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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 medically necessary services are those that are reasonable and necessary for the diagnosis or 
treatment of an illness or injury. Medically necessary services include services to improve the functioning of a 
malformed body member. You can find this rule in the Social Security Act, Section 1862(a)(1)(A). 
 
The rules say that psychiatric care includes the therapeutic services provided to a beneficiary for the treatment 
of mental, psychoneurotic, and personality disorders which are directed toward identifying specific behavior 
patterns, factors determining such behavior, and effective goal-oriented therapies. 
 
Indications for Psychological and Neuropsychological Testing: 
1. These diagnostic tests are used when mental illness is suspected, and clarification is essential for the 
diagnosis and the treatment plan. 
2. Testing conducted when no mental illness/disability is suspected would be considered screening and 
would not be covered by Medicare. Non-specific behaviors that do not suggest the possibility of mental 
illness or disability are not an acceptable indication for testing. 
3. Examples of problems that might require psychological or neuropsychological testing include: 
 Assessment of mental functioning for individuals with suspected or known mental disorders for 
purposes of differential diagnosis or treatment planning. 
 Assessment of patient strengths and disabilities for use in treatment planning or management 
when signs or symptoms of a mental disorder are present. 
 Assessment of patient capacity for decision-making when impairment is suspected that would 
affect patient care or management. 
 Differential diagnosis between psychogenic and neurogenic syndromes (e.g., depression versus 
dementia). 
 Detection of neurologic disease based on quantitative assessment of neurocognitive abilities 
(e.g., mild head injury, anoxic injuries, Acquired Immune Deficiency Syndrome [AIDS] 
dementia). 
 Delineation of the neurocognitive effects of central nervous system disorders. 
 Neurocognitive monitoring of recovery or progression of central nervous system disorders. 4. When a psychiatric condition or the presence of dementia has already been diagnosed, there is value to 
the testing only if the information derived from the testing would be expected to have significant impact 
on the understanding and treatment of the patient.  
5. Adjustment reactions or dysphoria associated with moving to a nursing home do not automatically 
constitute medical necessity for testing. Testing of every patient upon entry to a nursing home would be 
considered a routine service and would not be covered by Medicare. However, some individuals enter a 
nursing home at a time of physical and cognitive decline, and may require psychological testing to 
arrive at a diagnosis and plan of care. Decisions to test individuals who have recently entered a nursing 
home need to be made judiciously, on a case-by-case basis. Medical necessity of such evaluations 
should be documented and maintained in the medical record. 
6. Each test administered must be medically necessary. Standardized batteries of tests are only acceptable 
if each component test is medically necessary. 
7. Depending on the issues to be assessed, a typical test battery may require 7 to 10 hours to perform, 
including administration, scoring and interpretation. 
8. Formal evaluation of aphasia with an instrument such as the Boston Diagnostic Aphasia Examination 
performed during treatment, is typically performed only once during treatment and its medical necessity 
should be documented. If the test is repeated during treatment, the medical necessity of the repeat 
administration of the test must also be documented. 
 
You can find this rule in the Local Coverage Determination for Psychiatric Codes, L35101.  
 
If you want to read these Medicare rules, you can go to this website www.medicareappeal.com. 
 
The Plan contract says that the Plan covers items and services in accordance with Medicare rules.