Southern California providers with the highest denial rates, the
range was 0 to 154.9; and excluding the Southern California providers
with the largest number of services denied, the range was 0 to 63.1. 
Thus, under both definitions of aberrant billing practice, excluding
aberrant practitioners reduced the variability in denial rates for a
service but did not eliminate that variation.  It is therefore likely
that the billing practices of a few providers account for part of the
intercarrier variation in denial rates. 



                                     Table 5
                     
                     Carrier Denial Rates for Four Services,
                           Excluding Aberrant Providers



                                              All      Based on   Based on total
Service and                              provider        denial        number of
procedure code      Carrier                     s        rate\a        denials\b
------------------  -------------------  --------  ------------  ---------------
Chest x-ray         Northern California       7.6
 (71020)
                    Southern California      14.6
                    North Carolina            1.2
                    South Carolina            0.2
                    Illinois                 90.2          83.0             45.8
                    Wisconsin                 0.1
Echocardiography    Northern California       1.7
 (93307)
                    Southern California     173.3         154.9             63.1
                    North Carolina            1.1
                    South Carolina            4.4
                    Illinois                    0
                    Wisconsin                   0
Myocardial imaging  Northern California         0
 (78465)
                    Southern California     248.4         181.7            148.8
                    North Carolina            6.4
                    South Carolina            6.0
                    Illinois                    0
                    Wisconsin                   0
Ophthalmologic      Northern California      19.2
 exam (92004)
                    Southern California       4.2
                    North Carolina            1.2
                    South Carolina              0
                    Illinois                 19.6
                    Wisconsin               108.4          67.2             51.9
--------------------------------------------------------------------------------
\a Denial rate calculated after excluding the 5 percent of providers
with the highest denial rates. 

\b Denial rate calculated after excluding the 5 percent of providers
with the highest total number of denials. 

To further examine provider denial rates for medical necessity, we
analyzed the distribution of provider denials for 16 services that
had denial rates exceeding 90 per 1,000 allowed.  For each service,
we calculated the percentage of providers (within a carrier) that
accounted for 50 percent of all denials for that service, as well as
the percentage of providers with at least one denial.  For example,
only 6.9 percent of Northern California chiropractors accounted for
50 percent of all denials.  Table 6 displays the result of these
calculations. 



                                     Table 6
                     
                        Provider Denial Rates for Medical
                                Necessity, 1993\a

                                                                      Percent of
                                                                       providers
                                                  Percent of        receiving 50
                   Services with denials   providers with at      percent of all
                  exceeding 90 per 1,000     least 1 medical   medical necessity
Carrier                 services allowed    necessity denial             denials
----------------  ----------------------  ------------------  ------------------
Northern                           A0150                52.5                 2.8
 California
                                   A2000                65.4                 6.9
Southern                           78465                58.7                 7.9
 California
                                   92982                19.5                 2.3
                                   93307                53.0                 1.5
                                   93320                49.1                 3.0
                                   93880                52.6                 3.1
North Carolina                     A0010                73.4                 5.6
                                   A0020                78.1                 4.8
                                   A2000                85.5                10.6
                                   92982                38.0                 6.5
                                   93549                40.8                 6.1
Illinois                           A2000                70.5                 7.4
                                   71020                54.2                 2.1
Wisconsin                          A2000                56.2                 6.4
                                   92004                47.5                 4.4
--------------------------------------------------------------------------------
\a Excludes South Carolina because it does not have medical necessity
denial rates greater than 90 per 1,000 services allowed.  Excludes
providers that did not submit a claim for a service.  Percentages are
based on a 100-percent sample of 1993 claims.  The method used for
determining the denial median was based on the total number of
denials a provider received.  The percentage of allowed services
accounted for by providers with 50 percent of denials was as follows: 
Northern California, A0150 = 28.2, A2000 = 29.7; Southern California,
78465 = 31.5, 92982 = 3.8, 93307 = 8.7, 93320 = 11.8, 93880 = 19.6;
North Carolina, A0010 = 20.8, A0020 = 8.4, A2000 = 29.3, 92982 = 9.9,
93549 = 12.3; Illinois, A2000 = 27.1, 71020 = 17.1; Wisconsin, A2000
= 20.5, 92004 = 16.6. 

Our analysis suggests that a small minority of providers, between 1.5
and 10.6 percent, accounted for 50 percent of services denied for
lack of medical necessity (and thus were responsible for the bulk of
denials).  Thus, the screens and medical policies these carriers used
to determine the medical necessity of claims primarily affected a
relatively small proportion of the provider community.  Table 6 also
shows that the proportion of providers that had at least one denial
varied between 19.5 and 85.5 percent.  The latter range suggests that
some prepayment screens used to identify inappropriate billing
patterns affected a smaller proportion of the provider population
than did others. 

While we cannot explain differing patterns of provider denials--for
example, they may stem from unnecessary services being
disproportionately offered by a few providers, differences in patient
characteristics, variations in billing practices, or a number of
other factors--further examination of the reasons for them is
warranted given their potential to explain substantial amounts of
variation in denial rates. 


--------------------
\24 See table 3; we did not analyze provider billing practices with
respect to multichannel blood tests because laboratories submitted
most of the claims for this service, not the physicians who ordered
the test. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

The magnitude of carrier denial rates was generally low and
persistent for 2 consecutive years, although rates for some services
shifted across years.  Medical necessity denial rates for 74 services
across six carriers varied substantially.  The primary reason for
variation in carrier denial rates was that certain carriers used
screens for specific services while others did not.  Thus, carriers'
selecting the services to be screened and their determining the
stringency of the screen criteria probably account for a significant
proportion of the variability.  Further, a small proportion of the
providers accounted for 50 percent of the denied claims.  To a lesser
degree, the varying interpretation of certain national coverage
standards across carriers, differences in the way carriers treated
claims with missing information, and reporting inconsistencies helped
explain variation in carrier denial rates. 

We did not attempt to assess whether low or high medical necessity
denial rates for individual carriers were appropriate.  Low denial
rates are desirable from the standpoint that they imply less
annoyance and inconvenience for providers and beneficiaries. 
However, low denial rates are desirable only insofar as providers do
not bill for medically unnecessary services. 

What is clear from our work is that further analysis of denial rates
can provide useful insight into how effectively Medicare carriers are
managing program dollars and serving beneficiaries and providers. 
Since funding constraints limit the number of claims carriers can
examine on a prepayment basis, it is important that they use the most
effective and appropriate screens. 

We believe that HCFA could improve its oversight capabilities by
actively monitoring data on carrier denial rates and improving the
reliability of the data that it collects.  Data on denial rates are
useful for identifying inconsistencies in the way that carriers
assess claims for medical necessity.  This information, in turn,
could be used to identify the services that certain carriers have
found to have billing problems.  In addition, for services that are
more uniformly screened by carriers, variation in denial rates could
indicate that carriers are using different screen criteria, which
raises issues of appropriateness and effectiveness.  Finally, data on
denial rates could be used to construct a profile of the
subpopulation of providers that have a disproportionately large
number of denials, which might suggest a solution to this problem. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

We recommend that, to improve its oversight of the Medicare Part B
program, HCFA

  issue instructions to carriers on how to classify the reason for
     denial when reporting this information;

  analyze intercarrier screen usage (including the stringency of
     screen criteria), identify effective screens, and disseminate
     this information to all carriers; and

  direct carriers to profile the subpopulation of providers
     responsible for a disproportionate share of medical necessity
     denials in order to devise a strategy for addressing this
     problem. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

At your request, we did not obtain agency comments on a draft of this
report. 

If you or your staff have any questions about this report or would
like additional information, please call me at (202) 512-2900 or
Kwai-Cheung Chan, Director for Program Evaluation in Physical Systems
Areas, at (202) 512-3092.  Major contributors to this report are
listed in appendix V. 

Sincerely yours,

Terry E.  Hedrick
Assistant Comptroller General


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

OBJECTIVES

We had two objectives in this report.  Our first was to determine the
extent of carrier variability in denial rates for lack of medical
necessity.  Our second was to identify and examine factors that
contributed to intercarrier variation in denial rates. 

SCOPE

To develop the information on denial rates, we analyzed a 5-percent
sample of 1992 and 1993 claims for the top 74 medical services
processed by six carriers (based on their national ranking in terms
of total allowed charges in 1992).\1 We also interviewed HCFA
officials and representatives of the following six carriers: 
California Blue Shield (jurisdiction:  Northern California),
Transamerica Occidental Life Insurance (jurisdiction:  Southern
California), Connecticut General Life Insurance Company
(jurisdiction:  North Carolina), Blue Shield of South Carolina,
Illinois Blue Cross and Blue Shield, and Wisconsin Physicians'
Service. 

In selecting carriers for our analysis, we considered geographic
location and the number of claims processed.  Our sample included two
carriers each from of the Southeast, the Midwest, and the West.  We
sought to maximize the geographic distance between regions while
retaining the potential for examining intraregional variation in
claims adjudication.  With regard to the number of claims processed,
we attempted to obtain a mix of large and small carriers.\2 Table I.1
lists the carriers we visited and the number of claims they processed
in fiscal year 1992. 



                          Table I.1
           
            Claims Processed by Selected Medicare
                   Part B Carriers in 1992

                                                   Number of
                                                      claims
                              Geographic       processed (in
Carrier                       location             millions)
----------------------------  --------------  --------------
California Blue Shield        West                        24
Transamerica-Occidental       West                        25
Illinois Blue Cross and Blue  Midwest                     22
 Shield
Wisconsin Physicians'         Midwest                     10
 Service
Connecticut General (North    Southeast                   18
 Carolina)
South Carolina Blue Shield    Southeast                    8
------------------------------------------------------------
Taken together, these six carriers processed about 19 percent of all
Part B claims in fiscal year 1992.  It should be noted, however, that
the judgmental method used to select carriers for this report does
not allow us to generalize our findings to the universe of carriers. 

METHODOLOGY

We obtained data on denial rates from the National Claims History
File, a database maintained by HCFA.  It contains a wide variety of
claim information, including type of medical service billed and type
of action carriers take as a result of the claim adjudication
process.  On the Medicare claim form, each billed service, or line
item, appears as a separate charge with a corresponding five-digit
service code that describes the type of service provided.  (See
figure I.1.) For example, code 71020 refers to a chest x-ray.  It is
important to note that a Medicare claim can contain submitted charges
for more than one service.  A claim for a physician's office visit,
for example, may also include the charges for laboratory tests
performed during the visit.  The denial rates presented in this
report are based on specific services, not on claims. 

   Figure I.1:  Medicare Part B
   Claim Form

   (See figure in printed
   edition.)

Each service, or line item, listed on a claim is subject to the
carrier's approval or denial.  For each service processed, the
carrier must indicate whether the claim for service was approved or
denied and, if denied, the specific reason for denial.  Table I.2
shows the categories of denial that are reported to HCFA's central
database. 



                          Table I.2
           
           Reported Reasons for Denying a Medicare
                        Service Claim

Reason              Description
------------------  ----------------------------------------
Medically           Service denied because it was determined
unnecessary         that service was not medically necessary

Noncovered care     Service denied because it was
                    administered under conditions that are
                    not covered by Medicare

Benefits exhausted  Service denied because beneficiary
                    exhausted all Part B benefits or reached
                    the maximum limit of services: the three
                    types of services subject to limitations
                    under Medicare are psychiatric services,
                    occupational therapy, and physical
                    therapy

Invalid data        Claim contained invalid data; for
                    example, the day and month of the
                    service date were transposed, as in 15/
                    9/94. This type of claim should be
                    resubmitted

Multiple submittal  Service denied because submitted charge
                    was duplicated on claim form

Medicare secondary  Service denied because Medicare was not
payer               the primary payer

Clinical            Service denied because it was performed
Laboratory          by a noncertified laboratory
Improvement Act

Physician           Service denied because the physician (or
ownership denial    physician's relative) has ownership in
                    the laboratory that performed the
                    service

Data match          Service denied because Medicare was not
(Medicare           the primary payer, discovered through an
secondary payer     Internal Revenue Service and Social
cost avoided)       Security Administration data match

Other               Denials that do not fit into the
                    categories above
------------------------------------------------------------
We analyzed services that were denied because they were "medically
unnecessary." We focused on this type of denial because it reflects,
to a greater degree, the effect of carrier discretion in claims
assessment.  That is, determining medical necessity quite often
entails the application of a complicated set of decision rules and
may ultimately require the individual judgment of a claims reviewer. 
In contrast, the other types of denial involve more straightforward
criteria that can be applied by means of computerized programs (such
as whether charges for the same service appear twice on a claim).  We
calculated denial rates by summing the number of services denied for
medical necessity and dividing the total by the number of services
allowed for each of 74 services.\3 We excluded from the analysis
services denied for reasons other than medical necessity. 

Although Medicare covers more than 10,000 different medical services,
relatively few services account for the bulk of Medicare costs.  Our
analysis was restricted to the top 74 services, based on their
national ranking in terms of the total of allowed charges in 1992.\4
In 1992, the top 74 services constituted approximately 50 percent of
all Medicare Part B allowed charges.  Services that rank high in
allowed charges are either frequently performed (for example, office
visits) or costly (for example, angioplasty treatments).\5


--------------------
\1 We abstracted claim information from the physician and supplier
portion of the National Claims History database, which serves as a
repository for all Medicare claims. 

\2 The frequency distribution of number of claims processed by the
Medicare carriers is essentially bimodal.  That is, there are two
large clusters of carriers:  those that annually process between 2
and 13 million claims and those that process between 18 and 29
million claims (two carriers processed over 46 million claims each). 
Our sample includes two carriers from the former cluster and four
from the latter. 

\3 The formula for calculating denial rates is as follows:  denial
rate = (number of services denied for reason of medical necessity) /
(number of services allowed) * 1,000. 

\4 The "allowed charge" for a service is set by HCFA.  The amount
HCFA actually pays is 80 percent of the allowed charge less
deductible or co-payment. 

\5 Because durable medical equipment and parenteral and enteral
claims are currently processed at regional centers, we also excluded
such services from our analysis. 


1992 DENIAL RATES (PER 1,000
SERVICES ALLOWED) FOR MEDICAL
NECESSITY AND NONCOVERED CARE BY
CARRIER
========================================================== Appendix II

                                                N.    S.
                                              Cali  Cali
Code    Description               Type\a        f.    f.  N.C.  S.C.  Ill.  Wis.
------  ------------------------  ----------  ----  ----  ----  ----  ----  ----
        Anesthesia

00142   Anesthesia for procedure  Med.         0.0   1.3   5.7   0.0   0.0
        on eye, lens surgery      Cov.         1.2         5.7   0.8   0.0  17.8
                                                    10.9
                                  Total        1.2        11.4   0.8   0.0  18.6
                                                    12.1
                                                                            36.4

00562   Anesthesia, procedure on  Med.         0.0   0.0   0.0   0.0   0.0   0.0
        heart, pericardium and    Cov.         2.4   3.4         0.0   0.0
        great vessels of chest;                           11.4              17.8
        oxygenator with pump      Total        2.4   3.4         0.0   0.0
                                                          11.4              17.8

        Muscloskeletal

27130   Arthroplasty, acetabular  Med.         0.0   4.7   0.0   0.0   0.0   0.0
        and proximal femoral      Cov.         0.0   9.3   0.0   0.0   0.0
        prosthetic replacement,                                             12.0
        with or without           Total        0.0  14.0   0.0   0.0   0.0
        allograft                                                           12.0

27236   Open treatment of closed  Med.         0.0   0.0   0.0   0.0   0.0   0.0
        or open femoral fracture  Cov.         0.0   3.7         0.0   0.0
                                                          24.0              16.8
                                  Total        0.0   3.7         0.0   0.0
                                                          24.0              16.8

27244   Open treatment of closed  Med.         0.0   0.0   0.0   0.0   0.0   0.0
        or open                   Cov.         0.0               0.0   0.0
        intertrochanteric                           16.3  31.4              21.9
                                  Total        0.0               0.0   0.0
                                                    16.3  31.4              21.9

27447   Arthroplasty, knee,       Med.         0.0   2.9   0.0   0.0   0.0   0.0
        condyle, and plateau;     Cov.         0.0   2.9         0.0   0.0
        medical and lateral                               43.5              14.2
        compartments, with or     Total        0.0   5.8         0.0   0.0
        without patella                                   43.5              14.2
        resurfacing

        Cardiovascular

33512   Coronary artery bypass,   Med.               0.0   0.0   0.0   0.0   0.0
        3 coronary venous grafts  Cov.        14.6   4.5   6.3   0.0
                                               0.0                    15.2  54.5
                                  Total              4.5   6.3   0.0
                                              14.6                    15.2  54.5

33513   Coronary artery bypass,   Med.         3.9   0.0   0.0   0.0   0.0   0.0
        4 coronary venous grafts  Cov.         0.0               0.0
                                                    32.7  30.3        13.2  35.7
                                  Total        3.9               0.0
                                                    32.7  30.3        13.2  35.7

36415   Routine venipuncture,     Med.         0.2   0.2   0.9   0.2   0.0   0.1
        collection of specimen    Cov.               6.0         2.5   4.2
                                              17.8        15.6              10.2
                                  Total              9.2         2.7   4.2
                                              18.0        16.6              10.3

        Digestive

43235   Upper gastrointestinal    Med.         0.0   0.9   1.1   0.0   1.8   0.0
        endoscopy, including      Cov.         0.9               2.3   1.8
        esophagus, stomach,                         10.2  14.2              10.2
        duodenum, or jejunum;     Total        0.9               2.3   3.6
        complex diagnostic                          11.1  15.3              10.2

43239   Upper gastrointestinal    Med.         0.0   1.6   3.7   0.0   2.2   0.0
        endoscopy, including      Cov.         0.9   6.4         0.0   0.0
        esophagus, stomach, and                           24.9              12.8
        either duodenum or        Total        0.9   8.0         0.0   2.2
        jejunum; for biopsy or                            28.6              12.8
        collections by brushing

45378   Colonoscopy, fiberoptic,  Med.         0.0   0.9   0.0   0.0   0.8   0.0
        beyond splenic flexure,   Cov.         1.8   6.0         0.0   1.7   6.2
        diagnostic, with or                               20.3
        without colon             Total        1.8   6.8         0.0   2.5   6.2
        decompression                                     20.3

45385   Colonoscopy, fiberoptic,  Med.         0.0   3.7   0.0   0.0   0.0   0.0
        beyond splenic flexure,   Cov.         1.2   7.5         0.0   0.0
        same as above, with                               12.2              10.3
        removal of polypoid       Total        1.2  11.2         0.0   0.0
        lesions                                           12.2              10.3

        Urinary

52000   Cystourethroscopy         Med.         1.3   2.1   0.0   0.0   3.2   0.0
        (separate procedure)      Cov.         1.3   8.9   5.8   0.0   2.4
                                                                            17.0
                                  Total        2.6  11.0   5.8   0.0   5.6
                                                                            17.0

52601   Transuretheral resection  Med.         9.0   3.2   0.0   0.0   0.0   0.0
        of prostate, including    Cov.         6.0   0.0         7.8   0.0
        control of post-op                                21.4              12.9
        bleeding, complete        Total       15.0   3.2         7.8   0.0
                                                          21.4              12.9

        Eye and ocular adenxa

65855   Trabeculoplasty by laser  Med.         0.0   2.3   0.0   0.0   0.0   0.0
        surgery, one or more      Cov.         3.8         9.6   0.0   0.0
        sessions                                    75.9                    74.1
                                  Total        3.8         9.6   0.0   0.0
                                                    78.2                    74.1

66821   Discussion of secondary   Med.         0.0   1.0   1.1   0.0   0.0   0.0
        membranous cataract       Cov.         0.0               0.0   0.5   5.9
                                                    35.3  27.6
                                  Total        0.0               0.0   0.5   5.9
                                                    36.3  28.7

66984   Extracapsular cataract    Med.         0.2         5.5   0.0   1.1   0.0
        removal with insertion    Cov.         0.0  10.8         1.7   0.5   0.7
        of intraocular lens                               14.1
        prosthesis                Total        0.2  31.1         1.7   1.6   0.7
                                                          19.7
                                                    42.0

        Radiology

71010   Radiological exam,        Med.         0.5         4.4   1.0         1.0
        chest, single view,       Cov.         0.5  16.0         4.2  80.5
        frontal                                           12.5         0.3  17.4
                                  Total        1.0  13.0         5.2
                                                          16.8        80.9  18.4
                                                    29.0

71020   Radiological exam,        Med.         0.4         0.9   0.2  103.   0.9
        chest, 2 views, frontal   Cov.         1.2  12.4                 2
        and lateral                                  7.0  14.2  11.9   1.3  19.1
                                  Total        1.6
                                                    19.3  15.0  12.2  104.  20.0
                                                                         5

76091   Mammography, bilateral    Med.         0.3         0.3   0.0   0.0   0.4
                                  Cov.         1.3  54.0  124.         0.2  129.
                                                             3  28.8           3
                                  Total        1.5  11.9               0.2
                                                          124.  28.8        129.
                                                    65.9     6                 7

77430   Weekly radiation therapy  Med.         0.0   1.2   0.0   0.0   0.0   1.6
        management, complex       Cov.         0.0   5.5         1.6         8.2
                                                          35.6        75.3
                                  Total        0.0   6.7         1.6         9.9
                                                          35.6        75.3

78465   Myocardial perfusion      Med.         0.0  261.   1.5         0.0   0.0
        imaging                   Cov.         2.0     4        15.1   0.0   5.9
                                                     4.9  17.0   0.0
                                  Total        2.0                     0.0   5.9
                                                    266.  18.5  15.1
                                                       3

        Path/lab

80019   Automated multichannel    Med.         1.1   3.5   0.2   2.8         0.0
        test, 19 or more          Cov.               4.7   3.7   8.4  93.8
        clinical chemistry tests              28.7                     0.0  14.2
                                  Total              8.2   3.9  11.2
                                              29.8                    93.8  14.2

84443   Thyroid stimulating       Med.         0.6   3.4   0.3   4.4   0.0   0.0
        hormone                   Cov.               4.6   1.6   5.8   0.1
                                              26.5                          14.3
                                  Total              8.0   2.0  10.2   0.1
                                              27.1                          14.3

85025   Blood count; hemogram     Med.         0.9   5.2   0.2   0.0   0.0   0.3
        and platelet count,       Cov.               3.7   3.2   7.7   0.0   9.7
        automated and CBC                     27.8
                                  Total              8.9   3.3   7.7   0.0  10.0
                                              28.7

86316   Immunoassay for tumor     Med.         0.3   3.2   0.4   0.0   0.0   0.0
        antigen (for example,     Cov.               4.1   8.2   4.1   0.0   6.5
        prostate specific                     30.6
        antigen)                  Total              7.3   8.6   4.1   0.0   6.5
                                              30.8

88305   Level IV--surgical        Med.         0.1         1.5   0.5   0.0   0.7
        pathology, gross and      Cov.         1.1  19.9         1.9   0.3
        microscopic exam                                  22.7              18.4
                                  Total        1.1  19.6         2.4   0.3
                                                          24.2              19.1
                                                    39.5

        Medicine

90843   Individual medical        Med.         0.1         1.6   0.0   0.0   1.0
        psychotherapy by a        Cov.         2.9  14.7         6.3   7.8
        physician, approximately                          26.4              26.4
        20-30 minutes             Total        3.0  12.7         6.3   7.8
                                                          28.0              27.3
                                                    27.4

90844   Individual medical        Med.         0.2   9.9   1.0   0.0   0.0   0.7
        psychotherapy by a        Cov.         0.6               0.0        182.
        physician, approximately                    15.7  23.4        35.5     1
        45-50 minutes             Total        0.8               0.0
                                                    25.6  24.4        35.5  182.
                                                                               8

92004   Opthalmologic services:   Med.         0.2   5.2   0.4   0.0   1.4  102.
        medical examination and   Cov.         3.4                     3.1     2
        evaluation                                  11.7  61.6  16.7         4.7
                                  Total        3.7                     4.5
                                                    16.9  62.0  16.7        106.
                                                                               9

92012   Ophthalmologic services:  Med.         0.0   1.8   0.5   0.0   1.6
        medical exam and          Cov.         1.1               6.6   8.1  51.5
        evaluation, with                            22.9  37.6               4.2
        initiation or             Total        1.1               6.6   9.7
        continuation of                             24.7  38.1              55.7
        diagnostic and treatment
        program

92014   Ophthalmologic services:  Med.         0.0   2.8   0.9   0.0   2.5
        medical exam and          Cov.         1.1                     4.1  83.5
        evaluation, with                            12.7  49.0  22.6         5.6
        initiation or             Total        1.1                     6.6
        continuation of                             15.6  50.0  22.6        89.1
        diagnostic and treatment
        program

92982   Percutaneous              Med.         0.0  182.         0.0   0.0
        transluminal coronary     Cov.        256.     4  29.2   0.0  175.  33.3
        balloon angioplasty,                     3                       0   0.0
        single vessel             Total             19.5  58.5   0.0
                                              256.                    175.  33.3
                                                 3  202.  87.7           0
                                                       0

93005   Electrocardiogram,        Med.         1.0   8.5   0.6   0.0   0.1   0.8
        routine, with at least    Cov.                           2.8   3.1
        12 leads; tracing only,               36.8  11.3  42.0              21.4
        without interpretation    Total                          2.8   3.3
        and report                            37.7  19.8  42.6              22.2

93307   Echocardiography, real-   Med.         4.1  140.   1.2   0.0   0.0   1.5
        time with image           Cov.         0.9     0         1.2   0.0   5.2
        documentation (2D), with                          39.3
        or without M-mode         Total        5.0  41.4         1.2   0.0   6.7
        recording, complete                               40.5
                                                    181.
                                                       4

93320   Doppler                   Med.         0.4         8.1   0.0   0.0   4.8
        echocardiography, pulsed  Cov.         0.7  88.8         0.7   5.1   6.2
        wave or continuous wave                           40.2
        with spectral display,    Total        1.1  31.9         0.7   5.1  11.0
        complete                                          48.3
                                                    120.
                                                       7

93547   Combined left heart       Med.         0.0   3.0   1.5   0.0   0.0   0.0
        catheterization,          Cov.         0.0         5.9   0.0         3.6
        selective coronary                          78.2              66.4
        angiography, 1 or more    Total        0.0         7.4   0.0         3.6
        coronary arteries, and                      81.2              66.4
        selective left
        ventricular angiography

93549   Combined right and left   Med.         0.0   0.0  198.   0.0   0.0   0.0
        heart catheterization,    Cov.         0.0           6   0.0         5.3
        selective coronary                          79.1              88.5
        angiography, 1 or more    Total        0.0        41.1   0.0         5.3
        coronary arteries                           79.1              88.5
                                                          239.
                                                             7

93880   Duplex scan of            Med.         0.0  124.         0.0   0.0   0.0
        extracranial arteries;    Cov.         1.9     9  13.6   0.0   1.8   7.2
        complete bilateral study
                                  Total        1.9  15.4  55.9   0.0   1.8   7.2

                                                    140.  69.6
                                                       2

        Office or other
        outpatient services

99202   Office or other           Med.         0.2         0.4   0.0   2.7   0.4
        outpatient visit for the  Cov.              15.9         5.7
        evaluation                            10.8        26.6        15.0  65.7
                                  Total             12.6         5.7
                                              11.0        27.0        17.7  66.0
                                                    28.4

99203   Office or other           Med.         0.7         0.2   0.0   3.6   1.3
        outpatient visit          Cov.         6.8  10.4         7.6
                                                          30.7        12.7  87.7
                                  Total        7.4  11.9         7.6
                                                          30.9        16.3  89.0
                                                    22.3

99204   Office or other           Med.         0.0   8.6   0.0   0.0   4.1   0.0
        outpatient visit          Cov.         3.2   9.5         2.5
                                                          20.5        13.0  66.5
                                  Total        3.2  18.1         2.5
                                                          20.5        17.1  66.5

99205   Office or other           Med.         0.3   7.0   0.7   0.0   9.3   0.0
        outpatient visit          Cov.         1.3   9.4         3.5
                                                          23.8        26.6  40.7
                                  Total        1.6  16.4         3.5
                                                          24.5        35.9  40.7

99211   Office or other           Med.         1.2         0.3   0.0   6.2
        outpatient visit for the  Cov.         9.3  17.4         1.1        20.2
        evaluation                                        25.6        15.7
                                  Total       10.5  25.8         1.1        31.8
                                                          26.0        21.9
                                                    43.3                    52.0

99212   Office or other           Med.         0.6   7.9   0.5   0.0   5.5
        outpatient visit          Cov.         2.6               2.0   8.1  18.4
                                                    27.2  20.3
                                  Total        3.2               2.0  13.6  10.8
                                                    35.1  20.8
                                                                            29.3

99213   Office or other           Med.         0.4   3.7   0.3   0.0   3.7   9.7
        outpatient visit          Cov.         1.2               1.5   5.2   9.3
                                                    15.7  12.2
                                  Total        1.6               1.5   8.9  19.0
                                                    19.4  12.5

99214   Office or other           Med.         0.2   4.4   0.3   0.3   3.8   8.2
        outpatient visit          Cov.         0.5               3.3   5.3
                                                    14.6  16.0              15.3
                                  Total        0.7               3.6   9.2
                                                    19.1  16.2              23.5

99215   Office or other           Med.         0.1   6.3   1.0   0.0   5.6   6.2
        outpatient visit          Cov.         1.0               5.6   7.1
                                                    19.1  28.4              19.6
                                  Total        1.1               5.6  12.6
                                                    25.4  29.4              25.8

        Hospital inpatient
        services

99222   Initial hospital care,    Med.         0.6         1.5   3.1   9.8   2.5
        per day                   Cov.         0.0  11.3         3.1   8.7   7.7
                                                          28.9
                                  Total        0.6  30.6         6.3  18.5  10.2
                                                          30.4
                                                    41.9

99223   Initial hospital care,    Med.         0.3   9.4   2.6   1.2   7.8   6.6
        per day                   Cov.         0.3               0.0   6.9   7.9
                                                    17.9  24.2
                                  Total        0.5               1.2  14.7  14.5
                                                    27.4  26.8

99231   Subsequent hospital       Med.         0.3         0.3   2.2
        care, per day             Cov.         0.1  12.4         1.1  13.4  21.5
                                                          22.4         6.2   9.5
                                  Total        0.4  16.8         3.3
                                                          22.8        19.6  31.0
                                                    29.3

99232   Subsequent hospital       Med.         0.9         0.4   1.7
        care, per day             Cov.         0.2  13.7         1.6  11.9  17.1
                                                          16.7         5.2   8.7
                                  Total        1.1  11.4         3.3
                                                          17.1        17.1  25.7
                                                    25.1

99233   Subsequent hospital       Med.         0.8         0.3   2.1   9.1
        care, per day             Cov.         0.1  22.9         1.6   6.5  20.4
                                                          26.4
                                  Total        0.9  13.8         3.7  15.6  13.7
                                                          26.7
                                                    36.7                    34.1

99238   Hospital discharge day    Med.         0.5         0.4   0.3
        management                Cov.         0.1  12.2         0.6  10.3  13.7
                                                          17.2         6.2   6.2
                                  Total        0.6  15.6         0.9
                                                          17.6        16.6  19.9
                                                    27.8

        Consultations

99243   Office consultation, new  Med.         0.0   3.2   0.6   0.0   0.0   6.8
        or established patient    Cov.         0.6               1.4   0.4
                                                    18.1  57.4              13.6
                                  Total        0.6               1.4   0.4
                                                    21.4  57.9              20.4

99244   Office consultation, new  Med.         0.0   3.0   0.0   0.0   0.0   3.6
        or established patient    Cov.         0.7               2.1   1.0
                                                    12.9  65.6              10.9
                                  Total        0.7               2.1   1.0
                                                    15.9  65.6              14.5

99245   Office consultation, new  Med.         0.0   2.4   0.0   0.0   0.0
        or established patient    Cov.         1.4               0.0   1.0  12.8
                                                    10.3  53.8
                                  Total        1.4               0.0   1.0  11.2
                                                    12.7  53.8
                                                                            24.1

99253   Initial inpatient         Med.         0.5   2.6   2.2   0.0   0.0   1.1
        consultation, new or      Cov.         0.0               0.0   4.1
        established patient                         15.3  61.3              15.5
                                  Total        0.5               0.0   4.1
                                                    17.9  63.5              16.6

99254   Initial inpatient         Med.         0.2   2.3   0.4   0.8   0.0   0.5
        consultation, new or      Cov.         0.4               0.0   2.2
        established patient                         15.2  61.7              18.1
                                  Total        0.6               0.8   2.2
                                                    17.5  62.1              18.6

99255   Initial inpatient         Med.         0.4   2.6   0.0   0.0   0.0   0.0
        consultation, new or      Cov.         0.0               1.3   4.2   9.3
        established patient                         10.3  59.2
                                  Total        0.4               1.3   4.2   9.3
                                                    12.9  59.2

99262   Follow-up inpatient       Med.         0.0         1.6   0.0   0.0
        consultation for an       Cov.         0.0  10.5         8.6   5.3  33.0
        established patient                               79.7
                                  Total        0.0  14.6         8.6   5.3  26.2
                                                          81.3
                                                    25.1                    59.3

        Emergency department
        services

99283   Emergency department      Med.         0.1         1.0   0.8   0.0
        visit                     Cov.         0.0  12.5         2.9   3.9  14.7
                                                     4.3  16.3               8.1
                                  Total        0.1               3.7   3.9
                                                    16.8  17.2              22.8

99284   Emergency department      Med.         0.2   8.5   1.7   0.0   0.0   4.8
        visit                     Cov.         0.0   8.7         1.2   2.8
                                                          10.0              15.1
                                  Total        0.2  17.1         1.2   2.8
                                                          11.7              19.9

99285   Emergency department      Med.         0.0         2.9   0.9   0.0   8.3
        visit                     Cov.         0.0  30.6         0.9   2.2
                                                     7.2  22.9              16.0
                                  Total        0.0               1.9   2.2
                                                    37.8  25.8              24.3

        Critical care services

99291   Critical care, including  Med.         0.3   6.9   1.8   4.2
        diagnostic and            Cov.         0.8   6.7         0.0  13.8  27.7
        therapeutic services,                             43.2
        first hour                Total        1.0  13.6         4.2  30.5  10.0
                                                          45.0
                                                                      44.3  37.7

        Nursing facility
        services

99311   Subsequent nursing        Med.         0.0   2.6   0.8   0.0   4.1   5.0
        facility care, per day    Cov.         0.1   9.9         0.2   1.3
                                                          14.2              12.8
                                  Total        0.1  12.6         0.2   5.3
                                                          14.9              17.8

99312   Subsequent nursing        Med.         0.2   4.3   0.3   0.0   3.6   3.1
        facility care, per day    Cov.         0.1               0.0   0.8
                                                    12.0  17.2              11.1
                                  Total        0.2               0.0   4.4
                                                    16.3  17.5              14.2

        HCPCS

A0010   Ambulance service, basic  Med.         0.3         1.2         0.0
        life support              Cov.         0.3  20.4  270.  48.6   0.8  42.4
                                                             3   5.6
                                  Total        0.6  18.9               0.8  52.2
                                                          271.  54.2
                                                    39.3     5              94.5

A0020   Ambulance service, (BLS)  Med.         6.2         1.4         0.1
        per mile, transport, one  Cov.         1.6  74.3  459.  18.4   1.7  49.5
        way                                                  9   1.0
                                  Total        7.8  35.1               1.8  49.8
                                                          461.  19.4
                                                    109.     2              99.4
                                                       4

A0150   Ambulance, nonemergency   Med.        302.         1.9          \b    \b
        transport, base rate,     Cov.           5  83.2  264.  13.0    \b    \b
        one way                                              9   0.0
                                  Total       11.1  38.7
                                                          266.  13.0
                                              313.  122.     8
                                                 5     0

A0220   Ambulance service,        Med.         0.4         0.0         0.0    \b
        advanced life support,    Cov.         0.7  10.8  100.  47.2   0.0    \b
        all-inclusive services                               8
                                  Total        1.1  17.2        27.6   0.0
                                                          100.
                                                    28.1     8  74.8

A2000   Manipulation of the       Med.                    173.  116.  142.
        spine by chiropractor     Cov.        77.1  72.2     9     5     8  18.3
                                               0.7                     4.5  145.
                                  Total             41.1  89.5  77.4           8
                                              77.8                    147.
                                                    113.  263.  194.     2  164.
                                                       4     4     0           1

J9217   Leuprolide acetate, for   Med.         0.0   0.9         0.0   0.0   2.7
        depot suspension, 7.5 mg  Cov.         0.0   8.2  17.1   6.8   0.0   2.7

                                  Total        0.0   9.1  21.0   6.8   0.0   5.4

                                                          38.1
--------------------------------------------------------------------------------
\a Categories are Med.  = medical necessity denial rate; Cov.  =
noncovered care denial rate; Total = medical necessity + noncovered
care.  (The "Total" category may not always be equal to the sum of
the "Med." and "Cov." categories because it was independently
rounded.)

\b No allowed services were found for this code. 


1993 DENIAL RATES (PER 1,000
SERVICES ALLOWED) FOR MEDICAL
NECESSITY AND NONCOVERED CARE BY
CARRIER
========================================================= Appendix III

                                                N.    S.
                                              Cali  Cali
Code    Description               Type\a        f.    f.  N.C.  S.C.  Ill.  Wis.
------  ------------------------  ----------  ----  ----  ----  ----  ----  ----
        Anesthesia

00142   Anesthesia for procedure  Med.         0.0   1.0   4.5   0.0   1.6   4.8
        on eye, lens surgery      Cov.               5.8         0.0   0.9
                                              17.3        37.9              10.6
                                  Total              6.8         0.0   2.5
                                              17.3        42.5              15.4

00562   Anesthesia, procedure on  Med.         0.0   0.0         0.0   0.0   0.0
        heart, pericardium and    Cov.               3.5  13.3   0.0   0.0   0.0
        great vessels of chest;               11.6
        oxygenator with pump      Total              3.5  17.7   0.0   0.0   0.0
                                              11.6
                                                          31.0

        Musculoskeletal

27130   Arthroplasty, acetabular  Med.         0.0   4.0   6.3   0.0   4.8   0.0
        and proximal femoral      Cov.         0.0               0.0   0.0   6.3
        prosthetic replacement,                     12.0  25.3
        with or without           Total        0.0               0.0   4.8   6.3
        allograft                                   15.9  31.6

27236   Open treatment of closed  Med.         0.0   0.0   0.0   0.0   5.0   0.0
        or open femoral fracture  Cov.         0.0               0.0   0.0
                                                    16.5  40.7              36.7
                                  Total        0.0               0.0   5.0
                                                    16.5  40.7              36.7

27244   Open treatment of closed  Med.         0.0   5.2   0.0   0.0   0.0   0.0
        or open                   Cov.         0.0               0.0   3.8   7.2
        intertrochanteric                           15.6  58.8
                                  Total        0.0               0.0   3.8   7.2
                                                    20.8  58.8

27447   Arthroplasty, knee,       Med.         0.0         3.9   0.0   2.8   0.0
        condyle, and plateau;     Cov.         0.0  11.2         0.0   0.0
        medical and lateral                          8.4  85.6              11.6
        compartments, with or     Total        0.0               0.0   2.8
        without patella                             19.7  89.5              11.6
        resurfacing

        Cardiovascular

33512   Coronary artery bypass,   Med.         0.0   0.0   0.0   0.0         0.0
        3 coronary venous grafts  Cov.         0.0   8.4         0.0  11.8   0.0
                                                          32.3         0.0
                                  Total        0.0   8.4         0.0         0.0
                                                          32.3        11.8

33513   Coronary artery bypass,   Med.         9.4   0.0   0.0   0.0         0.0
        4 coronary venous grafts  Cov.         0.0   0.0   0.0   0.0  11.2   0.0
                                                                       0.0
                                  Total        9.4   0.0   0.0   0.0         0.0
                                                                      11.2

36415   Routine venipuncture,     Med.         0.2   9.5   1.8   0.4   0.2   0.0
        collection of specimen    Cov.         3.7   5.8         1.3   5.4
                                                          28.3              13.0
                                  Total        3.9  15.3         1.7   5.5
                                                          30.1              13.0

        Digestive

43235   Upper gastrointestinal    Med.         0.0   0.9   0.0   0.0   0.9   0.0
        endoscopy, including      Cov.         1.0   6.3         0.0   1.9   7.7
        esophagus, stomach,                               33.5
        duodenum, or jejunum;     Total        1.0   7.2         0.0   2.8   7.7
        complex diagnostic                                33.5

43239   Upper gastrointestinal    Med.         0.0   1.3   1.2   0.0   0.0   0.0
        endoscopy, including      Cov.         5.0               8.0
        esophagus, stomach,                         10.4  20.4        11.0  11.2
        duodenum, or jejunum;     Total        5.0               8.0
        for biopsy or                               11.7  21.6        11.0  11.2
        collections by brushing

45378   Colonoscopy, fiberoptic,  Med.         0.0   0.8   0.0   0.0   0.0   0.0
        beyond splenic flexure,   Cov.         0.9   5.0         2.2   2.7   1.9
        diagnostic, with or                               20.7
        without colon             Total        0.9   5.8         2.2   2.7   1.9
        decompression                                     20.7

45385   Colonoscopy, fiberoptic,  Med.         0.0   0.0   0.0   0.0   0.0   0.0
        beyond splenic flexure,   Cov.         2.2   5.7         0.0         4.6
        same as above, with                               27.2        28.3
        removal of polypoid       Total        2.2   5.7         0.0         4.6
        lesions                                           27.2        28.3

        Urinary

52000   Cystourethroscopy         Med.         1.3   0.0   1.0   0.0   0.0   0.0
        (separate procedure)      Cov.         0.7   1.5         0.0   0.0
                                                          21.3              19.9
                                  Total        2.0   1.5         0.0   0.0
                                                          22.3              19.9

52601   Transuretheral resection  Med.                           0.0   0.0   0.0
        of prostate, including    Cov.        16.6  14.3  12.1   0.0   0.0   5.9
        control of post-op                     0.0   0.0
        bleeding, complete        Total                   30.3   0.0   0.0   5.9
                                              16.6  14.3
                                                          42.4

        Eye and ocular adenxa

65855   Trabeculoplasty by laser  Med.         0.0   0.0   9.0   0.0   0.0   0.0
        surgery, one or more      Cov.         0.0               0.0   0.0
        sessions                                    36.3  45.0              96.5
                                  Total        0.0               0.0   0.0
                                                    36.3  54.1              96.5

66821   Discussion of secondary   Med.         0.0   0.6   1.0   0.0   0.0   0.0
        membranous cataract       Cov.         3.1   4.0         0.0   1.2   2.0
        (opacified posterior)                             31.4
                                  Total        3.1   4.5         0.0   1.2   2.0
                                                          32.4

66984   Extracapsular cataract    Med.         0.3   1.8         1.0   0.0   1.5
        removal with insertion    Cov.         6.7   7.2  12.9   0.0   2.3   3.1
        of intraocular lens
        prosthesis                Total        6.9   9.1  23.5   1.0   2.3   4.6

                                                          36.4

        Radiology

71010   Radiologic exam, chest,   Med.         5.1         7.0   0.4         0.1
        single view, frontal      Cov.         0.6  17.3         0.7  57.5
                                                          18.6         0.4  10.4
                                  Total        5.6  12.1         1.1
                                                          25.6        58.0  10.5
                                                    29.4

71020   Radiologic exam, chest,   Med.         7.6         1.2   0.2         0.1
        2 views, frontal and      Cov.         0.3  14.6         5.0  90.2
        lateral                                      5.8  24.9         3.6  13.4
                                  Total        7.9               5.2
                                                    20.4  26.1        93.8  13.5

76091   Mammography, bilateral    Med.                     0.0   2.6   0.0   0.0
                                  Cov.        47.0  63.5  128.         0.0  147.
                                               0.0           5  82.8           3
                                  Total             16.0               0.0
                                              47.0        128.  85.4        147.
                                                    79.5     5                 3

77430   Weekly radiation therapy  Med.         0.0   4.5   0.0   0.0   0.0   0.0
        management, complex       Cov.         0.0   0.0         0.0   0.0   4.3
                                                          61.5
                                  Total        0.0   4.5         0.0   0.0   4.3
                                                          61.5

78465   Myocardial perfusion      Med.         0.0  248.   6.4   6.0   0.0   0.0
        imaging                   Cov.         0.0     4               0.0   0.0
                                                     3.9  10.3  12.0
                                  Total        0.0                     0.0   0.0
                                                    252.  16.7  18.0
                                                       3

        Path/lab

80019   Automated multichannel    Med.         0.1   1.7   0.5   1.4  138.   0.0
        test, 19 or more          Cov.         1.0   7.4         1.8     9
        clinical chemistry tests                          10.1         0.0  12.6
                                  Total        1.1   9.0         3.2
                                                          10.6        138.  12.6
                                                                         9

84443   Thyroid stimulating       Med.         0.1   2.3   0.4   4.0   0.2   0.0
        hormone (TSH)             Cov.         1.0   3.0   7.0   2.7   0.0
                                                                            11.6
                                  Total        1.1   5.3   7.4   6.7   0.2
                                                                            11.6

85025   Blood count, hemogram     Med.         0.1   1.7   0.6   0.9   0.0   0.0
        and platelet count,       Cov.         0.4   4.9   8.2   0.5   0.0   8.3
        automated and CBC
                                  Total        0.5   6.7   8.8   1.4   0.0   8.3

86316   Immunoassay for tumor     Med.         0.2   3.8   0.6   1.2   0.4   6.1
        antigen (for example,     Cov.         1.5   6.1         0.0   0.0
        prostate specific                                 16.6              15.8
        antigen)                  Total        1.7   9.9         1.2   0.4
                                                          17.2              21.9

88305   Level IV--surgical        Med.         0.1   5.7   6.2   1.3   0.6   0.7
        pathology, gross and      Cov.         0.5               0.9   0.0   6.5
        microscopic exam                            19.0  21.7
                                  Total        0.6               2.2   0.6   7.2
                                                    24.7  27.9

        Medicine

90843   Individual medical        Med.         0.2   8.7   5.3   0.0   0.6   0.7
        psychotherapy by a        Cov.         0.2               0.7   1.6
        physician, approximately                    11.5  16.8              38.8
        20-30 minutes             Total        0.4               0.7   2.3
                                                    20.2  22.1              39.5

90844   Individual medical        Med.         0.0   6.3   2.9   0.0   1.4   1.6
        psychotherapy by a        Cov.         0.1               0.0   0.3  178.
        physician, approximately                    18.4  23.2                 0
        45-50 minutes             Total        0.1               0.0   1.7
                                                    24.7  26.1              179.
                                                                               6

92004   Opthalmologic services:   Med.               4.2   1.2   0.0        108.
        medical examination and   Cov.        19.2               0.8  19.6     4
        evaluation                             1.2  13.8  65.3               9.0
                                  Total                          0.8  35.5
                                              20.4  18.0  66.5              117.
                                                                      55.1     4

92012   Ophthalmologic services:  Med.         2.5   2.2   1.5   0.4   9.1
        medical exam and          Cov.         0.1   3.0         0.4        29.7
        evaluation, with                                  61.3        21.0   4.6
        initiation or             Total        2.7   5.2         0.7
        continuation of                                   62.8        30.0  34.3
        diagnostic and treatment
        program

92014   Ophthalmologic services:  Med.         7.0   1.4   0.6   0.0
        medical exam and          Cov.         1.3   6.6         0.3  13.8  80.1
        evaluation, with                                  56.6               7.0
        initiation or             Total        8.3   8.0         0.3  24.2
        continuation of                                   57.3              87.1
        diagnostic and treatment                                      38.0
        program

92982   Percutaneous              Med.              100.  125.   0.0         0.0
        transluminal coronary     Cov.        46.3     3     0        12.7   0.0
        balloon angioplasty,                         3.5  125.  54.9  237.
        single vessel             Total       78.4           0           3   0.0
                                                    103.        54.9
                                              124.     8  250.        250.
                                                 8           0           0

93005   Electrocardiogram,        Med.         0.3         1.5   0.2   0.1   1.2
        routine, with at least    Cov.              18.6         2.3
        12 leads; tracing only,               12.1        87.7        28.8  18.4
        without interpretation    Total             11.5         2.5
        and report                            12.4        89.2        28.9  19.6
                                                    30.1

93307   Echocardiography, real-   Med.         1.7  173.   1.1   4.4   0.0   0.0
        time with image           Cov.         0.5     3         0.0   0.0   3.1
        documentation (2D), with                          36.3
        or without M-mode         Total        2.2  25.1         4.4   0.0   3.1
        recording, complete                               37.3
                                                    198.
                                                       5

93320   Doppler                   Med.         0.0  129.   3.3   4.3   0.0   4.9
        echocardiography, pulsed  Cov.         0.6     1         0.0   0.0   4.4
        wave or continuous wave                           26.9
        with spectral display,    Total        0.6  22.3         4.3   0.0   9.3
        complete                                          30.3
                                                    151.
                                                       4

93547   Combined left heart       Med.         1.3   3.1   0.0   0.0   0.0   0.0
        catheterization,          Cov.         2.6               0.0         3.9
        selective coronary                          56.3  10.0        47.0
        angiography, 1 or more    Total        3.9               0.0         3.9
        coronary arteries, and                      59.5  10.0        47.0
        selective left
        ventricular angiography

93549   Combined right and left   Med.         3.8   3.9  180.   0.0   0.0   0.0
        heart catheterization,    Cov.         5.7           6   0.0         3.5
        selective coronary                          46.7              63.9
        angiography, 1 or more    Total        9.5        12.9   0.0         3.5
        coronary arteries                           50.6              63.9
                                                          193.
                                                             5

93880   Duplex scan of            Med.         0.0  209.   1.2   0.0   0.0   0.0
        extracranial arteries,    Cov.         0.4     9               0.0   7.7
        complete bilateral study                          29.9  31.4
                                  Total        0.4  13.2               0.0   7.7
                                                          31.1  31.4
                                                    223.
                                                       1

        Office or other
        outpatient services

99202   Office or other           Med.         0.3         0.8   0.5   2.7   0.4
        outpatient visit for the  Cov.              23.9                    107.
        evaluation                            21.5   6.5  58.5  18.9  26.3     7
                                  Total
                                              21.8  30.4  59.3  19.4  28.9  108.
                                                                               0

99203   Office or other           Med.         0.1         0.7   0.0   4.5   0.0
        outpatient visit          Cov.              14.7                    109.
                                              11.9   8.0  85.3  12.2  29.2     7
                                  Total
                                              12.1  22.7  86.0  12.2  33.8  109.
                                                                               7

99204   Office or other           Med.         0.2   7.2   1.3   0.0   1.9   0.0
        outpatient visit          Cov.         4.0   5.9         7.4
                                                          55.4        22.6  65.5
                                  Total        4.2  13.1         7.4
                                                          56.7        24.5  65.5

99205   Office or other           Med.         0.0   5.7   1.5   0.0   4.5   0.0
        outpatient visit          Cov.         3.4               2.6
                                                    13.9  63.4        45.6  66.8
                                  Total        3.4               2.6
                                                    19.7  64.8        50.2  66.8

99211   Office or other           Med.         0.6         0.2   0.0   7.2
        outpatient visit          Cov.              36.6                    12.0
                                              27.7   4.9  52.3  13.8  22.0
                                  Total                                     55.6
                                              28.3  41.6  52.6  13.8  29.2
                                                                            67.6

99212   Office or other           Med.         0.7         0.7   0.0   6.2   6.9
        outpatient visit          Cov.         4.1  15.7         7.0   2.2
                                                     6.2  46.7              27.6
                                  Total        4.8               7.1   8.4
                                                    21.8  47.4              34.5

99213   Office or other           Med.         0.3   5.6   0.5   0.0   4.4   3.0
        outpatient visit          Cov.         1.5   4.5         1.0   1.8
                                                          26.9              17.3
                                  Total        1.8  10.2         1.0   6.2
                                                          27.5              20.3

99214   Office or other           Med.         0.3   5.2   0.3   0.0   3.7   2.0
        outpatient visit          Cov.         0.8   4.4         2.0   3.0
                                                          38.1              24.9
                                  Total        1.1   9.6         2.0   6.7
                                                          38.5              27.0

99215   Office or other           Med.         0.0   6.0   1.0   0.0   3.6   1.8
        outpatient visit          Cov.         1.6   5.9         4.8   7.5
                                                          43.1              33.4
                                  Total        1.6  11.9         4.8  11.1
                                                          44.0              35.3

        Hospital inpatient
        services

99222   Initial hospital care,    Med.         0.4   8.7   2.8   2.6         0.7
        per day                   Cov.         0.2               0.5  16.9   3.3
                                                    18.2  73.0         2.4
                                  Total        0.6               3.1         4.0
                                                    26.9  75.8        19.3

99223   Initial hospital care,    Med.         0.8   7.2   2.6   2.8         3.6
        per day                   Cov.         0.3               0.0  12.2   4.0
                                                    16.4  64.8         4.2
                                  Total        1.1               2.8         7.6
                                                    23.6  67.4        16.5

99231   Subsequent hospital       Med.         7.7         5.8   3.2
        care, per day             Cov.         0.4  20.7         0.0  17.6  10.1
                                                          35.2         6.1   8.8
                                  Total        8.1  11.8         3.2
                                                          41.0        23.7  18.9
                                                    32.5

99232   Subsequent hospital       Med.         8.7         4.7   4.1         9.8
        care, per day             Cov.         0.3  20.8         0.0  17.8
                                                          39.5         4.5  11.6
                                  Total        9.0  10.6         4.1
                                                          44.2        22.3  21.4
                                                    31.3

99233   Subsequent hospital       Med.                     4.1   5.7
        care, per day             Cov.        11.4  24.8  53.6   1.4  17.1  12.0
                                               0.1   7.4               7.0
                                  Total                   57.7   7.1        17.8
                                              11.4  32.2              24.2
                                                                            29.8

99238   Hospital discharge day    Med.         0.1         2.1   0.3         7.2
        management                Cov.         0.6  34.1         0.5  15.4   9.3
                                                          41.9         6.6
                                  Total        0.8  12.8         0.8        16.5
                                                          44.0        22.0
                                                    46.9

        Consultations

99243   Office consultation, new  Med.         0.5   0.9   1.5   0.0   0.0   5.2
        or established patient    Cov.         0.3        175.   1.3   1.2   5.7
                                                    16.6     4
                                  Total        0.8               1.3   1.2  11.0
                                                    17.6  176.
                                                             8

99244   Office consultation, new  Med.         0.3   2.2   0.9   0.0   0.0   1.1
        or established patient    Cov.         0.3        143.   0.0   1.9   9.1
                                                    16.9     9
                                  Total        0.6               0.0   1.9  10.3
                                                    19.1  144.
                                                             7

99245   Office consultation, new  Med.         0.4   3.5   0.0   0.0   0.0   0.0
        or established patient    Cov.         0.0        173.   0.0   2.5   3.4
                                                    18.8     4
                                  Total        0.4               0.0   2.5   3.4
                                                    22.4  173.
                                                             4

99253   Initial inpatient         Med.         0.0   3.8   2.2   1.1   0.0   2.5
        consultation, new or      Cov.         0.0        120.   0.0   0.8   6.0
        established patient                         36.0     8
                                  Total        0.0               1.1   0.8   8.6
                                                    39.8  123.
                                                             0

99254   Initial inpatient         Med.         0.8   3.2   2.2   0.0   0.0   1.9
        consultation, new or      Cov.         0.2               0.0   2.6   6.9
        established patient                         14.5  87.6
                                  Total        1.0               0.0   2.6   8.8
                                                    17.7  89.8

99255   Initial inpatient         Med.         0.0   2.5   0.0   0.0   0.0   4.4
        consultation, new or      Cov.         0.6        120.   0.0   3.7   7.6
        established patient                         14.4     7
                                  Total        0.6               0.0   3.7  12.0
                                                    16.8  120.
                                                             7

99262   Follow-up inpatient       Med.         0.0         1.9   0.0   0.0   4.5
        consultation for an       Cov.         0.7  33.3  198.   0.0   9.6
        established patient                                  1              23.8
                                  Total        0.7  10.9         0.0   9.6
                                                          200.              28.3
                                                    44.2     0

        Emergency department
        services

99283   Emergency department      Med.         0.3         6.0   0.0   0.0   1.1
        visit                     Cov.         0.0  17.1         0.0   3.4   4.9
                                                     5.4  20.3
                                  Total        0.3               0.0   3.4   6.0
                                                    22.6  26.3

99284   Emergency department      Med.         0.0         1.9   0.5   0.0   3.1
        visit                     Cov.         0.1  14.0         0.0   1.4   6.4
                                                     8.4  16.9
                                  Total        0.1               0.5   1.4   9.5
                                                    22.4  18.8

99285   Emergency department      Med.         0.0         2.1   0.7   0.0   4.5
        visit                     Cov.         0.0  79.6         0.7   1.5   7.2
                                                     9.8  33.4
                                  Total        0.0               1.4   1.5  11.7
                                                    89.4  35.5

        Critical care services

99291   Critical care, including  Med.               6.7   3.9   1.8
        diagnostic and            Cov.        12.0   6.7  164.   0.0  12.9  12.5
        therapeutic services,                  0.7           2
        first hour                Total             13.5         1.8  15.0  60.4
                                              12.7        168.
                                                             1        27.9  72.8

        Nursing facility
        services

99311   Subsequent nursing        Med.         0.0   3.8   0.5   0.0   6.8   1.3
        facility care, per day    Cov.         0.1               0.2   0.5   8.0
                                                    18.8  22.8
                                  Total        0.1               0.2   7.2   9.2
                                                    22.6  23.3

99312   Subsequent nursing        Med.         0.1   4.2   2.0   0.0   4.2   1.6
        facility care, per day    Cov.         0.1               0.7   1.4   5.8
                                                    20.2  18.8
                                  Total        0.1               0.7   5.6   7.4
                                                    24.4  20.8

        HCPCS

A0010   Ambulance service, basic  Med.         1.4        114.   0.8   0.0
        life support              Cov.         0.0  13.7     0   0.8   2.2  31.1
                                                          299.
                                  Total        1.4  21.6     1   1.5   2.2  90.8

                                                    35.3  413.              121.
                                                             2                 9

A0020   Ambulance service, (BLS)  Med.         3.1               0.0   0.0
        per mile, transport, one  Cov.         0.0  64.3  98.0   0.0   1.9  38.4
        way                                               664.
                                  Total        3.1  79.5     6   0.0   1.9  92.0

                                                    143.  762.              130.
                                                       7     6                 4

A0150   Ambulance, nonemergency   Med.        169.               0.8    \b    \b
        transport, base rate,     Cov.           5  81.2  59.2   0.0    \b    \b
        one way                                0.3        311.
                                  Total             72.5     8   0.8
                                              169.
                                                 8  153.  371.
                                                       7     1

A0220   Ambulance service,        Med.         0.0               0.0   0.0    \b
        advanced life support,    Cov.         0.0  15.3  29.7   0.0   0.3    \b
        all-inclusive services
                                  Total        0.0  23.9  83.2   0.0   0.3

                                                    39.2  112.
                                                             9

A2000   Manipulation of the       Med.        145.        236.   0.0  133.
        spine by chiropractor     Cov.           0  66.2     5           8  94.0
                                               0.9        106.  14.0        111.
                                  Total             67.6     3        12.5     9
                                              145.              14.0
                                                 9  133.  342.        146.  205.
                                                       8     8           2     9

J9217   Leuprolide acetate, for   Med.         0.8   0.0         0.0   0.0
        depot suspension, 7.5 mg  Cov.         0.8   7.3  21.1   0.0   0.0  11.9
                                                           7.0               5.9
                                  Total        1.5   7.3         0.0   0.0
                                                          28.2              17.8
--------------------------------------------------------------------------------
\a Categories are Med.  = medical necessity denial rate; Cov.  =
noncovered care denial rate; Total = medical necessity + noncovered
care.  (The "Total" category may not always be equal to the sum of
the "Med." and "Cov." categories because it was independently
rounded.)

\b No allowed services were found for this code. 


CARRIER REPORTING OF SERVICE
DENIALS
========================================================== Appendix IV

A carrier might not pay for a particular service for numerous
reasons.  And, because carriers must explain denials in writing to
providers and beneficiaries, carriers must track the specific reason
for a denial when processing a claim.  This is accomplished by
assigning a unique "action code" to each billed service on a claim. 
For example, code "AB" might indicate that the carrier denied a B-12
injection because the diagnostic code listed on the claim was, based
on HCFA coverage parameters, not medically necessary.  Similarly,
"BB" might indicate that an office visit was denied because the
claimant was ineligible for Medicare.  While the reasons for denials
are generally comparable across all carriers, the "action codes" that
carriers use to record the reasons are not; hence, the code "AB"
might not be used by all carriers or, if used, might mean something
different for each. 

Before transmitting information to the National Claims History (NCH)
File, HCFA's central database for claims, HCFA requires that each
carrier translate its set of action codes into 10 broad denial
categories (see table I.2).\1 HCFA does not instruct carriers in how
to make this classification.  Thus, "AB" might be translated for NCH
as "C" (for noncovered service) and "BB" as "O" (other denial). 
However, given that carriers have different sets of action codes to
classify, the question naturally arises:  Is the resulting NCH
classification comparable across carriers?  In other words, Does
"noncovered service" or "medically unnecessary" mean the same thing
to different carriers? 

To answer this question, we made use of the fact that carrier action
codes are connected to HCFA denial messages (a common set of messages
that carriers are required to use in their written communications
with beneficiaries).  That is, while North Carolina and Wisconsin may
use different internal action codes to record the reason for denying
a service, they use the same set of HCFA messages to describe that
reason to the beneficiary.  By comparing the HCFA messages, rather
than action codes, with NCH categories, it is possible to gain a
sense of how similar different carriers' coding practices are.  For
illustrative purposes, table IV.1 displays a sample of carrier action
codes, HCFA denial messages, and NCH categories for two carriers.\2



                          Table IV.1
           
               Sample Translation Table for Two
                           Carriers

                                        HCFA
                                     message  NCH reason
Carrier action code                   number  category
----------------------------------  --------  --------------
North Carolina
------------------------------------------------------------
AA                                      1.01  Noncovered
                                               care
II                                     14.13  Noncovered
                                               care
IJ                                     15.01  Medical
                                               necessity
IH                                      9.44  Noncovered
                                               care
VI                                     10.05  Noncovered
                                               care

Wisconsin
------------------------------------------------------------
30                                      1.01  Noncovered
                                               care
I1                                     14.13  Noncovered
                                               care
AR                                     15.01  Medical
                                               necessity
Not applicable                      Not used  Not applicable
18                                     10.05  Medical
                                               necessity
------------------------------------------------------------
Table IV.1 shows that when North Carolina uses "AA" and Wisconsin
"30," both carriers send the beneficiary the same message:  "Medicare
pays for transportation to the closest hospital or skilled nursing
facility that can provide the necessary care" (HCFA message 1.01). 
Similarly, when they transmit this information to NCH, both carriers
report the denial as relating to "noncovered care." However, when
North Carolina and Wisconsin send the beneficiary the message, "HCFA
does not pay for routine foot care" (HCFA message 10.05), they report
different reasons for denial to NCH.  North Carolina reports this as
a "noncovered" care denial while Wisconsin considers it a "medical
necessity" denial.  Reporting consistency among carriers varies by
type of message.  For example, table IV.1 shows that there is
agreement for three actions and disagreement for one action and, in a
third instance, one of the carriers uses a particular HCFA message
that the other does not. 

We collected translation tables, similar to table IV.1, for all six
carriers in this study and compared HCFA message numbers with
corresponding NCH categories.  We restricted our comparison of HCFA
messages to those that were (1) used for communicating denials, (2)
used by at least three carriers, and (3) classified as a "medical
necessity" denial by at least one carrier.  Table IV.2 shows how
carriers report the service denial reason to NCH when a particular
HCFA message is sent to a beneficiary.  Table IV.3 displays the
actual messages that correspond to the HCFA message numbers.  As
table IV.2 demonstrates, carriers generally agree on how they
classify HCFA messages for reporting purposes; instances of carrier
disagreement center primarily on the distinction between "medically
unnecessary" and "noncovered care" and, to a lesser extent, on
"other." For messages that HCFA has explicitly designated as
pertaining to "medical necessity" (messages 15.01 through 15.33), we
found the highest level of carrier agreement. 



                                    Table IV.2
                     
                      CWF Categories by HCFA Message Number
                                  and Carrier\a

                      Northern  Southern
                      Californ  Californ  North     South     Illino
HCFA message number   ia        ia        Carolina  Carolina  is      Wisconsin
--------------------  --------  --------  --------  --------  ------  ----------
1.01                  N         C         C         C         C       C

1.03                  O         C                   C                 N

1.05                  N         C                   C                 C

1.10                            N/O       N         N                 N

1.11                  N         N                   N                 N

1.12                  N         N                   N                 C

3.01                  N         N                                     C/N

3.02                  N         C         C                           C

3.03                  N         C         N         C                 N

3.04                  N         C         N         C                 O

4.01                  O         C         C         C                 N

4.02                  C         O                   C                 C/N

4.04                  N         C         C         C

4.05                  N         C         C         C

4.06                  N         C         C         C

4.07                  N         O         O         C         C       C

4.08                  N         O         O         C         C       C/M

4.18                  N         O         C         O         C       C

6.02                            N         N         C                 C

6.04                  N         C         C

9.01                  O         O         C                   C       C/I/N/O/S

9.16                  N         O         C         O         C/O     O

9.18                            N         O                   C

10.05                 C                   C         C                 N

11.04                 N         C         O                   S       C/I/O

14.02                 N         C         C         C                 C

14.04                 N         C                   C

15.01                 N         N         N         N         N/O     N

15.07                 N         N         N         N         C/N     I/N

15.09                 N         N         N         N         C/N     C/N

15.10                 N         N                   N

15.11                 N         N         N         N         N       C/N

15.12                 N         N                   N         C/N/O   N

15.13                 N         N         N         N         N       C/N

15.14                 N         N         N         N         C/N/O   C/N

15.15                 N         N                   N         N

15.16                 N         N/O       N         N

15.17                 N         N                   N                 N

15.18                 N         N         N         N         N

15.19                           N         N         N

15.21                 N         N         N         N         C

15.22                 N                                       N/O     C

15.26                 N                   C         C                 N

15.32                 N         N         N         C                 C

15.33                 N         N         N         C                 C

16.04                 N         I         C         O         C/O     C

16.05                 N         C         C         O                 C/N

16.07                 N         O         C         C         O       C

16.14                 N         C/O       C/O       C         C/O     C

16.16                 C         O         O         O         C/N/O   C

16.17                 N         C         C                   C/N     C

16.18                 N         O         C         C         C       C

16.19                 N         C                   N         N       N

16.20                 N         C         C         C                 C

16.21                 N         C         C         C         C       C

16.25                 N                   C         C                 C

16.74                 C         N         C         O                 C

16.75                 C         N         C         O         C       C

16.76                 N         N         C         O         C       C

16.77                 N         N         C         O                 C

16.78                 C         N         C         O         C       C/L

16.79                           N         C         O         C/O     C/L

17.01                 C         C         C         C                 N

17.36                           N         C         O

18.01                 C         C         C         C         C/N/O   C/N

18.03                 N         C         C         C                 C

18.05                 N         O         C         C                 C

18.06                 N         O         C/O       C         C       C

18.07                 N         O         O         C

18.08                 N         O         O         C         C/O     C

18.12                 N                   N                           C

19.01                 C         O         C         O                 C/N

19.05                 C         N         C         O         C       C

19.06                 C         N         C         O                 C

21.09                 C         C/N/O     C         C         C/N/O   C

23.04                           N/O       C         O         O       C/N

23.05                 C         C         C                   N       C

23.10                           N/O       C         N

23.14                 N                                       C       C

26.01                 C         C/O       C         C         C       C/N

26.04                 N         C         C         C                 N

26.05                 N         C         O         C         C       N

26.06                 N         C         C         C                 C

29.11                 N         C         O         S         S       C

33.02                 N                   O                           C
--------------------------------------------------------------------------------
\a CWF categories are C = noncovered service; I = invalid care; L =
Clinical Laboratory Improvement Act (that is, unapproved lab); N =
medically unnecessary; O = other; P = physician ownership denial; S =
secondary payer; X = Medicare secondary payer cost avoided; Y =
IRS/SSA data match.  Empty cells indicate that the carrier does not
use that message. 



                          Table IV.3
           
              HCFA Messages for Denied Services

HCFA message
number\a            Narrative
------------------  ----------------------------------------
1.01                Medicare pays for transportation to the
                    closest hospital or skilled nursing
                    facility that can provide the necessary
                    care.

1.03                Medicare does not pay for separate
                    charges by the mile.

1.05                Medicare does not pay for transportation
                    in a wheelchair van.

1.10                The information we have in your case
                    does not support the need for this
                    ambulance service.

1.11                The information we have in your case
                    does not support the need for this
                    transportation. (NOTE: Use of
                    transportation between places of medical
                    care.)

1.12                The information we have in your case
                    does not support the need for extra help
                    in the ambulance.

3.01                Medicare pays for the services of a
                    chiropractor only when "recent" x-rays
                    support the need for the services.
                    "Recent" means the x-rays were taken
                    within the past 12 months.

3.02                Medicare pays for chiropractic services
                    only to correct a subluxation of the
                    spine.

3.03                Medicare does not pay for this because
                    your x-ray does not support the need for
                    the service.

3.04                Medicare does not pay for this because
                    the x-ray was not taken near enough to
                    the time treatment began.

4.01                Medicare does not pay for this because
                    it is part of the total charge at the
                    place of treatment.

4.02                Medicare does not pay for this because
                    it is part of the monthly charge for
                    dialysis.

4.04                Medicare does not pay for
                    immunosuppressive drugs that are not
                    approved by the Food and Drug
                    Administration.

4.05                Medicare pays for this service up to 1
                    year after transplant and release from
                    the hospital.

4.06                Each prescription for immunosuppressive
                    drugs is limited to a 30-day
                    nonrefillable supply.

4.07                Medicare can pay for this supply or
                    equipment only if your supplier agrees
                    to accept assignment.

4.08                Medicare can pay only one supplier each
                    month for these supplies and equipment.

4.18                Medicare cannot pay more than $ ---each
                    month for these supplies. (NOTE: The
                    limits for 1992 are $1,600 and $2,080
                    for CCPD. Update these figures when
                    limits change.)

6.02                Medicare does not pay for drugs that
                    have not been approved by the Food and
                    Drug Administration.

6.04                Medicare pays for this drug only when
                    Medicare pays for the transplant.

9.01                Medicare cannot pay for this because we
                    have not received the information we
                    requested. (NOTE: If assigned claim,
                    add: "The assignment agreement remains
                    in effect and will apply to the new
                    claim.")

9.16                Medicare cannot pay for this because
                    your provider used an invalid or
                    incorrect procedure code and/or modifier
                    for the service you received. Please ask
                    your provider to resubmit the claim with
                    the valid procedure code and/or
                    modifier.

9.18                No certification of medical necessity
                    was received for this equipment.

10.05               Medicare does not pay for routine foot
                    care.

11.04               Another agency handles the bills for
                    these services. We have sent the
                    information to them. They will send you
                    a notice. (Applies to RRB, United Mine
                    Workers.)

14.02               Medicare does not pay for this because
                    the laboratory is not approved for this
                    type of test.

14.04               Medicare does not pay for laboratory
                    procedures which have not been approved
                    by the Food and Drug Administration.

15.01               The information we have in your case
                    does not support the need for this many
                    visits or treatments.

15.07               The information we have in your case
                    does not support the need for this
                    equipment.

15.09               The information we have in your case
                    does not support the need for this
                    service. (If the claim was reviewed by
                    your Medical Staff, add: Your claim was
                    reviewed by our Medical Staff.)

15.10               The information we have in your case
                    does not support the need for this
                    number of home visits per month.

15.11               The information we have in your case
                    does not support the need for this
                    injection.

15.12               The information we have in your case
                    does not support the need for this many
                    injections.

15.13               The information we have in your case
                    does not support the need for similar
                    services by more than one doctor during
                    the same time period.

15.14               The information we have in your case
                    does not support the need for this many
                    services within this period of time.

15.15               The information we have in your case
                    does not support the need for more than
                    one visit a day.

15.16               The information we have in your case
                    does not support the need for the level
                    of service shown on the claim.

15.17               The information we have in your case
                    does not support the need for similar
                    services by more than one doctor of the
                    same specialty.

15.18               The information we have in your case
                    does not support the need for this
                    laboratory test.

15.19               The information we have in your case
                    does not support the need for the level
                    of service shown on this claim. We have
                    approved this service at a reduced
                    level.

15.21               The information we have in your case
                    does not support the need for this foot
                    care.

15.22               The information we have in your case
                    does not support the need for more than
                    one screening PAP smear in three years.

15.26               Medicare does not pay for a surgical
                    assistant for this kind of surgery. The
                    doctor should not bill you for this
                    service.

15.32               Medicare does not pay for two surgeons
                    for this procedure.

15.33               Medicare does not pay for team surgeons
                    for this procedure.

16.04               Medicare does not pay for this in the
                    place or facility where you received it.

16.05               Medicare does not pay for this because
                    the claim does not show that it was
                    prescribed by your doctor.

16.07               Medicare cannot pay for this service
                    because the claim did not show that the
                    Peer Review Organization approved it.

16.14               Medicare does not pay for this service
                    separately since payment of it is
                    included in our allowance for other
                    services you received on the same day.

16.16               Medicare does not pay for this service
                    because it is part of another service
                    that was performed at the same time.

16.17               Medicare does not pay for this item or
                    service.

16.18               Medicare does not allow a separate
                    charge for this because it is included
                    as part of the primary service. The
                    provider cannot bill you for this.

16.19               Medicare does not pay for this because
                    it is a treatment that has yet to be
                    proved effective.

16.20               Medicare does not pay for these services
                    or supplies.

16.21               Medicare does not pay for drugs you can
                    give yourself.

16.25               Medicare does not pay for discussions on
                    the telephone with the doctor.

16.74               Medicare does not pay separately for a
                    hospital admission and a visit or
                    consultation on the same day. You should
                    not be billed separately for this
                    service. You do not have to pay this
                    amount. (NOTE: Assigned claim.)

16.75               Medicare does not pay separately for a
                    hospital admission and a visit or
                    consultation on the same day. You do not
                    have to pay this amount. (NOTE:
                    Unassigned claim.)

16.76               Medicare will pay for only the nursing
                    facility service when performed on the
                    same day as another visit in a different
                    site. You should not be billed
                    separately for this service. You do not
                    have to pay this amount. (NOTE: Assigned
                    claim.)

16.77               Medicare will pay for only the nursing
                    facility service when performed on the
                    same day as another visit in a different
                    site. You do not have to pay this
                    amount. (NOTE: Unassigned claim.)

16.78               Medicare does not pay separately for
                    this service. You should not be billed
                    separately for this service. You do not
                    have to pay this amount. (NOTE: Use for
                    global denials for assigned claims.)

16.79               Medicare does not pay separately for
                    this service. You do not have to pay
                    this amount. (NOTE: Use for global
                    denials for unassigned claims.)

17.01               Medicare does not pay for services
                    performed by a private duty nurse.

17.36               Medicare cannot pay for this service as
                    billed. (NOTE: Use when nonphysician
                    practitioners do not separate
                    professional and technical services on
                    the claim.)

18.01               Medicare does not pay for routine
                    examinations and related services.

18.03               Medicare does not pay for this screening
                    examination for women under 35 years of
                    age.

18.05               The place where you had this examination
                    is not approved by Medicare.

18.06               Medicare does not pay for this
                    examination because less than one year
                    (two/three years) has (have) passed
                    since your last examination of this
                    kind.

18.07               Medicare will pay for this screening
                    examination again in one year (two/
                    three years).

18.08               Medicare pays for this examination only
                    once for women age 35-39.

18.12               Medicare pays for screening pap smears
                    only once every three years unless high
                    risk factors are present.

19.01               Medicare does not pay for services of a
                    hospital specialist unless there is an
                    agreement between the hospital and the
                    specialist on how to charge for the
                    services.

19.05               Medicare will pay for only one hospital
                    visit or consultation per physician per
                    day. You do not have to pay this amount.

19.06               Medicare will pay for one hospital visit
                    per day. You do not have to pay this
                    amount.

21.09               Medicare does not pay for this service
                    when performed, referred or ordered by
                    this provider of care.

23.04               Medicare does not pay for these charges
                    because the cost of the care before and
                    after surgery is part of the approved
                    amount for the surgery. (NOTE: Use for
                    global denials.)

23.05               Medicare does not pay for cosmetic
                    surgery and related services.

23.10               Medicare does not pay for a surgical
                    assistant for this kind of surgery.

23.14               Medicare does not pay a doctor for
                    assisting at this kind of surgery. The
                    doctor cannot bill you for this service.

26.01               Medicare does not pay for routine eye
                    examinations or eye refractions.

26.04               Medicare does not pay for eyeglasses or
                    contact lenses except after cataract
                    surgery or if the natural lens of your
                    eye is missing.

26.05               Medicare pays for only one pair of
                    glasses after cataract surgery with lens
                    insertion.

26.06               Medicare does not pay the extra charge
                    for deluxe frames.

33.02               Medicare does not pay for this service
                    when it is performed in an ambulatory
                    surgical center.
------------------------------------------------------------
\a For presentation in this table, HCFA message numbers with one
decimal place were modified.  For example, message 1.1 was changed to
1.01, message 1.3 to 1.03, and so on. 


--------------------
\1 Before data reach NCH, they are compiled in an intermediate
database called the Common Working File (CWF).  The CWF is a
repository for Medicare claims that carriers use to check patient
history and verify claimant eligibility. 

\2 HCFA issues over 300 different standard messages that carriers are
required to use when communicating with beneficiaries.  Carriers are
free to "pick and choose" from this universe messages that best suit
the needs of their jurisdictions. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

PROGRAM EVALUATION AND METHODOLOGY
DIVISION

Sushil K.  Sharma, Assistant Director
Richard M.  Lipinski, Project Manager
Patrick C.  Seeley, Communications Analyst
Penny Pickett, Communications Analyst
Venkareddy Chennareddy, Referencer

