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Are Medicare Benefits Determined Nationally? If so, what are Local Coverage Determinations?

Posted Mar 06 2013 12:00am

For most categories of services covered, Medicare pays for “reasonable and necessary” services.  This definitions, however, is fairly vague.  CMS does issue about 20 national coverage determinations (NCDs) each year to clarify which services are permitted.  [Here is a list of the CMS's pending national coverage analyses ].  Foote et al. (2008) elaborate on how NCDs are implemented.

CMS can trigger an NCD based on its own internal judgment or upon request of an external party. The final NCD is transmitted to local contractors for implementation. Although CMS can issue noncoverage NCDs, such as acupuncture in 2004 and artificial lumbar spinal disk replacement in 2006, it rarely does so. The majority of NCDs establish evidence-based conditions of use.

Not all coverage, however, is determined at the national level. In 1990, contractors acquired authority to issue local coverage determinations (LCDs)–also known as local medical review policies (LMRPs)–which are applicable in their own jurisdictions if no NCD applies. Both Fiscal Intermediaries (which process Part A claims) and Carriers (which process Part B claims) can issue LCDs. FIs and Carriers are required because the Centers for Medicare and Medicaid Servcies (CMS) itself does not process claims; instead it delegates this responsibility to the FIs and Carriers.

“A majority of LCDs focus on appropriate utilization of widely used services that are subject to overuse such as routine chest X-rays.”  A Health Affairs article  classifies LCDs according to three types: three policy types: new technology (NT),extensions of covered technology (TE), and utilization management (UM). Between 70-90 percent of LCDs are for UM, depending on how these types are interpreted.

A number of studies have examined the effect of LCDs on utilization.   Foote et al. (2008) rely on a difference in difference approach and examine the change in utilization for Carriers who issued a LCD the change in utilization for those Carriers who did not. The study found that:

…in only one case (transesophageal echocardiography) out of eight did utilization change (reduced by 13.6 percent) after the effective date of the local policies. There is no systematic pattern that policies affect utilization, and the type of coverage policy does not seem to play an important role in its impact.

How much variability is there across carriers in their LCD policies? It turns out that the answer depends on what type of LCD it is. A paper by Foote et al. (2005) found the following:

We found substantial similarity, however, among policies covering the NT and TE types. We found significantly more variation among our UM-type case studies.


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