DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland  21244-1850 
 
Center for Medicaid, CHIP, and Survey & Certification 
                  SMD #:  10-017 
                  ACA#:    7 
 
September 1, 2010 
 
              Re:  National Correct Coding Initiative 
 
Dear State Medicaid Director: 
 
This letter is one of a series intended to provide guidance on the implementation of the Patient 
Protection and Affordable Care Act of 2010 (P.L. 111-148), as amended by the Health Care and 
Education Recovery Act of 2010 (P.L. 111-152), together referred to as the Affordable Care Act.  
Specifically, this letter provides initial guidance regarding Title VI  Transparency and Program 
Integrity, Subtitle F  Additional Medicaid Program Integrity Provisions, Section 6507  
Mandatory State Use of National Correct Coding Initiative (NCCI). 
 
For ease of reference, this letter is organized into the following subject areas: 
 
  Statutory Requirements; 
 
  Definitions of NCCI, NCCI Methodologies, and the Application of NCCI Methodologies 
in Medicare; 
 
  Implementation of NCCI Methodologies in Medicaid; 
 
  Resources for Implementing NCCI Methodologies in State Medicaid Programs; 
 
  Additional Important Distinctions between Medicaid and Medicare NCCI Methodology 
Files1; 
 
  Funding for State Implementation of NCCI Methodologies in Medicaid and the Use of 
the Advanced Planning Document (APD); 
 
  Report to Congress; 
 
  Commercial Off-the-Shelf (COTS) Software and Its Application to Medicaid NCCI 
Methodologies; and 
 
  Contacts for States. 
 
   
                                                 
1 Enclosure B contains a section discussing the differences between Medicaid NCCI and MUE files and those of 
Medicare.  This information may be of interest to individuals familiar with the Medicare NCCI/MUE edits.
  Page 2  State Medicaid Director 
 
Statutory Requirements 
 
Section 6507 of the Affordable Care Act amends section 1903(r) of the Social Security Act (the 
Act).  Section 1903(r)(4) of the Act, as amended, requires CMS to take three specific actions by 
September 1, 2010.  First, CMS must notify States of NCCI methodologies that are compatible 
with claims filed with Medicaid to promote correct coding and control improper coding leading 
to inappropriate payment of claims under Medicaid.  Second, CMS must notify States of the 
NCCI methodologies (or any successor initiative to promote correct coding and to control 
improper coding leading to inappropriate payment) that should be incorporated for claims filed 
with Medicaid for which no national correct coding methodology has been established for 
Medicare.  Third, CMS must inform States as to how they must incorporate these methodologies 
for claims filed under Medicaid.  By March 1, 2011, CMS must submit a report to Congress that 
includes the September 1, 2010, notice to States and an analysis supporting these methodologies.  
Section 1903(r)(1)(B)(iv), as amended, requires that States incorporate compatible 
methodologies of the NCCI administered by the Secretary and such other methodologies as the 
Secretary identifies, effective for Medicaid claims filed on or after October 1, 2010.   
 
Definitions of NCCI, NCCI Methodologies and Edits, and the Application of NCCI 
Methodologies in Medicare 
  NCCI.  The NCCI is a CMS program that consists of coding policies and edits.  Providers 
report procedures/services performed on beneficiaries utilizing Healthcare Common 
Procedure Coding System (HCPCS) codes.  These codes are submitted on claim forms to 
Fiscal Agents for payment.  NCCI policies and edits identify procedures/services 
performed by the same provider for the same beneficiary on the same date of service.  
This program was originally implemented in the Medicare program in January 1996 to 
ensure accurate coding and reporting of services by physicians.  The coding policies of 
NCCI are based on coding conventions defined in the American Medical Associations 
Current Procedural Terminology Manual, national and local Medicare policies and edits, 
coding guidelines developed by National societies, standard medical and surgical 
practice, and/or current coding practice.   
 
  NCCI Methodologies.  NCCI methodologies have four components:  1) a set of edits;    
2) definitions of types of claims subject to the edits; 3) a set of claims adjudication rules 
for applying the edits; and 4) a set of rules for addressing provider/supplier appeals of 
denied payments for services based on the edits.   
 
  NCCI edits.  The NCCI edits are defined as edits applied to services performed by the 
same provider for the same beneficiary on the same date of service.  They consist of two 
types of edits:  1) NCCI edits, or procedure-to-procedure edits that define pairs of 
HCPCS/Current Procedural Terminology (CPT) codes that should not be reported 
together for a variety of reasons; and 2) Medically Unlikely Edits (MUEs), or units-of-
service edits that define for each HCPCS/CPT code the number of units of service 
beyond which the reported number of units of service is unlikely to be correct (e.g., 
claims for excision of more than one gallbladder or more than one pancreas). 
 
    Page 3  State Medicaid Director 
 
Application of NCCI methodologies in Medicare. The CMS developed NCCI for Medicare to 
promote national correct coding methodologies and to control improper coding that leads to 
inappropriate payment of Part B (practitioner) fee-for-service claims.  Enclosure A provides a 
history of the NCCI in Medicare. 
 
Currently, CMS has five methodologies for Medicare Part B.  Specifically, these are: 
 
(1) NCCI procedure-to-procedure edits for practitioner and ambulatory surgical center (ASC) 
services. 
 
(2) NCCI procedure-to-procedure edits for outpatient hospital services (including emergency 
department, observation, and hospital laboratory services) incorporated into the Medicare 
outpatient code editor (OCE) for hospitals reimbursed through the hospital outpatient 
prospective payment system (OPPS).  These same edits in OCE are applied to all facility 
therapy services billed to the Medicare Fiscal Intermediary (Part A Hospital/Part B 
Practitioner Medicare Administrative Contractors (A/B MACs) processing claims with 
the Fiscal Intermediary Shared System (FISS)).  They do not apply to hospitals not 
reimbursed through the OPPS (e.g., Critical Access Hospitals (CAHs)). 
 
(3) MUE units-of-service edits for practitioner and ASC services. 
 
(4) MUE units-of-service edits for outpatient hospital services for hospitals reimbursed 
through the OPPS and for CAHs. 
 
(5) MUE units-of-service edits for supplier claims for durable medical equipment. 
 
Implementation of NCCI Methodologies in Medicaid 
 
Compatible Methodologies for Medicaid 
After careful consideration, we have determined that the five NCCI methodologies listed above 
currently in place in Medicare are compatible methodologies for claims filed in Medicaid.  Thus, 
consistent with the statute, by September 1, 2010, CMS will make available to States all five 
NCCI methodologies compatible with Medicaid.  In addition, we have determined that there are 
currently no other methodologies compatible for Medicaid since there are no other national 
correct coding methodologies being used by Medicare.  States must incorporate all five 
methodologies into their Medicaid Management Information Systems (MMISs) and begin the 
process of editing claims against these five NCCI methodologies effective for claims filed on or 
after October 1, 2010. 
 
Since the Medicaid methodology files will contain confidential information about Medicare 
NCCI/MUE edits that is not public information, State Medicaid agencies should NOT share the 
Medicaid NCCI methodology files with vendors or other parties which are not State-contracted 
Fiscal Agents (or State-contracted entities that perform claims processing activities on behalf of 
State Agencies, or State-contracted entities for purposes of this letter.) 
 
In considering the current financial status of States and the savings that are possible as a result of 
proper coding, CMS continues to evaluate the application of NCCI methodologies, where the 
methodologies are not applied by Medicare, but are found to be compatible with Medicaid.   Page 4  State Medicaid Director 
 
These methodologies may be developed later, and CMS will update States regarding the progress 
of NCCI methodologies in Medicaid, as appropriate, moving forward. 
 
State Flexibility in Incorporating Edits 
We realize that States are in different stages in implementing correct coding edits into their 
Medicaid programs.  Some States have fully incorporated procedure-to-procedure and MUE 
units of service edits into their Medicaid claims.  Some States have incorporated edits for 
particular sets of services, while other States are just beginning to explore these edits for 
Medicaid.  The five Medicare NCCI methodologies currently contain approximately 1.3 million 
procedure to procedure and MUE units of service edits.  We understand the challenges that many 
States would face in entirely incorporating these edits into their Medicaid claims processing 
systems. 
 
Consequently, CMS has provided flexibility in implementing NCCI in Medicaid.  All five 
Medicaid NCCI methodologies must be incorporated into Medicaid MMISs effective for claims 
filed on or after October 1, 2010.  However, CMS has withheld a small number of edits from the 
five Medicare NCCI/MUE methodologies because of concerns about their compatibility with the 
Medicaid program.  We also recognize that there may be additional incompatible edits.  If a State 
Fiscal Agent (or State-contracted entities) identifies such incompatible edits, please report them 
to our contractor, Correct Coding Solutions, LLC, as soon as they are identified.  (See the 
Contacts for States section of this guidance for more information regarding Correct Coding 
Solutions, LLC.) 
 
Additionally, CMS continues to review NCCI/MUE edits and as we move forward to update 
files quarterly, additional compatible or incompatible edits will be added to or deleted from 
Medicaid NCCI/MUE files, as appropriate. 
 
State Flexibility in Deactivating Edits 
States may consider edits on an individual State by State basis.  That is, if a State has determined 
that some portion of the 1.3 million edits conflict with State laws, regulations, administrative 
rules, payments policies, and/or level of operational readiness, CMS will allow State deactivation 
of edits.  This flexibility is granted until such time as the earlier of:  
 
1.  April 1, 2011; or  
 
2.  The date at which the State has an Advanced Planning Document (APD) approved by 
CMS that documents such conflict with State laws, regulations, administrative rules, 
payment policies, and/or the States level of operational readiness.   
 
Requesting Deactivation of Edits 
CMS will use the MMIS-APD to approve State deactivation of edits after review of the 
submission of State documentation confirming that the use of certain procedure-to-procedure or 
MUE units of service edits is in direct conflict with State laws, regulations, administrative rules, 
payment policies, and/or the States level of operational readiness.  States must submit an APD 
to CMS by no later than March 1, 2011, for review and approval of deactivation of edits, if they 
want to continue after March 31, 2011, to deactivate relevant edits.  States will not be afforded 
the flexibility to deactivate edits after March 31, 2011, because of lack of operational readiness.  
If States are not deactivating edits after March 31, 2011, States are not required to submit an 
APD to CMS for this purpose.  Page 5  State Medicaid Director 
 
 
While MCDNCCI files will be updated on a quarterly basis, States will not be required to submit 
to CMS for review and approval an APD each quarter to deactivate edits that remain in conflict 
with State laws, regulations, administrative rules, and/or payment policies.  States will, however, 
be required to update APDs each quarter and as otherwise necessary if changes to State laws, 
regulations, etc. occur and/or if States wish for CMS to approve additional/revised edits to be 
deactivated. 
 
State Flexibility to Incorporate NCCI Methodologies/Edits beyond CMS Requirements 
States can apply additional NCCI methodologies to service types not currently implemented in 
the Medicare context, in order to promote correct coding and reduce the error rate for claim 
payments.  For example, in reviewing the Medicare model, CMS considered that the Medicare 
NCCI methodologies are applicable to types of service: procedure-to-procedure and MUE edits 
for practitioner services, ASC services, outpatient hospital services, and so forth.   
Currently, Medicare NCCI methodologies are not in place for facility claims from long term care 
facilities, Medicare Advantage plans, or other hospitals that are not paid using OPPS (e.g., 
CAHs).  States should contact CMS to discuss/receive approval to incorporate additional NCCI 
methodologies and/or edits in their claims processing systems. 
 
Enclosure B provides further information on the nature and structure of the NCCI methodologies 
in Medicaid, including the definition of the NCCI methodology, a description of NCCI 
procedure-to-procedure edits and MUE units-of-service edits, a description of the five  
Medicaid NCCI methodologies (herein referred to as the MCDNCCI) for implementation by 
State Medicaid programs, identification of the edits included in the five MCDNCCI 
methodologies, and a discussion of the significant differences between MCDNCCI and Medicare 
NCCI/MUE. 
 
Resources for Implementing NCCI Methodologies in State Medicaid Programs 
 
The MCDNCCI methodology files will be available for download only to States by September 1, 
2010, and only on the Medicaid Integrity Institutes (MII) secure Web site known as 
Workspace.  Quarterly updates of the MCDNCCI files will be posted to Workspace. 
 
Currently, each State has only one user license for Workspace.  For information regarding who 
in your State has access to this Web site, please contact Mr. Robb Miller, Director of the 
Division of Field Operations, Medicaid Integrity Group, Center for Program Integrity, at 312-
353-0923 or via e-mail at Robb.Miller@cms.hhs.gov.  For the time being, we will not be able to 
issue any additional user licenses.  You may, however, choose to reassign your States user 
license to another individual.   
 
The MCDNCCI files will be available in three file formats:  ASCII.TXT, Excel 2007 (.xlsx), and 
tab-delimited text (.txt) with column headings. 
 
Further technical guidance entitled the Medicaid NCCI (MCDNCCI), MCDNCCI File Names 
and Formats, Algorithms for Processing Claims, and Characteristics of Edits is provided to 
States information systems staff to facilitate download and correct use of the MCDNCCI 
ASCII.TXT files.  This information is necessary to understand each field in each edit.  The 
claims adjudication algorithm will assist information systems staff to program their systems to 
correctly adjudicate NCCI and MUE edits against claims.  It will also be very helpful to medical  Page 6  State Medicaid Director 
 
review staff, appeals staff, medical directors, fraud and abuse contractors, and others who need to 
know the details about how NCCI edits and MUEs are applied to claims. 
 
This technical guidance also provides a description of the edit files.  This information will be 
available on both the MII and on a new Medicaid NCCI webpage on the CMS Web site. 
 
The Excel 2007 (.xlsx) file and the tab-delimited text (.txt) file with column headings will also be 
available on the Medicaid NCCI webpage by October 1, 2010. 
 
It is important for State Medicaid programs and their Fiscal Agents (or State-contracted entities), 
to avoid three common errors that result in incorrect application of NCCI/MUE edits.  
 
  Common Error 1:  The edits apply only to services by the same provider, to the same 
beneficiary, on the same date of service.  If an MCDNCCI edit is applied to any situation 
other than the same provider, the same beneficiary, and the same date of service, it should 
NOT be attributed to the MCDNCCI. 
 
  Common Error 2:  NCCI procedure-to-procedure edits with a modifier indicator of 1 must 
allow use of NCCI-associated modifiers to bypass the edit.  This requirement is described 
further in the Medicaid NCCI (MCDNCCI), MCDNCCI File Names and Formats, 
Algorithms for Processing Claims, and Characteristics of Edits technical guidance.  This 
document also includes information regarding NCCI-associated modifiers. 
 
  Common Error 3:  MUE units-of-service edits are claim-line edits.  They are not edits for an 
entire claim or entire date of service.  Each claim line must be adjudicated separately against 
the MUE value for the HCPCS/CPT code on the claim line.  All units-of-service for the same 
code on the entire claim or the same date of service should NOT be summed and compared 
to the MUE value.  See also the Medicaid NCCI (MCDNCCI), MCDNCCI File Names and 
Formats, Algorithms for Processing Claims, and Characteristics of Edits technical guidance. 
 
Reimbursement for a claim denied due to an NCCI/MUE edit may be appealed.  The MCDNCCI 
Claim Appeals Process guidance provides separately the rules for adjudicating appeals of denied 
reimbursement due to MCDNCCI edits. This guidance document will be posted to the MII and to 
the Medicaid NCCI webpage. 
 
The CMS is developing a separate policy manual for Medicaid services derived from the 
National Correct Coding Initiative Policy Manual for Medicare Services.  The National Correct 
Coding Initiative Policy Manual for Medicaid Services will be available to Fiscal Agents (or 
State-contracted entities), on the Medicaid NCCI webpage on the CMS Web site by October 1, 
2010.  This manual will be helpful in understanding the policies that the NCCI and MUE edits 
are based on and will assist customer service, medical review, and appeals staffs.   
 
The CMS will also post the NCCI Correspondence Language Manual to the new Medicaid 
NCCI webpage on the CMS Web site.  Each NCCI edit and MUE has a Correspondence 
Language Example Identification Number (CLEID).  The NCCI Correspondence Language 
Manual must be used with the CLEID for correspondence related to the policy rationale for each 
edit.  This information will also be posted to the MII and to the Medicaid NCCI webpage.  The 
NCCI Correspondence Language Manual is helpful to the claims processing staffs of Medicaid  Page 7  State Medicaid Director 
 
Fiscal Agents (or State-contracted entities), in explaining the basis of an edit when responding to 
correspondence and to staff handling appeals. 
 
The CMS will also make available Frequently Asked Questions for NCCI and for MUE as well 
as a Medicare Modifier 59 Article.  Enclosure C provides States implementing NCCI 
methodologies in State Medicaid programs with a list of these resources and the timeframes and 
methods for securing these resources.  
 
Additional Important Distinctions between Medicaid and Medicare NCCI Methodology Files 
  
In order to ensure that States have the NCCI methodology files in a timely manner, for the start 
of this program, the Medicaid NCCI methodology files will lag the corresponding Medicare 
NCCI/MUE files by one calendar quarter with two exceptions: 
 
  The Medicaid NCCI methodology file for outpatient hospital services will not lag by one 
calendar quarter.  The Medicaid and Medicare files for these services will be synchronous. 
 
  Medicaid will incorporate into its NCCI methodology files Medicare NCCI and MUE edit 
deletions or modifications on a synchronous basis with Medicare. 
 
Beginning with the calendar quarter starting January 1, 2011, all Medicaid NCCI methodology 
files will be synchronous with Medicare NCCI and MUE edit files.  This would mean that for 
version 2.0 (January 1, 2011) and all subsequent versions of the MDCNCCI, the files will be 
available on the MII approximately 15 days prior to the beginning of the calendar quarter. 
 
Funding for State Implementation of NCCI Methodologies in Medicaid and the Use of the APD 
 
Section 1903(r) of the Act requires State MMISs to include Medicaid NCCI methodologies as 
part of their functionality.  Section 1903(a)(3) of the Act provides CMS with the authority to 
provide 90-percent Federal financial participation (FFP) to States for design, development, and 
installation, and 75-percent FFP for maintenance and operations of the States MMIS system.  
Thus, in considering revisions to a States MMIS, CMS is authorized to provide FFP to States to 
incorporate Medicaid NCCI methodologies into the States MMIS system. 
 
States should utilize the current MMIS-APD process for requesting such funding for a State 
MMIS.  Additionally, if a State can verify to CMS that the State was involved in making changes 
to its MMIS to incorporate NCCI methodologies prior to the release date of this letter, retroactive 
FFP may be available for APD-approved activities, but for no earlier than March 23, 2010.  
States should work with their respective Regional Offices to submit APDs and to request FFP.   
 
Report to Congress 
 
The CMS is required by section 1903(r)(4)(B) of the Act (as added by section 6507 of the 
Affordable Care Act) to submit to Congress, no later than March 1, 2011, a report that includes 
the September 1, 2010 notice to States and an analysis supporting the identification of the 
methodologies for Medicaid.  States will be required to report through the APD to CMS: 
 
  Page 8  State Medicaid Director 
 
  how many edits were deactivated; 
  what types of edits were deactivated; 
  the rationale for deactivating certain edits; 
  the process and the workload for State staff that deactivating edits created;  
  how many claims would have been denied if it were not for the deactivations; 
  how many claims would have gone to appeal if it were not for the deactivations; 
  the total amount of dollars that were paid as a result of the deactivations; 
  the total number of providers that would have had denied claims if it were not for the 
deactivations; and 
  any additional information that is necessary in order to determine the impact that 
deactivation of edits has had on providers and States alike.   
 
Additionally, States will be required to report the savings accrued as a result of the NCCI 
initiative in Medicaid. 
 
The CMS will convene a multi-disciplinary team to review APDs submitted by States.  Further, 
CMS plans to develop an MMIS-APD template specific to NCCI for State convenience.  Once 
the APD template is developed, we will provide information for retrieving the document. 
 
COTS Software and Its Application to Medicaid NCCI Methodologies 
 
CMS provides information describing the requirements for COTS software and vendors 
implementing NCCI methodologies on behalf of the State on the MII and on the Medicaid NCCI 
webpage.   
 
CMS requires that, for those States that use COTS vendors to perform claims processing 
activities on behalf of the State Agencies that receive NCCI methodologies in advance of the 
general public, confidentiality agreements must be in place to ensure the confidentiality of all 
information not available to the general public contained in the NCCI methodology files.  
Further, any requests for confidential information, including the release of edits received by State 
fiscal agents or State-contracted entities performing claims processing activities on behalf of the 
State agencies, must be reported to the State agency.   
 
We wish to remind States that they have a responsibility to ensure that any entities that contract 
with them comply with all contract requirements, including issues of confidentiality.  If it is 
found that COTS vendors that perform claims processing activities on behalf of State Agencies 
have used Medicaid NCCI file information for other than Medicaid business, or have shared 
confidential edits with other third parties, States must consider imposing penalties against such 
vendors.  Vendors and the general public will have access to the Medicaid NCCI methodology 
edits each quarter when they are posted on the new Medicaid NCCI webpage on the CMS Web 
site on the first day of each calendar quarter. However, the MCDNCCI edit file information 
available on the CMS Web site will not contain all information in the MCDNCCI methodology 
files provided to the States.  
 
    Page 9  State Medicaid Director 
 
Contacts for States 
 
Below is a list of contacts for States to use in implementing this program.  Specifically, for 
questions related to: 
 
-  the MCDNCCI program, please contact Rick Friedman, Director, Division of State 
Systems, Center for Medicaid, CHIP and Survey & Certification, at 410-786-4451; 
 
-  individual claims, please contact your Fiscal Agent (or State-contracted entities); and 
 
-  reconsideration of MCDNCCI edits, please contact Correct Coding Solutions, LLC 
(CCS LLC). 
 
States may also direct questions to the CMS Medicare NCCI contractor, CCS LLC, who can be 
contacted at: 
 
Medicaid National Correct Coding Initiative 
Correct Coding Solutions, LLC 
P.O. Box 907 
Carmel, IN  46082-0907 
Facsimile:  317-571-1745 
 
Additionally, CMS will post information to the CMS Web site and to the MII, including further 
instruction regarding such issues as the effective date of edits that have been deactivated by 
States. 
 
The CMS looks forward to working with you to implement this important legislation. 
 
Sincerely, 
 
/s/ 
 
Cindy Mann 
Director 
 
Enclosure A  History of the NCCI in Medicare  
Enclosure B  Nature and Structure of Medicaids NCCI 
Enclosure C  Resources for States in Implementing National Correct Coding Initiative 
Methodologies in Medicaid 
 
    Page 10  State Medicaid Director 
 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
 
Rick Fenton           
Acting Director 
Health Services Division 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Carol Steckel 
President 
National Association of Medicaid Directors 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Christine Evans, M.P.H. 
Director, Government Relations  
Association of State and Territorial Health Officials 
 
Alan R. Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy 
    Page 11  State Medicaid Director 
 
ENCLOSURE A 
 
HISTORY OF THE NCCI IN MEDICARE2 
 
On December 19, 1989, the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) was 
enacted.  Section 6102 of P.L. 101-239 amended Title XVIII of the Social Security Act (the Act) 
by adding a new section 1848, Payment for Physicians' Services.  This section of the Act 
provided for replacing the previous reasonable charge mechanism of actual, customary, and 
prevailing charges with a resource-based relative value scale (RBRVS) fee schedule that began 
in 1992. 
 
With the implementation of the Medicare Physician Fee Schedule, it was important to ensure that 
uniform payment policies and procedures were followed by all carriers (A/B MACs processing 
practitioner service claims), so that the same service would be paid similarly in all carrier (A/B 
MAC processing practitioner service claims) jurisdictions.  Accurate coding and reporting of 
services by physicians is a critical aspect of assuring proper payment.  
 
The NCCI replaced and is more comprehensive than the rebundling program instituted by 
CMS, formerly HCFA, in 1991.  Since the NCCI is a CMS program, its policies and edits 
represent CMS national policy.  However, NCCI policies and edits do not supersede any other 
CMS national coding, coverage, or payment policies. 
 
The coding policies are based on coding conventions defined in the American Medical 
Association's Current Procedural Terminology (CPT) Manual, national and local Medicare 
policies and edits, coding guidelines developed by national societies, standard medical and 
surgical practice, and/or current coding practice.  Medicare carriers implemented NCCI edits 
within their claim processing systems for dates of service on or after January 1, 1996.3 
 
Although the NCCI was initially developed for use by Medicare Carriers (A/B MACs processing 
practitioner service claims) to process Part B practitioner/ASC claims, many of the edits were 
added to the Outpatient Code Editor (OCE) in August, 2000, for use by Fiscal Intermediaries 
(A/B MACs processing outpatient hospital service claims) to process claims for Part B outpatient 
hospital services.  Some of the edits applied to outpatient hospital claims through OCE differ 
from the comparable edits in NCCI.  Effective January 2006, all therapy claims paid by Fiscal 
Intermediaries (A/B MACs processing outpatient hospital service claims) were also subject to 
NCCI edits in the OCE. 
 
NCCI edits incorporated into OCE appear in OCE one calendar quarter after they appear in 
NCCI.  Hospitals like physicians and other providers must code correctly even in the absence of 
NCCI or OCE edits.  For example, new category I CPT codes are generally effective on January 
1 each year, and many new edits for these codes appear in NCCI on January 1.  However, the 
new edits for these codes do not appear in OCE until the following April 1.  Hospitals must code 
correctly during the three-month delay. 
On January 1, 2007, CMS incorporated Medically Unlikely Edits (MUEs) into the NCCI 
program.  These edits are applicable to claims submitted to Carriers (A/B MACs processing 
                                                 
2Centers for Medicare & Medicaid Services (CMS), NCCI Policy Manual for Medicare Services, Version 15.3  
Effective October 1, 2009, pp. viii  ix. 
3 http://www.cms.gov/NationalCorrectCodInitEd/  Page 12  State Medicaid Director 
 
practitioner service claims), A/B Medicare Administrative Contractors (MACs), Durable 
Medical Equipment Medicare Administrative Contractors (DME MACs), and Fiscal 
Intermediaries (FIs) A/B MACs processing outpatient hospital service claims). 
    Page 13  State Medicaid Director 
 
ENCLOSURE B 
 
NATURE AND STRUCTURE OF MEDICAIDS NCCI 
 
The Patient Protection and Affordable Care Act (the Affordable Care Act) requires Medicaid to 
adopt NCCI methodologies.  An NCCI methodology consists of four components: 
(1) A set of edits. 
(2) Definition of types of claims subject to the edits. 
(3) A set of claims adjudication rules for applying the edits. 
(4) A set of rules for addressing provider/supplier appeals of denied services based on the 
edits. 
 
This Enclosure B addresses the edit sets and types of claims subject to the edits.  The claim 
adjudication rules are posted to the new Medicaid NCCI webpage and the rules for adjudicating 
appeals of denied services are on this webpage as well. 
 
NCCI methodologies only apply to services performed by a single provider to a single 
beneficiary on the same date of service. 
 
NCCI methodologies consist of two types of edits: 
 
(1) NCCI procedure-to-procedure edits are pairs of HCPCS/CPT codes consisting of a 
column one code and a column two code.  The edit defines two codes that should not 
be reported together for a variety of reasons.  If both codes are reported, the column 
one code is eligible for payment and the column two code is denied.  However, for 
many edits, there are circumstances where both the column one code and column two 
code are eligible for payment.  These circumstances are identified by the modifier 
indicator for each edit which is discussed in the Edit Characteristics Document 
provided on the Medicaid NCCI webpage. 
 
(2) MUE units of service edits define for each HCPCS/CPT code the number of units of 
service that are unlikely to be reported if the claim is reported correctly.  MUEs are 
applied separately to each line of a claim, NOT all units of service for a code on a 
single date of service.  If more units of service are reported for the HCPCS/CPT code 
on a claim line than the MUE value for the code on that claim line, the entire claim 
line is denied.  The claims processing contractor during the automated processing of 
the claim should NOT pay any units of service on the claim line if the MUE is 
triggered for a claim line.  The provider/supplier will have to resubmit the claim if the 
Fiscal Agent (or the State-contracted entity that performs claims processing activities on 
behalf of the State Agency), permits this process or will have to appeal the claim line 
denial to receive payment for any units of service denied based on an MUE.  For 
some procedures (e.g., colectomy), the MUE is an absolute limit.  However, for other 
procedures, providers/suppliers may occasionally report units of service in excess of 
the MUE value by reporting the same code on more than one line of a claim with 
appropriate coding modifiers. 
 
    Page 14  State Medicaid Director 
 
CMS is developing the Medicaid NCCI (MCDNCCI) edits based on Medicare NCCI and MUE 
edits and their underlying principles.  Pursuant to the requirements of the Affordable Care Act, 
Medicaid is adopting most Medicare NCCI and MUE edits and the policies on which they are 
based.  Since there is not adequate time to review all Medicare policies forming the basis for 
Medicare NCCI and MUE edits prior to the September 1, 2010 deadline for providing 
MCDNCCI to the States, CMS anticipates that it will review many of the underlying policies in 
the future and has the option to modify some of them and the edits based on them for Medicaid. 
 
The CMS has identified five NCCI methodologies for implementation in State Medicaid 
programs: 
(6) NCCI procedure to procedure edits for practitioner and ambulatory surgical center 
(ASC) services derived from Medicare NCCI for practitioners and ASCs. 
(7)  NCCI procedure to procedure edits for outpatient hospital services and all facility 
therapy services derived from Medicare NCCI edits for outpatient hospital services 
incorporated into Medicare OCE (outpatient code editor) for OPPS (outpatient 
prospective payment system) hospitals. 
(8) MUE units of service edits for practitioner and ASC services derived from Medicare 
MUE for practitioners and ASCs. 
(9) MUE units of service edits for outpatient hospital services derived from Medicare 
MUE for outpatient hospital services. 
(10)  MUE units of service edits for supplier claims for durable medical equipment 
derived from Medicare MUE for durable medical equipment. 
 
The MCDNCCI available to States on September 1, 2010, will contain most Medicare 
NCCI/MUE edits for each of the five methodologies.  MCDNCCI methodology files will be 
updated each calendar quarter.  The first version is labeled version 1.3.  The second version for 
January 1, 2011, will be version 2.0. 
 
DIFFERENCES BETWEEN MEDICAID NCCI AND MEDICARE NCCI/MUE 
 
Individuals familiar with Medicare NCCI/MUE will note two significant differences in Medicaid 
NCCI methodologies. 
 
(1) Medicaid NCCI procedure-to-procedure edits for each of the two methodologies will 
have a single CCE (Column one/Column Two Correct Coding Edit) file rather than 
separate CCE and ME (mutually exclusive) edit files as Medicare utilizes.  Medicaid 
combined the Medicare CCE and ME files into a single CCE file.  This change 
simplifies the use of MCDNCCI files posted on the CMS Web site.  It also simplifies 
the use of MCDNCCI methodology files for Fiscal Agent (or State-contracted entity 
staff that perform claims processing activities on behalf of the State Agency), customer 
service, medical review, and appeals staff. 
 
(2) Medicaid NCCI procedure to procedure edits do not have a re-bundling (previous 
edit) indicator as Medicare edits have.  This indicator is used by Medicare to indicate 
that an edit was included in the Medicare Rebundling project from the early 1990s.  
This concept is not relevant to the Medicaid program. 
  Page 15  State Medicaid Director 
 
Although the Medicaid NCCI methodology files initially only include edits also in Medicare 
NCCI/MUE, CMS anticipates that in the future MCDNCCI will include additional edits for 
codes not paid by Medicare, but paid by Medicaid. 
 
The initial Medicaid NCCI methodology files do not include all edits in Medicare NCCI/MUE 
(i.e., MCDNCCI does not include certain groups of edits that require further evaluation by 
CMS). 
    Page 16  State Medicaid Director 
 
ENCLOSURE C 
 
RESOURCES FOR STATES IN IMPLEMENTING NATIONAL 
CORRECT CODING INITIATIVE METHODOLOGIES IN MEDICAID 
 
 
  When Will  How States Will  
Name  Resource Be  Obtain Resources 
Available 
Medicaid NCCI Methodology Files  September 1, 2010  Medicaid Integrity Institute 
for State Medicaid Agencies and 
Fiscal Agents to Download 
Medicaid NCCI Methodology Files  October 1, 2010  Medicaid  NCCI page on 
on CMS Website (Excel and Tab  the CMS Web site  
Delimited TXT files) 
Medicaid NCCI and MUE Claims  September 1, 2010  Medicaid Integrity Institute 
Processing Rules, File Names and  and the Medicaid  NCCI 
Formats, Characteristics of Edits, Use  page on the CMS Web site 
of CLEID, and Appeal Adjudication 
Rules 
MCDNCCI Claim Appeals Process  September 1, 2010  Medicaid Integrity Institute 
and the Medicaid  NCCI 
page on the CMS Web site 
Correspondence Language Example  September 1, 2010  Medicaid Integrity Institute 
Identification Number (CLEID)  and the Medicaid  NCCI 
  page on the CMS Web site 
National Correct Coding Initiative  October 1, 2010  Medicaid Integrity Institute 
Policy Manual for Medicaid Services  and the Medicaid  NCCI 
page on the CMS Web site 
Correspondence Language Manual  October 1, 2010  Medicaid Integrity Institute 
(Utilizes CLEID)  and the Medicaid  NCCI 
page on the CMS Web site 
Frequently Asked Questions - NCCI  Published upon  Medicaid Integrity Institute 
availability  and the Medicaid  NCCI 
page on the CMS Web site 
Frequently Asked Questions - MUE  Published upon  Medicaid Integrity Institute 
availability  and the Medicaid  NCCI 
page on the CMS Web site 
Medicare Modifier 59 Article  September 1, 2010  Medicaid Integrity Institute 
and the Medicaid  NCCI 
page on the CMS Web site