Medical Necessity & Its Impact on E/M Services: Ensure You Always Land on the Correct Level of Service

by  McKenzie Harrison, CPMA
Jun 10th, 2016 - Reviewed/Updated Aug 17th

One of the areas dating back to the first change in how providers select codes for visits is still causing problems today and at almost the same rate. The high rate of improper Evaluation and Management (E&M) levels and the failure to adequately demonstrate medical necessity (nature of presenting problem) remains a common coding error in physician practices and one of the biggest causes for negative results during an audit.

Physicians continue to intentionally under code or "one code" office visits with new and established Medicare patients to try to avoid being an audit target. Those who are employed by a facility practice or health system do it to keep from being hassled (in their mind) by the internal auditors as they believe playing it safe is better than coding for the higher levels of services their documentation supports and in turn, avoid the headache of training and education which takes them away from RVU-generating services. Believe it or not, some providers still select levels of service lower than what their documentation supports to reduce the out-of-pocket amount the patient owes.

The financial impact this has on their practice and employees is significant and in addition, may potentially lead the practice/organization down a road they cannot afford to go down from a compliance and regulatory position. It also puts the organization into a position of significant financial loss. In many cases, the potential risk for the practice is greater than the amount saved by the patient.

As stated above, it's not just about forfeiting revenue. These physicians are at risk of Medicare noncompliance which can generate an audit for being an outlier and affecting the physician distribution analysis (Bell Curve) for that region/MAC. The fact is, even though physicians need to avoid under coding, Medicare data suggests that over coding is far more common in E&M services.

In 2012, the Office of Inspector General (OIG) conducted a study referred to as

"Improper Payments for Evaluation and Management Services Cost Medicate Billions". According to the study, Evaluation and Management (E&M) services are visits performed by physicians and non-physician practitioners to assess and manage a beneficiary's health. Medicare paid $32.3 billion for E&M services in 2010, representing nearly 30 percent of Part B payments that year. In 2012, the OIG reported that physicians increased their billing of higher level codes, which yielded higher payment amounts for E&M services in all visit types from 2001 to 2010. The Centers for Medicare & Medicaid Services (CMS) found that E&M services are 50 percent more likely to be paid for in error than other Part B services as "most improper payments result from errors in coding and from insufficient documentation".

While the study addressed documentation errors, it also called into question medical necessity. DoctorsManagement defines medical necessity as the nature of the presenting problem, which based on the AMA CPT® Manual and the CMS Documentation Guidelines for Evaluation and Management Services, defines five categories of presenting problems: minimal, self-limited or minor, low severity, moderate severity, and high severity. We additionally specify a category for each E&M code. Medicare specifically states that "medical necessity of a service is the overarching criterion for payment in addition to the individual requirement of a CPT code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed. Documentation should support the level of service reported. The service should be documented during, or as soon as practicable after it is provided in order to maintain an accurate medical record."

Focusing on the nature of the presenting problem before assessing the additional elements (history, exam and medical decision making) of an evaluation and management service is the key to accurate auditing and will always ensure an optimal outcome.