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HLT-MEDI67-07 · Lesson 4 · 12 clock hours · theory

Coverage Policies: LCDs, NCDs, and Medical Necessity

Objective. Students will locate a Local Coverage Determination (LCD) and a National Coverage Determination (NCD) on the CMS website, extract medical necessity criteria and covered ICD-10-CM code lists, and apply them to determine whether a specific claim is compliant.

⚠ Pending professional review

This lesson, its worked examples and its practice questions has not yet been verified by a licensed clinician in the field or by a certification or approval body. It is a study draft and may contain errors. Do not use it to make decisions about any patient or medication. Always follow your instructor, your supervising professional, and current official references and regulations.

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What Are Coverage Policies and Why Do They Matter?

When a Medicare claim is submitted, the payer does not simply check that a code exists — it checks whether the service is covered for that patient under that diagnosis. Two types of written policies govern this determination: National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs). Understanding both is essential for every coder and biller, because submitting a claim for a non-covered service without proper documentation or beneficiary notice is a compliance violation that can trigger audits, recoupment, and, in serious cases, fraud allegations.

National Coverage Determinations (NCDs)

An NCD is a policy issued by the Centers for Medicare & Medicaid Services (CMS) that applies uniformly across the entire United States. NCDs define whether Medicare will cover a specific item or service and under what clinical circumstances. When an NCD exists for a service, every Medicare Administrative Contractor (MAC) must follow it — no local variation is permitted.

NCDs are searchable on the CMS Coverage Database at cms.gov. Each NCD is identified by a numerical policy ID and includes:

Local Coverage Determinations (LCDs)

When no NCD exists for a service, a MAC may issue an LCD for its geographic jurisdiction. LCDs are more common than NCDs and are the primary tool coders use day-to-day. Each LCD:

LCDs are also found on the CMS Coverage Database, filterable by MAC, state, and procedure code. An associated document called an Article often accompanies the LCD and provides additional billing instructions.

Medical Necessity

Medical necessity is the requirement that a service be reasonable and necessary for the diagnosis or treatment of an illness or injury. For Medicare, this standard comes from the Social Security Act. A service that is not medically necessary for a patient's documented condition is not covered — even if the procedure code itself is valid.

To determine medical necessity for a Medicare claim:

1. Find the applicable LCD or NCD for the procedure.

2. Check whether the patient's diagnosis (ICD-10-CM code) appears on the covered diagnosis code list.

3. Confirm the medical record contains documentation that supports that diagnosis.

4. Verify that any frequency or quantity limits are not exceeded.

If the diagnosis does not appear on the covered list, the claim will likely be denied unless the documentation supports a covered diagnosis that was simply coded incorrectly — in which case the coder may query the provider.

Locating Policies on the CMS Coverage Database

Navigate to cms.gov, then follow the path: Medicare → Coverage → Coverage Determination Process → Coverage Database. From there you can search by:

Always note the effective date of the policy. Using an outdated policy version is a common compliance error.

The Advance Beneficiary Notice of Noncoverage (ABN)

When a Medicare provider believes that a service will not be covered because it is unlikely to meet medical necessity, the patient must be notified before the service is rendered. This notice is the Advance Beneficiary Notice of Noncoverage (ABN), CMS form CMS-R-131.

The ABN must:

Safety and ethical point: Giving a patient a blank ABN to sign, or using an ABN to waive liability for services that are clearly covered, is prohibited. The ABN exists to protect the patient's right to make an informed financial decision — not to shift costs improperly. Coders and billers who identify ABN misuse must escalate to a compliance officer.

If the provider does not obtain a valid ABN when one is required, the provider — not the patient — absorbs the cost of the denied service.

Applying Coverage Policies to Claims: A Compliance Checklist

For every Medicare claim involving a procedure that may have LCD or NCD requirements:

1. Identify the procedure (CPT/HCPCS) and the patient's diagnosis (ICD-10-CM).

2. Search the CMS Coverage Database for an applicable NCD first, then an LCD.

3. Confirm the ICD-10-CM code is on the covered list.

4. Verify frequency and documentation requirements are met.

5. If coverage is uncertain, confirm an ABN was obtained before billing.

6. Document your compliance check in your billing notes.

Following this process protects the patient, the provider, and the integrity of the healthcare system.

Key terms8

National Coverage Determination (NCD)A Medicare coverage policy issued by CMS that applies to all states and all MACs; it defines whether a specific item or service is covered and under what conditions.
Local Coverage Determination (LCD)A Medicare coverage policy issued by a MAC that applies only within its geographic jurisdiction; it specifies covered diagnoses and documentation requirements for particular services.
Medical NecessityThe requirement that a service be reasonable and necessary for the diagnosis or treatment of a patient's condition; services that are not medically necessary are not covered by Medicare.
Medicare Administrative Contractor (MAC)A private company contracted by CMS to process Medicare claims within a defined geographic jurisdiction; MACs issue LCDs and make local coverage decisions.
Advance Beneficiary Notice of Noncoverage (ABN)CMS form CMS-R-131, which notifies a Medicare beneficiary before a service is rendered that Medicare may not cover it, giving the patient the opportunity to make an informed financial decision.
CMS Coverage DatabaseThe publicly accessible online repository at cms.gov where coders and billers search for all active NCDs and LCDs, searchable by keyword, code, document type, and MAC jurisdiction.
Covered Diagnosis Code ListThe ICD-10-CM code list included in an LCD that identifies which diagnoses support medical necessity for the associated procedure; a claim diagnosis must appear on this list for the claim to be considered covered.
Effective DateThe date on which a coverage policy (LCD or NCD) becomes active; coders must verify they are referencing the version in effect on the date of service.
In class: CMS website navigation drill: using a classroom computer lab, students locate two LCDs and one NCD assigned by the instructor, screenshot the coverage criteria pages, and list five ICD-10-CM codes that support the covered diagnoses for each policy. · Medical necessity decision exercise: students receive five completed superbills with diagnosis and procedure code pairs; using printed LCDs, they decide whether each claim meets medical necessity, marks corrections where it does not, and writes a one-sentence rationale. · Advance Beneficiary Notice (ABN) scenario: instructor presents a situation where a Medicare patient requests a service not expected to be covered; students draft the correct verbal explanation to give the patient and identify the appropriate form to use, referencing CMS guidance.
Materials: Computer lab with CMS Coverage Database access, printed LCD/NCD excerpts, sample superbills, CMS ABN form sample, ICD-10-CM code book
Check: Practical exercise: student is given two unfamiliar LCDs and three claim scenarios; must correctly determine coverage status for each claim with written rationale; pass mark 80% (at least two of three scenarios fully correct).

Practice check8

Answer each question, then check it. Nothing is recorded; this is your own practice.

Compliance and Regulatory
1. A coder is preparing a Medicare claim for a procedure and cannot find an NCD for it. What is the next step?
Compliance and Regulatory
2. Which of the following best describes the geographic scope of a Local Coverage Determination (LCD)?
Compliance and Regulatory
3. A provider orders a diagnostic test for a Medicare patient. The patient's ICD-10-CM diagnosis code does not appear on the LCD's covered diagnosis code list. The provider still wants to perform the test. What must occur before the service is rendered?
Compliance and Regulatory
4. Which CMS form is used to notify a Medicare beneficiary that a service may not be covered before it is provided?
Compliance and Regulatory
5. A billing specialist notices that a practice routinely has patients sign a blank ABN at the time of scheduling, before any specific service is identified. This practice is:
Compliance and Regulatory
6. A coder is reviewing an LCD for a wound care procedure. The LCD has an effective date of March 1 of the current year, but the date of service on the claim is January 15 of the same year. Which version of the LCD should the coder apply?
Compliance and Regulatory
7. A National Coverage Determination (NCD) exists for a specific service. A MAC in the Midwest disagrees with the NCD's coverage criteria and wishes to apply its own, more restrictive LCD for that service in its jurisdiction. Which statement is correct?
Coding Compliance and Ethics
8. During a medical necessity review, a coder finds that the ICD-10-CM code documented on the superbill is listed as non-covered in the applicable LCD, but the clinical notes clearly support a different diagnosis that is on the covered list. What is the most appropriate action?
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