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The rules say that plans must pay for a medical service or item if regular Medicare would pay for it in this case. You can find this rule at 42 Code of Federal Regulations (CFR) Section 422.101.
The rules say that Medicare will consider Total Knee Arthroplasty (TKA) medically reasonable and necessary when three or more of the following criteria are met:

1. Advanced joint disease demonstrated by radiographic supported evidence or magnetic resonance imaging (MRI), e.g., fracture or deterioration, distortion of joint surfaces, subchondral cysts, subchondral sclerosis, periarticular osteophytes, joint subluxation, joint space narrowing, avascular necrosis; 2. History of unsuccessful appropriate conservative therapy that is clearly documented in the pre-procedure medical record. Non-surgical medical management is usually implemented for 3 months or more to assess effectiveness. Conservative treatment as clinically appropriate for the patient's current episode of care typically includes one or more of the following: anti-inflammatory medications; analgesics; flexibility and muscle strengthening exercises with supervised physical therapy. 3. Pain with functional disability due to arthritis or trauma to the knee joint; activities of daily living (ADLs) are diminished despite compliance with plan of care including activity restrictions as is reasonable, assistive device use, weight reduction as appropriate or therapeutic injections into the knee as appropriate; 4. Distinct structural abnormalities such as: Distal femur fracture; Proximal tibia fracture; Malignancy of the distal femur, proximal tibia, knee joint or adjacent soft tissues; Avascular or other form of osteonecrosis of the knee; Rheumatologic changes precluding or inconsistent with rehabilitation 5. Failed previous joint replacement/arthroplasty necessitating revision as indicated by any of the following: Loosening, fracture, or mechanical failure of one or more components; Technical or functional failure of previous knee surgery, e.g. unicompartmental knee replacement; Previous osteotomy or partial arthroplasty; Infection; Periprosthetic fracture or bone loss of distal femur, proximal tibia or patella; Implant or knee malalignment; Bearing surface wear leading to symptomatic synovitis; Tibiofemoral or extensor mechanism instability; or Knee stiffness, arthrofibrosis or other destructive conditions that render the knee impaired to the extent to preclude employment or functional Medicare will consider Total Hip Arthroplasty (THA) medically reasonable and necessary when three or more of the following indications are met: 1. Advanced joint disease demonstrated by radiographic supported evidence or when conventional radiography is not adequate, magnetic resonance imaging (MRI) supported evidence (subchondral cysts, subchondral sclerosis, periarticular osteophytes, joint subluxation, joint space narrowing, avascular necrosis); 2. Pain and functional disability from injury due to trauma or arthritis of the joint; activities of daily living (ADLs) are diminished despite completing a plan of care with activity restrictions as is reasonable, assistive device use, appropriate weight reduction, flexibility and muscle strengthening exercises with supervised physical therapy. 3. History of unsuccessful conservative treatment or non-surgical medical management that is clearly documented in the pre-procedure medical record. Non-surgical medical management is usually implemented for 3 months or more to assess effectiveness. Conservative treatment, as clinically appropriate for the patient's current episode of care, typically includes one or more of the following: anti-inflammatory medications, analgesics, or therapeutic injections when appropriate, with physical therapy or assist devices. 4. Distinct structural abnormalities Malignancy of the joint involving the bones or soft tissues of the pelvis or proximal femur; Avascular necrosis (osteonecrosis of femoral head); Fracture of the femoral neck; Acetabular fracture; Non-union or failure of previous hip fracture surgery; Mal-union of acetabular or proximal femur fracture; 5. Failed previous Hip Arthroplasty necessitating revision as indicated by the following: Loosening, fracture or mechanical failure of the implant;
Instability of one or more components; Recurrent or irreducible dislocation; Infection; Displaced periprosthetic fracture; Clinically significant leg length inequality; Progressive soft tissue or bone reaction or substantial bone loss, Clinically significant audible noise; or Bearing surface wear leading to symptomatic synovitis Other disease or destructive process that renders the hip impaired to the extent to preclude employment or functional activities The following are considered not reasonable and necessary and therefore will be denied: 1. TKA and THA will not be considered reasonable and necessary when the above indications are not met. 2. Medicare will consider a total knee replacement or total hip replacement not medically reasonable and necessary when the following contraindications are present: Active infection of the hip or knee joint or active systemic bacteremia Active skin infection or open wound within the planned surgical site of the hip or knee Progressive neurological disease, etiologic for pain, instability or disability You can find this information in Medicare's Local Coverage Determination (LCD): Lower Extremity Major Joint Replacement (Hip and Knee) (L36007).
If you want to read these Medicare rules, you can go to this website www.medicareappeal.com.