United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Regulation, Business Opportunities,

and Technology, Committee on Small

Business, House of Representatives

December 1994 MEDICARE PART B

Regional Variation in

Denial Rates for

Medical Necessity

GAO/PEMD-95-10

GAO United States

General Accounting Office

Washington, D.C. 20548

Program Evaluation and

Methodology Division

B-257799 

December 19, 1994

The Honorable Ron Wyden

Chairman, Subcommittee on

 Regulation, Business Opportunities,

 and Technology

Committee on Small Business

House of Representatives

Dear Mr. Chairman:

You asked us to assess whether there are significant differences among

carriers in denial rates for lack of medical necessity for Medicare Part B

claims and to identify factors that contribute to intercarrier variations.

Carrier differences in the treatment of claims denied for reason of medical

necessity is an important issue, one that has implications for the

appropriate management of Medicare program expenditures as well as the

consistency of treatment of providers and beneficiaries.

In response to your request, we analyzed 1992 and 1993 Medicare Part B

data on claims processed by six Medicare carriers for 74 services that

were either expensive or heavily utilized. We computed denial rates for

services that carriers determined to be not medically necessary. This

report presents the results of our analysis of these denial rates and

identifies and examines five factors that contributed to the observed rate

differentials among the six carriers.

Results in Brief Although denial rates for lack of medical necessity for 74 expensive or

heavily utilized services were generally low, there were substantial

variations across the six carriers we examined.1

 Moreover, these

variations were persistent for most services from 1992 to 1993, even

though the denial rates for some specific services may have increased or

decreased.2

 Five factors help explain carrier variations in denial rates. For

one, they stemmed primarily from carriers’ differing prepayment

screens—that is, some carriers screened specific services while others did

not, and those that screened the same service used different criteria. For

1

The following six carriers were included in this study: California Blue Shield (jurisdiction: Northern

California), Transamerica Occidental Life Insurance (jurisdiction: Southern California), Connecticut

General Life Insurance Company (jurisdiction: North Carolina), South Carolina Blue Shield, Illinois

Blue Cross and Blue Shield, and Wisconsin Physicians’ Service.

2

See U.S. General Accounting Office, Medicare Part B: Inconsistent Denial Rates for Medical Necessity

Across Six Carriers, GAO/T-PEMD-94-17 (Washington, D.C.: March 29, 1994).

Page 1 GAO/PEMD-95-10 Medicare Part B
B-257799 

another, only 5 percent of providers accounted for 50 percent of the

denied claims. Three other factors were the varying interpretation of

certain national coverage standards across carriers, differences in the way

carriers treated claims with missing information, and reporting

inconsistencies.

Medicare Coverage

Criteria

In accordance with section 1842 (42 U.S.C. 1395u) of the Social Security

Act, the Health Care Financing Administration (HCFA) contracts with 32

insurance carriers to process and issue benefit payments on claims

submitted under Medicare Part B coverage. Carriers are required to

process claims in a timely, efficient, effective, and accurate manner.

During fiscal year 1993, carriers processed about 576 million Part B claims

submitted by about 780,000 physicians and 136,000 suppliers.

Section 1842 of the Social Security Act provides that carriers pay only for

services that are covered and that they reject a claim if they determine that

the service was not medically necessary. In fiscal year 1993, carriers

denied 112 million Part B claims in whole or in part (19 percent of all

claims processed) for a total of $17 billion in denied claims (which

represented 18 percent of all billed charges, a figure unchanged from the

previous year). Services deemed not medically necessary constituted

about 9 percent of the dollar amount denied by carriers. A claimant

(provider or beneficiary) who is dissatisfied with a carrier’s claims

decision has the right to appeal.

Although most claim denials are the result of routine administrative

checks made during claims processing (for example, denials for duplicate

claim submissions or ineligible claimants), a significant portion of denials

are the result of coverage determinations. Coverage under Medicare is

determined by three criteria: Medicare law, national coverage standards

developed by HCFA, and local coverage standards developed by individual

carriers.

According to section 1832 (42 U.S.C. 1395k) of the Social Security Act,

Medicare Part B covers a wide range of health services, such as physician

services, outpatient hospital services, the purchase of durable medical

equipment, prosthetic devices, and laboratory tests. At the same time, the

act limits or excludes certain services: It places limits on podiatric,

chiropractic, and dental services and specifically excludes some

categories of service, such as routine physical checkups and cosmetic

surgery. Medicare law is best viewed as a framework for making coverage

Page 2 GAO/PEMD-95-10 Medicare Part B
B-257799 

determinations: It is not, as HCFA has observed, “an all-inclusive list of

specific items, services, treatments, procedures or technologies covered

by Medicare.”3

Recognizing that the law could not anticipate all possible coverage issues,

the Congress provided the following guidance to HCFA for making

decisions:

“Notwithstanding any other provisions of this title, no payment may be made under part A

or part B . . . for any expenses incurred or items of services . . . which . . . are not

reasonable and necessary for the diagnosis or treatment or illness or injury or to improve

the functioning of a malformed body member.”4

For a service to be covered, it must meet

“a test of whether the service in question is ‘safe’ and ‘effective’ and not ‘experimental’; that

is, whether the service has been proven safe and effective based on authoritative evidence,

or alternatively, whether the service is generally accepted in the medical community as

safe and effective for the condition for which it is used.”5

Although carriers make most coverage decisions, HCFA has set national

coverage standards for some specific services, the guidelines of which are

found in the Medicare Carriers Manual, the Medicare Coverage Issues

Manual, and other program publications.6 Where HCFA has issued a

national coverage decision, carriers are expected to enforce it. Although

national coverage standards are for the most part straightforward, some

standards may require clarification or interpretation. In such instances,

carriers are advised to consult with a HCFA regional office, which may in

turn ask the HCFA central office for guidance.

In the absence of national coverage standards, HCFA has, consistent with

Medicare law, given carriers the discretion to develop and apply their own

medical policies based on local standards of medical practice. Since

national coverage standards have been issued for only a small portion of

all services, carriers often “must decide whether the service in question

3

54 Fed. Reg. 4304. (Preamble to proposed rules that, although not yet final, are generally looked to for

guidance.)

4

Title XVII of Social Security Act, sec. 1862(a)(1)(A)[42 U.S.C. 1395y (a)(1)(A)].

5

54 Fed. Reg. 4304.

6

For a general description of how HCFA makes coverage decisions on new medical technologies, see

U.S. General Accounting Office, Technology Assessment and Medical Coverage Decisions,

GAO/HEHS-94-195FS (Washington, D.C.: July 1994).

Page 3 GAO/PEMD-95-10 Medicare Part B
B-257799 

appears to be reasonable and necessary and therefore covered by

Medicare.”7 HCFA has given carriers broad latitude in this area—that is, it

has given them primary responsibility for defining the criteria that are

used to assess the medical necessity of services. Such local medical

policies allow carriers to target specific services that may need greater

scrutiny. For example, local medical policies may be developed in

response to excessive utilization of a service or inappropriate billing

patterns.

To implement medical policies, carriers develop prepayment screens that

suspend a subset of claims for manual review. Screens are computer

algorithms that use certain claim information (such as diagnostic code or

frequency of services performed) to channel certain types of claims to

examiners for further review. The criteria used to flag claims for medical

review are less exhaustive than the criteria used in making the final

determination.

For example, a screen for chiropractic treatment may suspend claims of

beneficiaries who have received more than 12 treatments within the past

year. At this point, the suspended claims are reviewed by claims

examiners, who make a determination based on medical policy. A carrier’s

medical policy defines the conditions under which chiropractic treatments

beyond the threshold are medically necessary. It is, however, important to

note that the proportion of claims that carriers review for medical

necessity is determined by the amount of money available to HCFA for

allotment to carriers for the purpose of medical review. In fiscal year 1994,

HCFA allotted enough funds for 5 percent of claims to be medically

reviewed.

Despite the importance of carrier vigilance over Medicare claims,

budgetary constraints have led to a decrease in program safeguard

activities such as prepayment screening of claims for medical necessity.

The proportion of claims that are reviewed for medical necessity has

decreased from 20 percent of all claims in 1989 to 5 percent in 1994.

Because carriers now have fewer resources to review the appropriateness

of claims, it is essential that carriers use what resources they do have in

the most effective way possible. Yet, we found that HCFA has not compiled

information, nor does it have a systematic method that would allow it to

assess the adequacy of current carrier safeguard controls.8

7

54 Fed. Reg. 4304.

8

U.S. General Accounting Office, Medicare: Funding and Management Problems Result in Unnecessary

Expenditures, GAO/T-HRD-93-4 (Washington, D.C.: February 1993).

Page 4 GAO/PEMD-95-10 Medicare Part B
B-257799 

We conducted our study between April and November 1994 in accordance

with generally accepted government auditing standards. See appendix I for

a description of our analytical methodology.

Analysis of Denial

Rates

This section presents the results of our analysis of 1992-93 medical

necessity denial rates for six carriers across 74 expensive or heavily

utilized services. We examined the (1) magnitude, (2) variability across

carriers, and (3) annual changes of denial rates for 2 consecutive years.

Denial Rates Were

Generally Low

Table 1 summarizes 1993 denial rate information from appendix III

(appendix II gives 1992 data) and shows the frequency distribution of

denial rates for the 74 services across six carriers. This table shows that

within this group of 74 services, denial rates were generally low—a finding

that was consistent across all carriers. For example, the Northern

California carrier had 47 services with a denial rate of zero, 19 services

with a denial rate of between 1 and 10, 6 services with a rate of between 11

and 100, and 2 services with a denial rate of over 100 per 1,000 services

allowed.9

 Furthermore, the Southern California carrier, which had the

largest number of services with denial rates over 10 per 1,000 allowed, still

had a majority of services (46 of 74) with denial rates of less than 10 per

1,000 services allowed.

Table 1: Distribution of Top 74 Services by Denial Rate and Carrier, 1993

Number of services

Denial rate per 1,000 services

alloweda

Northern

California

Southern

California

North

Carolina

South

Carolina Illinois Wisconsin Total

0 47 8 15 52 38 36 196

1 to 10 19 38 48 22 20 28 175

11 to 100 6 23 7 0 14 9 59

100+ 2 5 4 0 2 1 14

Total 74 74 74 74 74 74 444

aWe classified three codes with no allowed services as 0 for the purpose of this tabulation. Denial

rates were rounded to the nearest whole number.

9

Services that exhibited high denial rates included those of the following types: ambulance service, eye

examination, chiropractic treatments, myocardial perfusion imaging, percutaneous transluminal

coronary balloon angioplasty, and duplex scan of extracranial arteries. Services that exhibited minimal

variation in the range of denial rates across carriers were those that pertained to digestive procedures

(endoscopy and colonoscopy); nursing facility services; office and outpatient visits; and

cardiovascular, musculoskeletal, anesthesia, and urinary procedures.

Page 5 GAO/PEMD-95-10 Medicare Part B
B-257799 

Denial Rates for Medical

Necessity Varied Across

Carriers

The denial rates for 1992 and 1993 show notable variability across six

carriers. Figure 1, which displays 1993 carrier denial rates for 5 different

services, illustrates this point. For example, the range of denial rates

across carriers for a chest x-ray varied between 0.1 and 90.2 (per 1,000

services allowed).10

10The formula for calculating denial rates is as follows: denial rate = (number of services denied for

reason of medical necessity) / (number of services allowed) * 1,000. We used the number of allowed

services in the denominator rather than the number of submitted services because the latter includes

services denied for other reasons (for example, duplicate line item) and thus would add spurious

variation to our estimate.

Page 6 GAO/PEMD-95-10 Medicare Part B
B-257799 

Figure 1: Denial Rates for Medical Necessity Across Six Services, 1993

Chest x-ray


(71020)

Service/procedure code

Myocardial imaging


(78465)

Eye examination


(92004)

Echocardiography


(93307)

Blood test


(80019)

300


250


200


150


100


50


0

Denial rate per 1,000 services allowed 

Carrier Denial Rates for

1992 and 1993 Were Stable

for Most Services

The denial rates for at least two thirds of each carrier’s services did not

significantly change between 1992 and 1993. In general, the magnitude of

carrier denial rates was persistent for 2 consecutive years. Services that

had high denial rates in 1992 also tended to have high rates in 1993.

Page 7 GAO/PEMD-95-10 Medicare Part B
B-257799 

Conversely, services with low denial rates in 1992 also were generally low

in 1993.11 (See table 2.)

Table 2: Change in Denial Rates for the Top 74 Services by Carrier, 1992-93

Change in denial ratea

Northern

California

Southern

California

North

Carolina

South

Carolina Illinois Wisconsin Total

Increased 12 14 18 2 14 2 62

Decreased 4 7 1 5 3 20 40

No change 58 53 55 67 57 52 342

Total 74 74 74 74 74 74 444

aA chi-square test of statistical significance was used to test whether 1992 rates differed from

1993 rates. Rate differences significant at p < 0.01 were considered to have changed between

years.

For two jurisdictions—South Carolina and Wisconsin—the number of

services that had decreased denial rates in 1993 exceeded the number of

services for which rates increased. Conversely, four carriers—Northern

California, Southern California, North Carolina, and Illinois—had more

services whose denial rates significantly increased than decreased. For

Northern California, Southern California, and Illinois, the difference in the

number of services with higher denial rates in 1993 was slight, from 7 to 11

services. However, denial rates for the North Carolina carrier significantly

increased between 1992 and 1993 for 18 services; the denial rate was

significantly decreased for only 1 service.

Factors That

Contributed to

Intercarrier Variation

in Denial Rates

The significant differences in denial rates for medical necessity across

carriers give rise to the following question: What accounts for the

variations in denial rates? To address this question, we met with carrier

representatives and HCFA officials, who identified five factors that could

help explain the variation in denial rates across carriers.

Carriers Differed in How

They Implemented

Prepayment Screens

The Medicare program has since its inception acknowledged the existence

of regional variations in medical practice standards and has sought to

accommodate these differences in adjudicating claims. One practical

11For example, Southern California had a denial rate of 83.2 for nonemergency ambulance service

(code A0150) in 1992 and a rate of 81.2 in 1993. The difference between denial rates for these 2 years is

2 and is not statistically significant. In other words, the Southern California carrier’s denial rate for this

ambulance code did not decrease significantly in 1993, and the difference between these 2 years is

likely to be due to chance variation. We used a chi-square test of statistical significance to test whether

1992 rates differed from 1993 rates. Rate differences significant at p < 0.01 were considered to have

changed between years.

Page 8 GAO/PEMD-95-10 Medicare Part B
B-257799 

consequence of this policy is that HCFA has delegated to carriers the

authority to determine whether a rendered service was medically

necessary. Making such determinations requires that carriers first develop

a local medical policy. Computer screens are used to suspend a subset of

claims, which are then reviewed by claims examiners, who in turn follow

local medical policy in making their determinations.12

Utilization and diagnostic screens are two of the more common types of

screens.13 Utilization screens measure the number of times a service has

been performed against a standard (for example, services per year), and

diagnostic screens compare the diagnosis listed on a claim with a defined

set of diagnoses that would usually warrant performance of that service.14

Differences in the way that carriers use screens can affect the variability of

denial rates in two ways. First, in the absence of an applicable local

medical policy or a coverage directive from HCFA to assess the validity of a

claim, carriers usually assume that a claim is valid and thus should be

approved. It follows that, given comparable billing patterns, a carrier with

a screen in place for a specific medical service will deny more claims than

a carrier without such a screen in place.15 Carriers differ in the number of

services they screen; we reported earlier that the total number of local

12We did not examine whether differences in the criteria used in carrier medical policies affect denial

rates. However, HCFA has acknowledged the need to promote consistency in medical policy across

carriers and has undertaken the following initiatives to promote consistency: (1) developing a

database that allows carriers to share information on medical policies, (2) establishing a technical

advisory committee for each carrier that informs the carrier of current issues and technological

developments in the medical community, and (3) distributing copies of model medical policy and

encouraging carriers to use this model as a guide for developing their own policies.

13Carriers have a limited number of autoadjudicating computer screens. Such screens do not suspend

claims for manual review but, rather, make the final determination of medical necessity. That is, claims

not meeting certain criteria are automatically denied without being manually reviewed by claims

examiners.

14For example, with regard to utilization screens, if a carrier’s medical policy stated that only one

office visit for eye exam per year is medically necessary, the carrier might construct a screen that

would suspend a beneficiary’s claims for eye examinations that exceed this limit. Diagnostic screens

compare the diagnosis listed by the provider on a claim with a set of diagnoses determined by the

carrier to indicate the medical necessity of performing a service.

15A recent demonstration project sponsored by HCFA underscored this point. Additional funds were

allocated to four carriers for the purpose of improving their systems of medical review. Participating

carriers used these funds to upgrade their computer systems, develop additional medical policies, and

conduct more medical reviews. These improvements led to significant Medicare savings, in part

caused by the carriers’ appropriately denying a greater number of billed services. This project showed

that savings in Medicare expenditures could be achieved by improving and expanding medical review

activities. See U.S. General Accounting Office, Medicare: Greater Investment in Claims Review Would

Save Millions, GAO/HEHS-94-35 (Washington D.C.: March 1994).

Page 9 GAO/PEMD-95-10 Medicare Part B
B-257799 

screens carriers used in 1988 ranged from 5 to 177.16 Second, different

carriers screening the same service may use different criteria to suspend

claims. Thus, although two carriers may screen the same service for

medical necessity, their respective criteria may result in differing denial

rates.

To gauge the effect of medical necessity screens on carrier denial rates,

we asked the carrier with the highest denial rate for medical necessity for

5 selected services to identify the specific reason for denial for a small

sample of 15 to 20 claims denied for lack of medical necessity.17 In this

way, we were able to identify the key screens that most directly caused

denial. We selected the 5 services because carrier denial rates for each one

exhibited significant variation. For each service, we selected the carrier

with the highest denial rate and determined the reason for the denial: x-ray

and multichannel blood test (Illinois), myocardial perfusion imaging and

echocardiography (Southern California), and opthalmologic exam

(Wisconsin).

For example, for the automated multichannel blood test, the Illinois

carrier had a denial rate of 138.9 per 1,000 services allowed in 1993, while

the other carriers had negligible denial rates of 0, 0.1, 0.5, 1.4, and 1.7.

After examining a sample of claims, the Illinois carrier concluded that the

majority of its denials for reason of medical necessity resulted from a joint

utilization and diagnostic screen. That is, a provider in the Illinois carrier’s

jurisdiction could order this type of blood test for a patient up to two

times per year with no condition attached. On the third and subsequent

tests, however, the carrier checked the appropriateness of the test against

a set of diagnostic codes specified by its local medical policy. If the

diagnostic codes on the claim matched codes on this list, the service was

approved. Conversely, if a diagnosis was not provided or did not match the

accepted codes, the claim was denied and returned to the provider. The

provider could then resubmit the claim with a different diagnostic code if

appropriate.

We then asked the other carriers (Northern California, Southern

California, North Carolina, South Carolina, and Wisconsin) if they had

similar utilization and diagnostic checks to assess the medical necessity of

multichannel blood tests. Their responses indicated that two carriers used

16U.S. General Accounting Office, Medicare: Improving Quality of Care Assessment and Assurance,

GAO/PEMD-88-10 (Washington, D.C.: May 1988), p. 119.

17Because the computer systems of most carriers can retrieve claim records for only the preceding 12

to 18 months, we sampled claims from the last quarter of 1993.

Page 10 GAO/PEMD-95-10 Medicare Part B
B-257799 

only a diagnostic screen and the remaining three did not have either a

utilization or a diagnostic screen for this service. The carriers’ responses

for this service, as well as for the 4 other services selected for analysis, are

summarized in table 3.

Page 11 GAO/PEMD-95-10 Medicare Part B
B-257799 

Table 3: Pattern of Carrier Screen Use

and Denial Rates, by Selected

Services, 1993a

Northern California Southern California

Service and

procedure code Screen

Denial

rate Screen

Denial

rateS

Echocardiography

(93307)

None 1.7 Diagnosticb 173.3N

Myocardial perfusion

imaging

(78465)

None 0 Diagnosticb 248.4N

Chest x-ray

(71020)

Diagnostica 7.6 Diagnosticb 14.6D

Multichannel blood test

(80019)

None 0.1 None 1.7U

Ophthalmologic exam

(92004)

Diagnostica 19.2 Diagnostic 4.2D

Page 12 GAO/PEMD-95-10 Medicare Part B
B-257799 

North Carolina South Carolina Illinois Wisconsin

l

eScreen

Denial

rate Screen

Denial

rate Screen

Denial

rate Screen

Denial

rate

3Nonec 1.1 Noned 4.4 None 0 None 0

4None 6.4 Noned 6.0 None 0 None 0

6Diagnostic 1.2 None 0.2 Diagnosticb 90.2 Diagnosticb 0.1

7Utilization 0.5 Utilization 1.4 Utilization +

diagnosticb

138.9 Diagnosticb 0

2Diagnostic 1.2 None 0 Utilization +

diagnosticb

19.6 Diagnosticb 108.4

aServices that were not screened by carriers could have denial rates greater than zero because

of postpayment review or other reasons. Edits for bundling and duplicate line items are not

considered to be utilization screens in this table.

bThe screen autoadjudicates.

cCarrier requires diagnostic code but does not require a specific one.

dSouth Carolina also reported screens for codes 93307 and 78465; however, they were

implemented on December 13, 1993, and November 18, 1994, respectively.

Variation From the Presence of

a Prepayment Screen

We found that the types of services screened for medical necessity varied

across carriers. For example, as shown in table 3, only one of the six

carriers (Southern California) screened echocardiography and myocardial

perfusion imaging services. Similarly, while four carriers screened

multichannel blood test services, the types of screens they used varied.

For example, the North Carolina carrier used a utilization screen, the

Wisconsin carrier used a diagnostic screen, and the Illinois carrier used

both.

Table 3 also provides evidence that carrier denial rates were associated

with the presence or absence of a screen. For two services,

echocardiography and myocardial perfusion imaging, the only carrier

(Southern California) that had screens in place had much higher denial

rates. While denial rates greater than zero do not always imply the

presence of a medical necessity screen (some medical necessity denials

may stem from postpayment review activities), denial rates are higher

when a carrier has a screen.

Page 13 GAO/PEMD-95-10 Medicare Part B
B-257799 

For the 3 other services—chest x-ray, multichannel blood test, and

opthalmologic exam—the relationship between screening and carrier

denial rates was less clear cut. With respect to multichannel blood test, it

is possible that the reason the Illinois carrier had the highest denial rate

stemmed from the fact that it used two types of screens, consisting of both

a utilization and a diagnostic check, while the other carriers either had no

screen (Northern California, Southern California, and South Carolina) or

had only a diagnostic check (North Carolina and Wisconsin). This

explanation, however, is less satisfactory when attempting to account for

carrier variation in denial rates for chest x-rays and ophthalmologic

exams. In sum, although the presence or absence of a screen was not

sufficient to account for all variation in denial rates across carriers, it is

important to note that the highest denial rates were invariably associated

with screens.

Variations From Differences in

the Stringency of the Screen

Criteria

Beyond the simple presence or absence of a screen, the stringency of the

screen criteria can also contribute to variation in denial rates across

carriers by suspending a greater or lesser number of claims that are then

subject to a medical review. We found that, even when screening the same

service, carriers used different criteria for suspending claims. For

example, the first 12 visits to a chiropractor for spinal manipulation to

correct a subluxation must meet certain basic HCFA coverage criteria, such

as the following: An x-ray demonstrating the spinal problem must be

available, signs and symptoms must be stated, and the precise level of

subluxation must be reported. The six carriers had all incorporated these

criteria into their medical policies for chiropractic spinal manipulation.

HCFA requires that carriers assess the necessity of visits in excess of 12 per

year, but carriers diverged in how they assessed such treatments. One

carrier stated that, after 12 visits, additional documentation on medical

necessity would be required. Another carrier based the number of

additional visits allowed on the injured area of the spine. When that

number of additional visits was reached, this carrier required additional

documentation from the provider. Still another carrier stated that, while it

reviewed visits beyond 12, it usually did not require additional

documentation until the 30-visit mark.

Carriers Differed in How

They Interpreted Certain

National Coverage

Standards

While we anticipated variation in denial rates on account of differences in

carriers’ implementation of screens, we expected less variation to result

from carriers’ differing interpretations of national coverage standards.

However, we learned that carriers interpreted and applied the same

Page 14 GAO/PEMD-95-10 Medicare Part B
B-257799 

standards in different ways because some standards leave key elements of

the policy undefined.

In 1993, Transamerica Occidental Life, in coordination with HCFA, studied

claims that it had processed for 17 different services for which

Transamerica showed variation in denial rates in 1992 among the six

carriers.18 The following discussion highlights some problem areas

uncovered by the Transamerica study that relate to the implementation of

national coverage standards.

Although national coverage standards allow Medicare carriers to pay for

diagnostic tests, these standards significantly restrict particular tests for

routine screening. Hence, in determining whether a claim should be paid

by Medicare, carriers must judge whether the tests were performed for

diagnostic or screening purposes. Making such judgments is often difficult,

especially for certain types of tests.19 Transamerica, for example, found

differences across carriers in how they assessed chest x-ray and

mammography claims. With regard to chest x-rays, the Transamerica study

reported the following:

“There is a continued trend toward diagnostic screening for asymptomatic patients which

we feel necessitates a formal policy. There is also wide variation among carriers as to the

necessity for pre-operative diagnostic testing, and whether it falls within the ‘medical

necessity’ coverage of the program. Review of various carriers’ policy indicates that some

deny as ‘routine physical examination,’ and not as a medical necessity denial. HCFA needs to

clarify their position on this issue so there is more consistency on a national basis.”20

Similarly, the Transamerica study reported difficulty in implementing

HCFA’s coverage guidelines for mammographies:

18The services were ambulance service (A0010 and A0020), chiropractic (A2000), cataract removal

(66984), chest x-ray (71020), mammography (76091), surgical pathology (88305), percutaneous

transluminal coronary angioplasty (92982), echocardiography (93307), Doppler echocardiography

(93320), duplex scan of extracranial arteries (93880), and hospital care (99222, 99231, 99233, 99238,

99283, and 99332). HCFA provided Transamerica with a sample of claim numbers drawn from the data

set used in our preliminary analysis of denial rates. Claims were extracted from Transamerica’s

computer system and then examined to determine the reason why a claim was originally denied.

19This issue also applies to carriers’ determinations of when a test ceases to be experimental. A carrier

representative told us that, prior to 1993, her company denied all claims submitted for prostate specific

antigen (PSA) test, used for detecting cancer of the prostate. It was considered to be an experimental

procedure with low reliability. However, following technical refinements to the test that improved its

reliability, PSA gained greater acceptance among physicians as a diagnostic tool. As a consequence,

this carrier changed its policy and now pays for PSA testing under certain conditions. Because such

decisions are made carrier by carrier, denial rates for certain types of tests are likely to vary across

carriers.

20Transamerica report to HCFA on denial rates (May 1994), p. 2.

Page 15 GAO/PEMD-95-10 Medicare Part B
B-257799 

“HCFA needs to re-evaluate its screening mammography billing and coverage requirements.

Many screening services are being performed by nonscreening centers under the

nonscreening procedure code. This may reflect a lack of, or inaccessibility to, screening

mammography centers. There are also differences among carriers as to what constitutes a

screening test. Some of the encounter codes used by HCFA as an indication for screening are

also being used for diagnostic tests. Further clarification is needed.”21

Findings from the Transamerica study suggest that, at least with respect to

chest x-rays and mammographies, carriers found it difficult to distinguish

whether these procedures were performed for screening or diagnostic

purposes. It is likely that this difficulty may extend to other types of test

procedures.

This example illustrates the fact that simply issuing a national coverage

standard for a service is not sufficient to ensure consistency of

application. While it is probably not feasible for HCFA to develop coverage

standards that anticipate every conceivable circumstance under which a

claim might be filed, we have identified a coverage issue for chest x-ray

and mammography that appears to be in need of further clarification by

HCFA.

Carriers Differed in How

They Treated Incomplete

Claims

The manner in which carriers treated claims with billing errors or missing

information affected denial rates. For example, if a carrier’s medical policy

required that the provider indicate the diagnosis when submitting a claim

for a particular type of service, and the claim lacked this information, the

carrier had several options. The carrier could (1) return the claim to the

provider, (2) “develop” the claim (that is, delay adjudication and try to

obtain the required information by contacting the provider), or (3) deny

the claim.

If the first option was exercised and the claim was returned, it was as if

the claim had never been submitted. If the second option was exercised

and the carrier received the requisite claim information, then the claim

was adjudicated. If the third option was selected and the carrier denied the

claim, the provider had either to resubmit the claim or go through the

appeal process to obtain payment for this service.22 The resubmitted

claims might well be paid, but the carrier’s records would still show that

the claim had been denied. (See table 4.)

21Transamerica, p. 2.

22Earlier this year, HCFA surveyed all carriers and concluded that there was significant variation in the

way the carriers were treating missing information.

Page 16 GAO/PEMD-95-10 Medicare Part B
B-257799 

Table 4: Options Carriers Used to

Process Incomplete Claims Option Description

Return, delete, reject Return: Used for hardcopy claims screened in the

mailroom. Rejected claims were never given an internal

claim control number; they were physically returned to the

provider or supplier. A message was sent to the provider

informing it that the claim was not processed. For

budgetary purposes, returned claims were not counted

as part of the workload.

Delete: Used for electronically submitted claims screened

by computer. Deleted claims were not given an internal

claim control number and a message was sent to the

provider or supplier informing it that the claim was not

processed. For budgetary purposes, deleted claims were

not counted as part of carrier workload.

Reject: Claims (both hardcopy and electronic) were

assigned an internal claim control number. Claims were

entered into the computer system and screened. When

missing information was detected, the claim was rejected

and a message was sent to the provider or supplier

informing it that the claim was not processed. For

budgetary purposes, rejected claims were counted as

part of carrier workload.

Develop Carriers suspended judgment on claims and requested

missing information from physician or supplier. If

requested information was not received within 30 to 45

days, the carrier denied the claim.

Deny Claim was completely processed through the system and

a Medicare explanation-of-benefits message was sent to

the claimant (beneficiary or provider) that indicated the

basis of the denial. Denied claims were given full appeal

rights.

Source: HCFA.

Although carriers had several ways of processing incomplete claims, the

option they selected for any given claim depended on such factors as the

cost incurred to develop the claim, the capability of their computer

system, and special instructions from HCFA. For example, a carrier might

have developed incomplete claims involving surgical procedures while

denying incomplete claims involving chiropractic treatments, or the

carrier might have rejected claims missing beneficiary health insurance

numbers while developing claims with missing provider identification

numbers.

Because the preceding examples highlight only a handful of the numerous

possible combinations that may have been used to process claims with

incomplete information, it is difficult to characterize any one carrier’s

Page 17 GAO/PEMD-95-10 Medicare Part B
B-257799 

approach, much less systematically compare differences. However, it is

reasonable to infer that carriers that emphasized claim denial over claim

development (or rejection) for incomplete claims had higher denial rates

than carriers that did not.

HCFA has examined this issue and has asked its Office of the General

Counsel for advice that would bring consistency to the way that carriers

process claims lacking basic information. In brief, HCFA recommends

eliminating the denial option for incomplete claims. Claims that lack the

requisite information would be returned or deleted and the provider or

supplier would be notified.

HCFA has noted that carriers have expressed concern over this proposal.

Some carriers are against the elimination of the denial option because

(1) it would negatively affect their administrative budgets (because

deleted or returned claims do not count in their workload statistics),

(2) the cost of returning claims can be high, and (3) physicians and

suppliers learn how to bill correctly faster when a claim is denied rather

than returned. HCFA has responded by asserting that “these costs will be

more than offset by fewer denied claims, fewer beneficiary inquiries, and

fewer unproductive and expensive appeals.” Standardizing the handling of

incomplete claims would also improve the accuracy of carrier workload

statistics by making them more comparable across carriers.

Carriers Differed in How

They Reported the Reason

for a Claim Denial to

HCFA’s Central Database

Because carriers used different computer systems to process claims, their

internal action codes—which indicate the reason for denying a

service—were not identical. To facilitate comparisons, HCFA has required

that each carrier translate its own set of internal action codes into 10

broad categories when transmitting data to HCFA’s central database. (See

table I.2.) However, because HCFA has given carriers little guidance in

performing this task, carriers are uncertain as to how denials should be

classified for reporting purposes. This, in turn, has affected the reliability

of estimated denial rates.

Transamerica identified two service categories that carriers have tended

to use interchangeably: “noncovered” and “medically unnecessary” care.

Its study found that “medically unnecessary” was used to classify denials

for 3 service codes (of 17 studied) that should have been classified as

“noncovered” care. The misclassified codes related to evaluation and

management, ambulance, and cataract services. With regard to ambulance

Page 18 GAO/PEMD-95-10 Medicare Part B
B-257799 

services reported to HCFA as denied for reason of medical necessity, the

Transamerica study noted that

“Changes were made to the reporting classification of messages as a result of our review of

Medicare Carriers Manual (MCM) coverage criteria, shifting some of the denials from a

medical necessity classification to a coverage classification. There is a great deal of

variation among carriers as to whether certain types of ambulance denials are based on

medical necessity or coverage. There needs to be more definitive information from HCFA as

to how they want the denials to be classified.”23

We collected and analyzed reporting protocols for the six carriers in this

study, and our analysis of these data corroborates Transamerica’s findings.

(See appendix IV.) We found that while reported misclassifications of this

type do not affect the actual outcome of claims, they can affect the

reliability of estimated denial rates for certain services. For this reason, we

calculated separate denial rates for “medical necessity” and “noncovered”

care and the combined total (see appendixes II and III) and assessed the

degree of intercarrier variability for each category of denial. We found

significant intercarrier variability for all three types of denial categories.

Reporting inconsistencies of this type affects HCFA’s ability to accurately

monitor program operation activities and is thus an area where additional

guidance from HCFA could improve the quality of the data it collects.

A Few Providers Account

for a Significant Proportion

of the Variation in Carrier

Denial Rates

HCFA officials advanced several hypotheses that might help explain

variations in carrier denial rates. They focused on provider billing

practices as they relate to (1) geographic differences in the level of fraud

and abuse, (2) differences across carriers in provider education (that is,

efforts aimed at increasing provider awareness of appropriate billing

procedures), and (3) high denial rates caused by the aberrant billing

practices of a minority of providers. HCFA has not systematically studied

this issue and did not provide us with empirical evidence that would

support any of these hypotheses. Using claims data, however, we were

able to examine one of these hypotheses—whether the billing practices of

a minority of providers were responsible for a disproportionate share of

service denials.

23Transamerica report, section headed “Detail Analysis.”

Page 19 GAO/PEMD-95-10 Medicare Part B
B-257799 

To test this hypothesis, we examined four services that exhibited wide

variation in carrier denial rates for medical necessity.24 Although HCFA did

not specify the criteria for identifying providers with aberrant billing

practices, we assumed that providers that submit claims that are denied at

a high rate have aberrant billing practices. However, such providers may

not submit enough claims to substantially affect a carrier’s denial rate for

that service. For this reason, we defined providers with aberrant billing

practices in two ways: (1) those with the highest denial rates and (2) those

with the largest number of denials. We then calculated a carrier’s denial

rate for a service excluding the contribution of the top 5 percent of

providers (in terms of both rate and total) to determine whether variations

in denial rates were still observable.

Table 5 shows that the top 5 percent of providers, in terms of the highest

denial rates and highest number of services denied, contributed

substantially to carrier denial rates for each of the 4 services. However,

excluding these providers did not eliminate the variation across carriers.

For example, the actual range of carrier denial rates for echocardiography

was 0 to 173.3; excluding the Southern California providers with the

highest denial rates, the range was 0 to 154.9; and excluding the Southern

California providers with the largest number of services denied, the range

was 0 to 63.1. Thus, under both definitions of aberrant billing practice,

excluding aberrant practitioners reduced the variability in denial rates for

a service but did not eliminate that variation. It is therefore likely that the

billing practices of a few providers account for part of the intercarrier

variation in denial rates.

24See table 3; we did not analyze provider billing practices with respect to multichannel blood tests

because laboratories submitted most of the claims for this service, not the physicians who ordered the

test.

Page 20 GAO/PEMD-95-10 Medicare Part B
B-257799 

Table 5: Carrier Denial Rates for Four Services, Excluding Aberrant Providers

Top 5 percent of providers excluded

Denial rate per 1,000 services allowed

Service and procedure code Carrier All providers

Based on denial

ratea

Based on total

number of denialsb

Chest x-ray (71020) Northern California 7.6

Southern California 14.6

North Carolina 1.2

South Carolina 0.2

Illinois 90.2 83.0 45.8

Wisconsin 0.1

Echocardiography (93307) Northern California 1.7

Southern California 173.3 154.9 63.1

North Carolina 1.1

South Carolina 4.4

Illinois 0

Wisconsin 0

Myocardial imaging (78465) Northern California 0

Southern California 248.4 181.7 148.8

North Carolina 6.4

South Carolina 6.0

Illinois 0

Wisconsin 0

Ophthalmologic exam (92004) Northern California 19.2

Southern California 4.2

North Carolina 1.2

South Carolina 0

Illinois 19.6

Wisconsin 108.4 67.2 51.9

aDenial rate calculated after excluding the 5 percent of providers with the highest denial rates.

bDenial rate calculated after excluding the 5 percent of providers with the highest total number of

denials.

To further examine provider denial rates for medical necessity, we

analyzed the distribution of provider denials for 16 services that had denial

rates exceeding 90 per 1,000 allowed. For each service, we calculated the

percentage of providers (within a carrier) that accounted for 50 percent of

all denials for that service, as well as the percentage of providers with at

Page 21 GAO/PEMD-95-10 Medicare Part B
B-257799 

least one denial. For example, only 6.9 percent of Northern California

chiropractors accounted for 50 percent of all denials. Table 6 displays the

result of these calculations.

Table 6: Provider Denial Rates for Medical Necessity, 1993a

Carrier

Services with denials exceeding

90 per 1,000 services allowed

Percent of providers with

at least 1 medical

necessity denial

Percent of providers

receiving 50 percent of all

medical necessity denials

Northern California A0150 52.5 2.8

A2000 65.4 6.9

Southern California 78465 58.7 7.9

92982 19.5 2.3

93307 53.0 1.5

93320 49.1 3.0

93880 52.6 3.1

North Carolina A0010 73.4 5.6

A0020 78.1 4.8

A2000 85.5 10.6

92982 38.0 6.5

93549 40.8 6.1

Illinois A2000 70.5 7.4

71020 54.2 2.1

Wisconsin A2000 56.2 6.4

92004 47.5 4.4

aExcludes South Carolina because it does not have medical necessity denial rates greater than

90 per 1,000 services allowed. Excludes providers that did not submit a claim for a service.

Percentages are based on a 100-percent sample of 1993 claims. The method used for

determining the denial median was based on the total number of denials a provider received. The

percentage of allowed services accounted for by providers with 50 percent of denials was as

follows: Northern California, A0150 = 28.2, A2000 = 29.7; Southern California, 78465 = 31.5,

92982 = 3.8, 93307 = 8.7, 93320 = 11.8, 93880 = 19.6; North Carolina, A0010 = 20.8, A0020 =

8.4, A2000 = 29.3, 92982 = 9.9, 93549 = 12.3; Illinois, A2000 = 27.1, 71020 = 17.1; Wisconsin,

A2000 = 20.5, 92004 = 16.6.

Our analysis suggests that a small minority of providers, between 1.5 and

10.6 percent, accounted for 50 percent of services denied for lack of

medical necessity (and thus were responsible for the bulk of denials).

Thus, the screens and medical policies these carriers used to determine

the medical necessity of claims primarily affected a relatively small

proportion of the provider community. Table 6 also shows that the

proportion of providers that had at least one denial varied between 19.5

and 85.5 percent. The latter range suggests that some prepayment screens

Page 22 GAO/PEMD-95-10 Medicare Part B
B-257799 

used to identify inappropriate billing patterns affected a smaller

proportion of the provider population than did others.

While we cannot explain differing patterns of provider denials—for

example, they may stem from unnecessary services being

disproportionately offered by a few providers, differences in patient

characteristics, variations in billing practices, or a number of other

factors—further examination of the reasons for them is warranted given

their potential to explain substantial amounts of variation in denial rates.

Conclusions The magnitude of carrier denial rates was generally low and persistent for

2 consecutive years, although rates for some services shifted across years.

Medical necessity denial rates for 74 services across six carriers varied

substantially. The primary reason for variation in carrier denial rates was

that certain carriers used screens for specific services while others did

not. Thus, carriers’ selecting the services to be screened and their

determining the stringency of the screen criteria probably account for a

significant proportion of the variability. Further, a small proportion of the

providers accounted for 50 percent of the denied claims. To a lesser

degree, the varying interpretation of certain national coverage standards

across carriers, differences in the way carriers treated claims with missing

information, and reporting inconsistencies helped explain variation in

carrier denial rates.

We did not attempt to assess whether low or high medical necessity denial

rates for individual carriers were appropriate. Low denial rates are

desirable from the standpoint that they imply less annoyance and

inconvenience for providers and beneficiaries. However, low denial rates

are desirable only insofar as providers do not bill for medically

unnecessary services.

What is clear from our work is that further analysis of denial rates can

provide useful insight into how effectively Medicare carriers are managing

program dollars and serving beneficiaries and providers. Since funding

constraints limit the number of claims carriers can examine on a

prepayment basis, it is important that they use the most effective and

appropriate screens.

We believe that HCFA could improve its oversight capabilities by actively

monitoring data on carrier denial rates and improving the reliability of the

data that it collects. Data on denial rates are useful for identifying

Page 23 GAO/PEMD-95-10 Medicare Part B
B-257799 

inconsistencies in the way that carriers assess claims for medical

necessity. This information, in turn, could be used to identify the services

that certain carriers have found to have billing problems. In addition, for

services that are more uniformly screened by carriers, variation in denial

rates could indicate that carriers are using different screen criteria, which

raises issues of appropriateness and effectiveness. Finally, data on denial

rates could be used to construct a profile of the subpopulation of

providers that have a disproportionately large number of denials, which

might suggest a solution to this problem.

Recommendations We recommend that, to improve its oversight of the Medicare Part B

program, HCFA

• issue instructions to carriers on how to classify the reason for denial when

reporting this information;

• analyze intercarrier screen usage (including the stringency of screen

criteria), identify effective screens, and disseminate this information to all

carriers; and

• direct carriers to profile the subpopulation of providers responsible for a

disproportionate share of medical necessity denials in order to devise a

strategy for addressing this problem.

Agency Comments At your request, we did not obtain agency comments on a draft of this

report.

If you or your staff have any questions about this report or would like

additional information, please call me at (202) 512-2900 or Kwai-Cheung

Chan, Director for Program Evaluation in Physical Systems Areas, at

(202) 512-3092. Major contributors to this report are listed in appendix V.

Sincerely yours,

Terry E. Hedrick

Assistant Comptroller General

Page 24 GAO/PEMD-95-10 Medicare Part B
Page 25 GAO/PEMD-95-10 Medicare Part B
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

28

Appendix II 

1992 Denial Rates

(Per 1,000 Services

Allowed) for Medical

Necessity and

Noncovered Care by

Carrier

33

Appendix III 

1993 Denial Rates

(Per 1,000 Services

Allowed) for Medical

Necessity and

Noncovered Care by

Carrier

40

Appendix IV 

Carrier Reporting of

Service Denials

48

Appendix V 

Major Contributors to

This Report

58

Tables Table 1: Distribution of Top 74 Services by Denial Rate and

Carrier, 1993

5

Page 26 GAO/PEMD-95-10 Medicare Part B
Contents

Table 2: Change in Denial Rates for the Top 74 Services by

Carrier, 1992-93

8

Table 3: Pattern of Carrier Screen Use and Denial Rates, by

Selected Services, 1993

12

Table 4: Options Carriers Used to Process Incomplete Claims 17

Table 5: Carrier Denial Rates for Four Services, Excluding

Aberrant Providers

21

Table 6: Provider Denial Rates for Medical Necessity, 1993 22

Table I.1: Claims Processed by Selected Medicare Part B Carriers

in 1992

28

Table I.2: Reported Reasons for Denying a Medicare Service

Claim

31

Table IV.1: Sample Translation Table for Two Carriers 49

Table IV.2: CWF Categories by HCFA Message Number and

Carrier

50

Table IV.3: HCFA Messages for Denied Services 52

Figures Figure 1: Denial Rates for Medical Necessity Across Six Services,

1993

7

Figure I.1: Medicare Part B Claim Form 30

Abbreviations

CWF Common Working File

HCFA Health Care Financing Administration

MCM Medicare Carriers Manual

NCH National Claims History

PSA Prostate specific antigen

Page 27 GAO/PEMD-95-10 Medicare Part B
Appendix I 

Objectives, Scope, and Methodology

Objectives We had two objectives in this report. Our first was to determine the extent

of carrier variability in denial rates for lack of medical necessity. Our

second was to identify and examine factors that contributed to intercarrier

variation in denial rates.

Scope To develop the information on denial rates, we analyzed a 5-percent

sample of 1992 and 1993 claims for the top 74 medical services processed

by six carriers (based on their national ranking in terms of total allowed

charges in 1992).1

 We also interviewed HCFA officials and representatives

of the following six carriers: California Blue Shield (jurisdiction: Northern

California), Transamerica Occidental Life Insurance (jurisdiction:

Southern California), Connecticut General Life Insurance Company

(jurisdiction: North Carolina), Blue Shield of South Carolina, Illinois Blue

Cross and Blue Shield, and Wisconsin Physicians’ Service.

In selecting carriers for our analysis, we considered geographic location

and the number of claims processed. Our sample included two carriers

each from of the Southeast, the Midwest, and the West. We sought to

maximize the geographic distance between regions while retaining the

potential for examining intraregional variation in claims adjudication. With

regard to the number of claims processed, we attempted to obtain a mix of

large and small carriers.2

 Table I.1 lists the carriers we visited and the

number of claims they processed in fiscal year 1992.

Table I.1: Claims Processed by

Selected Medicare Part B Carriers in

1992

Carrier Geographic location

Number of claims

processed (in

millions)

California Blue Shield West 24

Transamerica-Occidental West 25

Illinois Blue Cross and Blue Shield Midwest 22

Wisconsin Physicians’ Service Midwest 10

Connecticut General (North Carolina) Southeast 18

South Carolina Blue Shield Southeast 8

1

We abstracted claim information from the physician and supplier portion of the National Claims

History database, which serves as a repository for all Medicare claims.

2

The frequency distribution of number of claims processed by the Medicare carriers is essentially

bimodal. That is, there are two large clusters of carriers: those that annually process between 2 and

13 million claims and those that process between 18 and 29 million claims (two carriers processed

over 46 million claims each). Our sample includes two carriers from the former cluster and four from

the latter.

Page 28 GAO/PEMD-95-10 Medicare Part B
Appendix I 

Objectives, Scope, and Methodology

Taken together, these six carriers processed about 19 percent of all Part B

claims in fiscal year 1992. It should be noted, however, that the judgmental

method used to select carriers for this report does not allow us to

generalize our findings to the universe of carriers.

Methodology We obtained data on denial rates from the National Claims History File, a

database maintained by HCFA. It contains a wide variety of claim

information, including type of medical service billed and type of action

carriers take as a result of the claim adjudication process. On the Medicare

claim form, each billed service, or line item, appears as a separate charge

with a corresponding five-digit service code that describes the type of

service provided. (See figure I.1.) For example, code 71020 refers to a

chest x-ray. It is important to note that a Medicare claim can contain

submitted charges for more than one service. A claim for a physician’s

office visit, for example, may also include the charges for laboratory tests

performed during the visit. The denial rates presented in this report are

based on specific services, not on claims.

Page 29 GAO/PEMD-95-10 Medicare Part B
Appendix I 

Objectives, Scope, and Methodology

Figure I.1: Medicare Part B Claim Form

Page 30 GAO/PEMD-95-10 Medicare Part B
Appendix I 

Objectives, Scope, and Methodology

Each service, or line item, listed on a claim is subject to the carrier’s

approval or denial. For each service processed, the carrier must indicate

whether the claim for service was approved or denied and, if denied, the

specific reason for denial. Table I.2 shows the categories of denial that are

reported to HCFA’s central database.

Table I.2: Reported Reasons for

Denying a Medicare Service Claim Reason Description

Medically unnecessary Service denied because it was determined that service

was not medically necessary

Noncovered care Service denied because it was administered under

conditions that are not covered by Medicare

Benefits exhausted Service denied because beneficiary exhausted all Part B

benefits or reached the maximum limit of services: the

three types of services subject to limitations under

Medicare are psychiatric services, occupational therapy,

and physical therapy

Invalid data Claim contained invalid data; for example, the day and

month of the service date were transposed, as in 15/9/94.

This type of claim should be resubmitted

Multiple submittal Service denied because submitted charge was

duplicated on claim form

Medicare secondary payer Service denied because Medicare was not the primary

payer

Clinical Laboratory

Improvement Act

Service denied because it was performed by a

noncertified laboratory

Physician ownership denial Service denied because the physician (or physician’s

relative) has ownership in the laboratory that performed

the service

Data match (Medicare

secondary payer cost

avoided)

Service denied because Medicare was not the primary

payer, discovered through an Internal Revenue Service

and Social Security Administration data match

Other Denials that do not fit into the categories above

We analyzed services that were denied because they were “medically

unnecessary.” We focused on this type of denial because it reflects, to a

greater degree, the effect of carrier discretion in claims assessment. That

is, determining medical necessity quite often entails the application of a

complicated set of decision rules and may ultimately require the individual

judgment of a claims reviewer. In contrast, the other types of denial

involve more straightforward criteria that can be applied by means of

computerized programs (such as whether charges for the same service

appear twice on a claim). We calculated denial rates by summing the

number of services denied for medical necessity and dividing the total by

Page 31 GAO/PEMD-95-10 Medicare Part B
Appendix I 

Objectives, Scope, and Methodology

the number of services allowed for each of 74 services.3 We excluded from

the analysis services denied for reasons other than medical necessity.

Although Medicare covers more than 10,000 different medical services,

relatively few services account for the bulk of Medicare costs. Our analysis

was restricted to the top 74 services, based on their national ranking in

terms of the total of allowed charges in 1992.4

 In 1992, the top 74 services

constituted approximately 50 percent of all Medicare Part B allowed

charges. Services that rank high in allowed charges are either frequently

performed (for example, office visits) or costly (for example, angioplasty

treatments).5

3

The formula for calculating denial rates is as follows: denial rate = (number of services denied for

reason of medical necessity) / (number of services allowed) * 1,000.

4

The “allowed charge” for a service is set by HCFA. The amount HCFA actually pays is 80 percent of

the allowed charge less deductible or co-payment.

5

Because durable medical equipment and parenteral and enteral claims are currently processed at

regional centers, we also excluded such services from our analysis.

Page 32 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

Anesthesia

00142 Anesthesia for procedure on eye,

lens surgery

Med.

Cov.

Total

0.0

1.2

1.2

1.3

10.9

12.1

5.7

5.7

11.4

0.0

0.8

0.8

0.0

0.0

0.0

17.8

18.6

36.4

00562 Anesthesia, procedure on heart,

pericardium and great vessels of

chest; oxygenator with pump

Med.

Cov.

Total

0.0

2.4

2.4

0.0

3.4

3.4

0.0

11.4

11.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

17.8

17.8

Muscloskeletal

27130 Arthroplasty, acetabular and

proximal femoral prosthetic

replacement, with or without allograft

Med.

Cov.

Total

0.0

0.0

0.0

4.7

9.3

14.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

12.0

12.0

27236 Open treatment of closed or open

femoral fracture

Med.

Cov.

Total

0.0

0.0

0.0

0.0

3.7

3.7

0.0

24.0

24.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

16.8

16.8

27244 Open treatment of closed or open

intertrochanteric

Med.

Cov.

Total

0.0

0.0

0.0

0.0

16.3

16.3

0.0

31.4

31.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

21.9

21.9

27447 Arthroplasty, knee, condyle, and

plateau; medical and lateral

compartments, with or without

patella resurfacing

Med.

Cov.

Total

0.0

0.0

0.0

2.9

2.9

5.8

0.0

43.5

43.5

0.0

0.0

0.0

0.0

0.0

0.0

0.0

14.2

14.2

Cardiovascular

33512 Coronary artery bypass, 3 coronary

venous grafts

Med.

Cov.

Total

14.6

0.0

14.6

0.0

4.5

4.5

0.0

6.3

6.3

0.0

0.0

0.0

0.0

15.2

15.2

0.0

54.5

54.5

33513 Coronary artery bypass, 4 coronary

venous grafts

Med.

Cov.

Total

3.9

0.0

3.9

0.0

32.7

32.7

0.0

30.3

30.3

0.0

0.0

0.0

0.0

13.2

13.2

0.0

35.7

35.7

36415 Routine venipuncture, collection of

specimen

Med.

Cov.

Total

0.2

17.8

18.0

0.2

6.0

9.2

0.9

15.6

16.6

0.2

2.5

2.7

0.0

4.2

4.2

0.1

10.2

10.3

Digestive

43235 Upper gastrointestinal endoscopy,

including esophagus, stomach,

duodenum, or jejunum; complex

diagnostic

Med.

Cov.

Total

0.0

0.9

0.9

0.9

10.2

11.1

1.1

14.2

15.3

0.0

2.3

2.3

1.8

1.8

3.6

0.0

10.2

10.2

(continued)

Page 33 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

43239 Upper gastrointestinal endoscopy,

including esophagus, stomach, and

either duodenum or jejunum; for

biopsy or collections by brushing

Med.

Cov.

Total

0.0

0.9

0.9

1.6

6.4

8.0

3.7

24.9

28.6

0.0

0.0

0.0

2.2

0.0

2.2

0.0

12.8

12.8

45378 Colonoscopy, fiberoptic, beyond

splenic flexure, diagnostic, with or

without colon decompression

Med.

Cov.

Total

0.0

1.8

1.8

0.9

6.0

6.8

0.0

20.3

20.3

0.0

0.0

0.0

0.8

1.7

2.5

0.0

6.2

6.2

45385 Colonoscopy, fiberoptic, beyond

splenic flexure, same as above, with

removal of polypoid lesions

Med.

Cov.

Total

0.0

1.2

1.2

3.7

7.5

11.2

0.0

12.2

12.2

0.0

0.0

0.0

0.0

0.0

0.0

0.0

10.3

10.3

Urinary

52000 Cystourethroscopy (separate

procedure)

Med.

Cov.

Total

1.3

1.3

2.6

2.1

8.9

11.0

0.0

5.8

5.8

0.0

0.0

0.0

3.2

2.4

5.6

0.0

17.0

17.0

52601 Transuretheral resection of prostate,

including control of post-op

bleeding, complete

Med.

Cov.

Total

9.0

6.0

15.0

3.2

0.0

3.2

0.0

21.4

21.4

0.0

7.8

7.8

0.0

0.0

0.0

0.0

12.9

12.9

Eye and ocular adenxa

65855 Trabeculoplasty by laser surgery,

one or more sessions

Med.

Cov.

Total

0.0

3.8

3.8

2.3

75.9

78.2

0.0

9.6

9.6

0.0

0.0

0.0

0.0

0.0

0.0

0.0

74.1

74.1

66821 Discussion of secondary

membranous cataract

Med.

Cov.

Total

0.0

0.0

0.0

1.0

35.3

36.3

1.1

27.6

28.7

0.0

0.0

0.0

0.0

0.5

0.5

0.0

5.9

5.9

66984 Extracapsular cataract removal with

insertion of intraocular lens prosthesis

Med.

Cov.

Total

0.2

0.0

0.2

10.8

31.1

42.0

5.5

14.1

19.7

0.0

1.7

1.7

1.1

0.5

1.6

0.0

0.7

0.7

Radiology

71010 Radiological exam, chest, single

view, frontal

Med.

Cov.

Total

0.5

0.5

1.0

16.0

13.0

29.0

4.4

12.5

16.8

1.0

4.2

5.2

80.5

0.3

80.9

1.0

17.4

18.4

71020 Radiological exam, chest, 2 views,

frontal and lateral

Med.

Cov.

Total

0.4

1.2

1.6

12.4

7.0

19.3

0.9

14.2

15.0

0.2

11.9

12.2

103.2

1.3

104.5

0.9

19.1

20.0

76091 Mammography, bilateral Med.

Cov.

Total

0.3

1.3

1.5

54.0

11.9

65.9

0.3

124.3

124.6

0.0

28.8

28.8

0.0

0.2

0.2

0.4

129.3

129.7

(continued)

Page 34 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

77430 Weekly radiation therapy

management, complex

Med.

Cov.

Total

0.0

0.0

0.0

1.2

5.5

6.7

0.0

35.6

35.6

0.0

1.6

1.6

0.0

75.3

75.3

1.6

8.2

9.9

78465 Myocardial perfusion imaging Med.

Cov.

Total

0.0

2.0

2.0

261.4

4.9

266.3

1.5

17.0

18.5

15.1

0.0

15.1

0.0

0.0

0.0

0.0

5.9

5.9

Path/lab

80019 Automated multichannel test, 19 or

more clinical chemistry tests

Med.

Cov.

Total

1.1

28.7

29.8

3.5

4.7

8.2

0.2

3.7

3.9

2.8

8.4

11.2

93.8

0.0

93.8

0.0

14.2

14.2

84443 Thyroid stimulating hormone Med.

Cov.

Total

0.6

26.5

27.1

3.4

4.6

8.0

0.3

1.6

2.0

4.4

5.8

10.2

0.0

0.1

0.1

0.0

14.3

14.3

85025 Blood count; hemogram and platelet

count, automated and CBC

Med.

Cov.

Total

0.9

27.8

28.7

5.2

3.7

8.9

0.2

3.2

3.3

0.0

7.7

7.7

0.0

0.0

0.0

0.3

9.7

10.0

86316 Immunoassay for tumor antigen (for

example, prostate specific antigen)

Med.

Cov.

Total

0.3

30.6

30.8

3.2

4.1

7.3

0.4

8.2

8.6

0.0

4.1

4.1

0.0

0.0

0.0

0.0

6.5

6.5

88305 Level IV—surgical pathology, gross

and microscopic exam

Med.

Cov.

Total

0.1

1.1

1.1

19.9

19.6

39.5

1.5

22.7

24.2

0.5

1.9

2.4

0.0

0.3

0.3

0.7

18.4

19.1

Medicine

90843 Individual medical psychotherapy by

a physician, approximately 20-30

minutes

Med.

Cov.

Total

0.1

2.9

3.0

14.7

12.7

27.4

1.6

26.4

28.0

0.0

6.3

6.3

0.0

7.8

7.8

1.0

26.4

27.3

90844 Individual medical psychotherapy by

a physician, approximately 45-50

minutes

Med.

Cov.

Total

0.2

0.6

0.8

9.9

15.7

25.6

1.0

23.4

24.4

0.0

0.0

0.0

0.0

35.5

35.5

0.7

182.1

182.8

92004 Opthalmologic services: medical

examination and evaluation

Med.

Cov.

Total

0.2

3.4

3.7

5.2

11.7

16.9

0.4

61.6

62.0

0.0

16.7

16.7

1.4

3.1

4.5

102.2

4.7

106.9

92012 Ophthalmologic services: medical

exam and evaluation, with initiation

or continuation of diagnostic and

treatment program

Med.

Cov.

Total

0.0

1.1

1.1

1.8

22.9

24.7

0.5

37.6

38.1

0.0

6.6

6.6

1.6

8.1

9.7

51.5

4.2

55.7

(continued)

Page 35 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

92014 Ophthalmologic services: medical

exam and evaluation, with initiation

or continuation of diagnostic and

treatment program

Med.

Cov.

Total

0.0

1.1

1.1

2.8

12.7

15.6

0.9

49.0

50.0

0.0

22.6

22.6

2.5

4.1

6.6

83.5

5.6

89.1

92982 Percutaneous transluminal coronary

balloon angioplasty, single vessel

Med.

Cov.

Total

0.0

256.3

256.3

182.4

19.5

202.0

29.2

58.5

87.7

0.0

0.0

0.0

0.0

175.0

175.0

33.3

0.0

33.3

93005 Electrocardiogram, routine, with at

least 12 leads; tracing only, without

interpretation and report

Med.

Cov.

Total

1.0

36.8

37.7

8.5

11.3

19.8

0.6

42.0

42.6

0.0

2.8

2.8

0.1

3.1

3.3

0.8

21.4

22.2

93307 Echocardiography, real-time with

image documentation (2D), with or

without M-mode recording, complete

Med.

Cov.

Total

4.1

0.9

5.0

140.0

41.4

181.4

1.2

39.3

40.5

0.0

1.2

1.2

0.0

0.0

0.0

1.5

5.2

6.7

93320 Doppler echocardiography, pulsed

wave or continuous wave with

spectral display, complete

Med.

Cov.

Total

0.4

0.7

1.1

88.8

31.9

120.7

8.1

40.2

48.3

0.0

0.7

0.7

0.0

5.1

5.1

4.8

6.2

11.0

93547 Combined left heart catheterization,

selective coronary angiography, 1 or

more coronary arteries, and selective

left ventricular angiography

Med.

Cov.

Total

0.0

0.0

0.0

3.0

78.2

81.2

1.5

5.9

7.4

0.0

0.0

0.0

0.0

66.4

66.4

0.0

3.6

3.6

93549 Combined right and left heart

catheterization, selective coronary

angiography, 1 or more coronary

arteries

Med.

Cov.

Total

0.0

0.0

0.0

0.0

79.1

79.1

198.6

41.1

239.7

0.0

0.0

0.0

0.0

88.5

88.5

0.0

5.3

5.3

93880 Duplex scan of extracranial arteries;

complete bilateral study

Med.

Cov.

Total

0.0

1.9

1.9

124.9

15.4

140.2

13.6

55.9

69.6

0.0

0.0

0.0

0.0

1.8

1.8

0.0

7.2

7.2

Office or other outpatient services

99202 Office or other outpatient visit for the

evaluation

Med.

Cov.

Total

0.2

10.8

11.0

15.9

12.6

28.4

0.4

26.6

27.0

0.0

5.7

5.7

2.7

15.0

17.7

0.4

65.7

66.0

99203 Office or other outpatient visit Med.

Cov.

Total

0.7

6.8

7.4

10.4

11.9

22.3

0.2

30.7

30.9

0.0

7.6

7.6

3.6

12.7

16.3

1.3

87.7

89.0

99204 Office or other outpatient visit Med.

Cov.

Total

0.0

3.2

3.2

8.6

9.5

18.1

0.0

20.5

20.5

0.0

2.5

2.5

4.1

13.0

17.1

0.0

66.5

66.5

(continued)

Page 36 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

99205 Office or other outpatient visit Med.

Cov.

Total

0.3

1.3

1.6

7.0

9.4

16.4

0.7

23.8

24.5

0.0

3.5

3.5

9.3

26.6

35.9

0.0

40.7

40.7

99211 Office or other outpatient visit for the

evaluation

Med.

Cov.

Total

1.2

9.3

10.5

17.4

25.8

43.3

0.3

25.6

26.0

0.0

1.1

1.1

6.2

15.7

21.9

20.2

31.8

52.0

99212 Office or other outpatient visit Med.

Cov.

Total

0.6

2.6

3.2

7.9

27.2

35.1

0.5

20.3

20.8

0.0

2.0

2.0

5.5

8.1

13.6

18.4

10.8

29.3

99213 Office or other outpatient visit Med.

Cov.

Total

0.4

1.2

1.6

3.7

15.7

19.4

0.3

12.2

12.5

0.0

1.5

1.5

3.7

5.2

8.9

9.7

9.3

19.0

99214 Office or other outpatient visit Med.

Cov.

Total

0.2

0.5

0.7

4.4

14.6

19.1

0.3

16.0

16.2

0.3

3.3

3.6

3.8

5.3

9.2

8.2

15.3

23.5

99215 Office or other outpatient visit Med.

Cov.

Total

0.1

1.0

1.1

6.3

19.1

25.4

1.0

28.4

29.4

0.0

5.6

5.6

5.6

7.1

12.6

6.2

19.6

25.8

Hospital inpatient services

99222 Initial hospital care, per day Med.

Cov.

Total

0.6

0.0

0.6

11.3

30.6

41.9

1.5

28.9

30.4

3.1

3.1

6.3

9.8

8.7

18.5

2.5

7.7

10.2

99223 Initial hospital care, per day Med.

Cov.

Total

0.3

0.3

0.5

9.4

17.9

27.4

2.6

24.2

26.8

1.2

0.0

1.2

7.8

6.9

14.7

6.6

7.9

14.5

99231 Subsequent hospital care, per day Med.

Cov.

Total

0.3

0.1

0.4

12.4

16.8

29.3

0.3

22.4

22.8

2.2

1.1

3.3

13.4

6.2

19.6

21.5

9.5

31.0

99232 Subsequent hospital care, per day Med.

Cov.

Total

0.9

0.2

1.1

13.7

11.4

25.1

0.4

16.7

17.1

1.7

1.6

3.3

11.9

5.2

17.1

17.1

8.7

25.7

99233 Subsequent hospital care, per day Med.

Cov.

Total

0.8

0.1

0.9

22.9

13.8

36.7

0.3

26.4

26.7

2.1

1.6

3.7

9.1

6.5

15.6

20.4

13.7

34.1

(continued)

Page 37 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

99238 Hospital discharge day management Med.

Cov.

Total

0.5

0.1

0.6

12.2

15.6

27.8

0.4

17.2

17.6

0.3

0.6

0.9

10.3

6.2

16.6

13.7

6.2

19.9

Consultations

99243 Office consultation, new or

established patient

Med.

Cov.

Total

0.0

0.6

0.6

3.2

18.1

21.4

0.6

57.4

57.9

0.0

1.4

1.4

0.0

0.4

0.4

6.8

13.6

20.4

99244 Office consultation, new or

established patient

Med.

Cov.

Total

0.0

0.7

0.7

3.0

12.9

15.9

0.0

65.6

65.6

0.0

2.1

2.1

0.0

1.0

1.0

3.6

10.9

14.5

99245 Office consultation, new or

established patient

Med.

Cov.

Total

0.0

1.4

1.4

2.4

10.3

12.7

0.0

53.8

53.8

0.0

0.0

0.0

0.0

1.0

1.0

12.8

11.2

24.1

99253 Initial inpatient consultation, new or

established patient

Med.

Cov.

Total

0.5

0.0

0.5

2.6

15.3

17.9

2.2

61.3

63.5

0.0

0.0

0.0

0.0

4.1

4.1

1.1

15.5

16.6

99254 Initial inpatient consultation, new or

established patient

Med.

Cov.

Total

0.2

0.4

0.6

2.3

15.2

17.5

0.4

61.7

62.1

0.8

0.0

0.8

0.0

2.2

2.2

0.5

18.1

18.6

99255 Initial inpatient consultation, new or

established patient

Med.

Cov.

Total

0.4

0.0

0.4

2.6

10.3

12.9

0.0

59.2

59.2

0.0

1.3

1.3

0.0

4.2

4.2

0.0

9.3

9.3

99262 Follow-up inpatient consultation for

an established patient

Med.

Cov.

Total

0.0

0.0

0.0

10.5

14.6

25.1

1.6

79.7

81.3

0.0

8.6

8.6

0.0

5.3

5.3

33.0

26.2

59.3

Emergency department services

99283 Emergency department visit Med.

Cov.

Total

0.1

0.0

0.1

12.5

4.3

16.8

1.0

16.3

17.2

0.8

2.9

3.7

0.0

3.9

3.9

14.7

8.1

22.8

99284 Emergency department visit Med.

Cov.

Total

0.2

0.0

0.2

8.5

8.7

17.1

1.7

10.0

11.7

0.0

1.2

1.2

0.0

2.8

2.8

4.8

15.1

19.9

99285 Emergency department visit Med.

Cov.

Total

0.0

0.0

0.0

30.6

7.2

37.8

2.9

22.9

25.8

0.9

0.9

1.9

0.0

2.2

2.2

8.3

16.0

24.3

(continued)

Page 38 GAO/PEMD-95-10 Medicare Part B
Appendix II 

1992 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

Critical care services

99291 Critical care, including diagnostic

and therapeutic services, first hour

Med.

Cov.

Total

0.3

0.8

1.0

6.9

6.7

13.6

1.8

43.2

45.0

4.2

0.0

4.2

13.8

30.5

44.3

27.7

10.0

37.7

Nursing facility services

99311 Subsequent nursing facility care, per

day

Med.

Cov.

Total

0.0

0.1

0.1

2.6

9.9

12.6

0.8

14.2

14.9

0.0

0.2

0.2

4.1

1.3

5.3

5.0

12.8

17.8

99312 Subsequent nursing facility care, per

day

Med.

Cov.

Total

0.2

0.1

0.2

4.3

12.0

16.3

0.3

17.2

17.5

0.0

0.0

0.0

3.6

0.8

4.4

3.1

11.1

14.2

HCPCS

A0010 Ambulance service, basic life support Med.

Cov.

Total

0.3

0.3

0.6

20.4

18.9

39.3

1.2

270.3

271.5

48.6

5.6

54.2

0.0

0.8

0.8

42.4

52.2

94.5

A0020 Ambulance service, (BLS) per mile,

transport, one way

Med.

Cov.

Total

6.2

1.6

7.8

74.3

35.1

109.4

1.4

459.9

461.2

18.4

1.0

19.4

0.1

1.7

1.8

49.5

49.8

99.4

A0150 Ambulance, nonemergency

transport, base rate, one way

Med.

Cov.

Total

302.5

11.1

313.5

83.2

38.7

122.0

1.9

264.9

266.8

13.0

0.0

13.0

b

b

b

b

A0220 Ambulance service, advanced life

support, all-inclusive services

Med.

Cov.

Total

0.4

0.7

1.1

10.8

17.2

28.1

0.0

100.8

100.8

47.2

27.6

74.8

0.0

0.0

0.0

b

b

A2000 Manipulation of the spine by

chiropractor

Med.

Cov.

Total

77.1

0.7

77.8

72.2

41.1

113.4

173.9

89.5

263.4

116.5

77.4

194.0

142.8

4.5

147.2

18.3

145.8

164.1

J9217 Leuprolide acetate, for depot

suspension, 7.5 mg

Med.

Cov.

Total

0.0

0.0

0.0

0.9

8.2

9.1

17.1

21.0

38.1

0.0

6.8

6.8

0.0

0.0

0.0

2.7

2.7

5.4

aCategories are Med. = medical necessity denial rate; Cov. = noncovered care denial rate; Total

= medical necessity + noncovered care. (The “Total” category may not always be equal to the

sum of the “Med.” and “Cov.” categories because it was independently rounded.)

bNo allowed services were found for this code.

Page 39 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

Anesthesia

00142 Anesthesia for procedure on eye,

lens surgery

Med.

Cov.

Total

0.0

17.3

17.3

1.0

5.8

6.8

4.5

37.9

42.5

0.0

0.0

0.0

1.6

0.9

2.5

4.8

10.6

15.4

00562 Anesthesia, procedure on heart,

pericardium and great vessels of

chest; oxygenator with pump

Med.

Cov.

Total

0.0

11.6

11.6

0.0

3.5

3.5

13.3

17.7

31.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Musculoskeletal

27130 Arthroplasty, acetabular and

proximal femoral prosthetic

replacement, with or without allograft

Med.

Cov.

Total

0.0

0.0

0.0

4.0

12.0

15.9

6.3

25.3

31.6

0.0

0.0

0.0

4.8

0.0

4.8

0.0

6.3

6.3

27236 Open treatment of closed or open

femoral fracture

Med.

Cov.

Total

0.0

0.0

0.0

0.0

16.5

16.5

0.0

40.7

40.7

0.0

0.0

0.0

5.0

0.0

5.0

0.0

36.7

36.7

27244 Open treatment of closed or open

intertrochanteric

Med.

Cov.

Total

0.0

0.0

0.0

5.2

15.6

20.8

0.0

58.8

58.8

0.0

0.0

0.0

0.0

3.8

3.8

0.0

7.2

7.2

27447 Arthroplasty, knee, condyle, and

plateau; medical and lateral

compartments, with or without

patella resurfacing

Med.

Cov.

Total

0.0

0.0

0.0

11.2

8.4

19.7

3.9

85.6

89.5

0.0

0.0

0.0

2.8

0.0

2.8

0.0

11.6

11.6

Cardiovascular

33512 Coronary artery bypass, 3 coronary

venous grafts

Med.

Cov.

Total

0.0

0.0

0.0

0.0

8.4

8.4

0.0

32.3

32.3

0.0

0.0

0.0

11.8

0.0

11.8

0.0

0.0

0.0

33513 Coronary artery bypass, 4 coronary

venous grafts

Med.

Cov.

Total

9.4

0.0

9.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

11.2

0.0

11.2

0.0

0.0

0.0

36415 Routine venipuncture, collection of

specimen

Med.

Cov.

Total

0.2

3.7

3.9

9.5

5.8

15.3

1.8

28.3

30.1

0.4

1.3

1.7

0.2

5.4

5.5

0.0

13.0

13.0

(continued)

Page 40 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

Digestive

43235 Upper gastrointestinal endoscopy,

including esophagus, stomach,

duodenum, or jejunum; complex

diagnostic

Med.

Cov.

Total

0.0

1.0

1.0

0.9

6.3

7.2

0.0

33.5

33.5

0.0

0.0

0.0

0.9

1.9

2.8

0.0

7.7

7.7

43239 Upper gastrointestinal endoscopy,

including esophagus, stomach,

duodenum, or jejunum; for biopsy or

collections by brushing

Med.

Cov.

Total

0.0

5.0

5.0

1.3

10.4

11.7

1.2

20.4

21.6

0.0

8.0

8.0

0.0

11.0

11.0

0.0

11.2

11.2

45378 Colonoscopy, fiberoptic, beyond

splenic flexure, diagnostic, with or

without colon decompression

Med.

Cov.

Total

0.0

0.9

0.9

0.8

5.0

5.8

0.0

20.7

20.7

0.0

2.2

2.2

0.0

2.7

2.7

0.0

1.9

1.9

45385 Colonoscopy, fiberoptic, beyond

splenic flexure, same as above, with

removal of polypoid lesions

Med.

Cov.

Total

0.0

2.2

2.2

0.0

5.7

5.7

0.0

27.2

27.2

0.0

0.0

0.0

0.0

28.3

28.3

0.0

4.6

4.6

Urinary

52000 Cystourethroscopy (separate

procedure)

Med.

Cov.

Total

1.3

0.7

2.0

0.0

1.5

1.5

1.0

21.3

22.3

0.0

0.0

0.0

0.0

0.0

0.0

0.0

19.9

19.9

52601 Transuretheral resection of prostate,

including control of post-op

bleeding, complete

Med.

Cov.

Total

16.6

0.0

16.6

14.3

0.0

14.3

12.1

30.3

42.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

5.9

5.9

Eye and ocular adenxa

65855 Trabeculoplasty by laser surgery,

one or more sessions

Med.

Cov.

Total

0.0

0.0

0.0

0.0

36.3

36.3

9.0

45.0

54.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

96.5

96.5

66821 Discussion of secondary

membranous cataract (opacified

posterior)

Med.

Cov.

Total

0.0

3.1

3.1

0.6

4.0

4.5

1.0

31.4

32.4

0.0

0.0

0.0

0.0

1.2

1.2

0.0

2.0

2.0

66984 Extracapsular cataract removal with

insertion of intraocular lens prosthesis

Med.

Cov.

Total

0.3

6.7

6.9

1.8

7.2

9.1

12.9

23.5

36.4

1.0

0.0

1.0

0.0

2.3

2.3

1.5

3.1

4.6

Radiology

71010 Radiologic exam, chest, single view,

frontal

Med.

Cov.

Total

5.1

0.6

5.6

17.3

12.1

29.4

7.0

18.6

25.6

0.4

0.7

1.1

57.5

0.4

58.0

0.1

10.4

10.5

(continued)

Page 41 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

71020 Radiologic exam, chest, 2 views,

frontal and lateral

Med.

Cov.

Total

7.6

0.3

7.9

14.6

5.8

20.4

1.2

24.9

26.1

0.2

5.0

5.2

90.2

3.6

93.8

0.1

13.4

13.5

76091 Mammography, bilateral Med.

Cov.

Total

47.0

0.0

47.0

63.5

16.0

79.5

0.0

128.5

128.5

2.6

82.8

85.4

0.0

0.0

0.0

0.0

147.3

147.3

77430 Weekly radiation therapy

management, complex

Med.

Cov.

Total

0.0

0.0

0.0

4.5

0.0

4.5

0.0

61.5

61.5

0.0

0.0

0.0

0.0

0.0

0.0

0.0

4.3

4.3

78465 Myocardial perfusion imaging Med.

Cov.

Total

0.0

0.0

0.0

248.4

3.9

252.3

6.4

10.3

16.7

6.0

12.0

18.0

0.0

0.0

0.0

0.0

0.0

0.0

Path/lab

80019 Automated multichannel test, 19 or

more clinical chemistry tests

Med.

Cov.

Total

0.1

1.0

1.1

1.7

7.4

9.0

0.5

10.1

10.6

1.4

1.8

3.2

138.9

0.0

138.9

0.0

12.6

12.6

84443 Thyroid stimulating hormone (TSH) Med.

Cov.

Total

0.1

1.0

1.1

2.3

3.0

5.3

0.4

7.0

7.4

4.0

2.7

6.7

0.2

0.0

0.2

0.0

11.6

11.6

85025 Blood count, hemogram and platelet

count, automated and CBC

Med.

Cov.

Total

0.1

0.4

0.5

1.7

4.9

6.7

0.6

8.2

8.8

0.9

0.5

1.4

0.0

0.0

0.0

0.0

8.3

8.3

86316 Immunoassay for tumor antigen (for

example, prostate specific antigen)

Med.

Cov.

Total

0.2

1.5

1.7

3.8

6.1

9.9

0.6

16.6

17.2

1.2

0.0

1.2

0.4

0.0

0.4

6.1

15.8

21.9

88305 Level IV—surgical pathology, gross

and microscopic exam

Med.

Cov.

Total

0.1

0.5

0.6

5.7

19.0

24.7

6.2

21.7

27.9

1.3

0.9

2.2

0.6

0.0

0.6

0.7

6.5

7.2

Medicine

90843 Individual medical psychotherapy by

a physician, approximately 20-30

minutes

Med.

Cov.

Total

0.2

0.2

0.4

8.7

11.5

20.2

5.3

16.8

22.1

0.0

0.7

0.7

0.6

1.6

2.3

0.7

38.8

39.5

90844 Individual medical psychotherapy by

a physician, approximately 45-50

minutes

Med.

Cov.

Total

0.0

0.1

0.1

6.3

18.4

24.7

2.9

23.2

26.1

0.0

0.0

0.0

1.4

0.3

1.7

1.6

178.0

179.6

(continued)

Page 42 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

92004 Opthalmologic services: medical

examination and evaluation

Med.

Cov.

Total

19.2

1.2

20.4

4.2

13.8

18.0

1.2

65.3

66.5

0.0

0.8

0.8

19.6

35.5

55.1

108.4

9.0

117.4

92012 Ophthalmologic services: medical

exam and evaluation, with initiation

or continuation of diagnostic and

treatment program

Med.

Cov.

Total

2.5

0.1

2.7

2.2

3.0

5.2

1.5

61.3

62.8

0.4

0.4

0.7

9.1

21.0

30.0

29.7

4.6

34.3

92014 Ophthalmologic services: medical

exam and evaluation, with initiation

or continuation of diagnostic and

treatment program

Med.

Cov.

Total

7.0

1.3

8.3

1.4

6.6

8.0

0.6

56.6

57.3

0.0

0.3

0.3

13.8

24.2

38.0

80.1

7.0

87.1

92982 Percutaneous transluminal coronary

balloon angioplasty, single vessel

Med.

Cov.

Total

46.3

78.4

124.8

100.3

3.5

103.8

125.0

125.0

250.0

0.0

54.9

54.9

12.7

237.3

250.0

0.0

0.0

0.0

93005 Electrocardiogram, routine, with at

least 12 leads; tracing only, without

interpretation and report

Med.

Cov.

Total

0.3

12.1

12.4

18.6

11.5

30.1

1.5

87.7

89.2

0.2

2.3

2.5

0.1

28.8

28.9

1.2

18.4

19.6

93307 Echocardiography, real-time with

image documentation (2D), with or

without M-mode recording, complete

Med.

Cov.

Total

1.7

0.5

2.2

173.3

25.1

198.5

1.1

36.3

37.3

4.4

0.0

4.4

0.0

0.0

0.0

0.0

3.1

3.1

93320 Doppler echocardiography, pulsed

wave or continuous wave with

spectral display, complete

Med.

Cov.

Total

0.0

0.6

0.6

129.1

22.3

151.4

3.3

26.9

30.3

4.3

0.0

4.3

0.0

0.0

0.0

4.9

4.4

9.3

93547 Combined left heart catheterization,

selective coronary angiography, 1 or

more coronary arteries, and selective

left ventricular angiography

Med.

Cov.

Total

1.3

2.6

3.9

3.1

56.3

59.5

0.0

10.0

10.0

0.0

0.0

0.0

0.0

47.0

47.0

0.0

3.9

3.9

93549 Combined right and left heart

catheterization, selective coronary

angiography, 1 or more coronary

arteries

Med.

Cov.

Total

3.8

5.7

9.5

3.9

46.7

50.6

180.6

12.9

193.5

0.0

0.0

0.0

0.0

63.9

63.9

0.0

3.5

3.5

93880 Duplex scan of extracranial arteries,

complete bilateral study

Med.

Cov.

Total

0.0

0.4

0.4

209.9

13.2

223.1

1.2

29.9

31.1

0.0

31.4

31.4

0.0

0.0

0.0

0.0

7.7

7.7

Office or other outpatient services

99202 Office or other outpatient visit for the

evaluation

Med.

Cov.

Total

0.3

21.5

21.8

23.9

6.5

30.4

0.8

58.5

59.3

0.5

18.9

19.4

2.7

26.3

28.9

0.4

107.7

108.0

(continued)

Page 43 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

99203 Office or other outpatient visit Med.

Cov.

Total

0.1

11.9

12.1

14.7

8.0

22.7

0.7

85.3

86.0

0.0

12.2

12.2

4.5

29.2

33.8

0.0

109.7

109.7

99204 Office or other outpatient visit Med.

Cov.

Total

0.2

4.0

4.2

7.2

5.9

13.1

1.3

55.4

56.7

0.0

7.4

7.4

1.9

22.6

24.5

0.0

65.5

65.5

99205 Office or other outpatient visit Med.

Cov.

Total

0.0

3.4

3.4

5.7

13.9

19.7

1.5

63.4

64.8

0.0

2.6

2.6

4.5

45.6

50.2

0.0

66.8

66.8

99211 Office or other outpatient visit Med.

Cov.

Total

0.6

27.7

28.3

36.6

4.9

41.6

0.2

52.3

52.6

0.0

13.8

13.8

7.2

22.0

29.2

12.0

55.6

67.6

99212 Office or other outpatient visit Med.

Cov.

Total

0.7

4.1

4.8

15.7

6.2

21.8

0.7

46.7

47.4

0.0

7.0

7.1

6.2

2.2

8.4

6.9

27.6

34.5

99213 Office or other outpatient visit Med.

Cov.

Total

0.3

1.5

1.8

5.6

4.5

10.2

0.5

26.9

27.5

0.0

1.0

1.0

4.4

1.8

6.2

3.0

17.3

20.3

99214 Office or other outpatient visit Med.

Cov.

Total

0.3

0.8

1.1

5.2

4.4

9.6

0.3

38.1

38.5

0.0

2.0

2.0

3.7

3.0

6.7

2.0

24.9

27.0

99215 Office or other outpatient visit Med.

Cov.

Total

0.0

1.6

1.6

6.0

5.9

11.9

1.0

43.1

44.0

0.0

4.8

4.8

3.6

7.5

11.1

1.8

33.4

35.3

Hospital inpatient services

99222 Initial hospital care, per day Med.

Cov.

Total

0.4

0.2

0.6

8.7

18.2

26.9

2.8

73.0

75.8

2.6

0.5

3.1

16.9

2.4

19.3

0.7

3.3

4.0

99223 Initial hospital care, per day Med.

Cov.

Total

0.8

0.3

1.1

7.2

16.4

23.6

2.6

64.8

67.4

2.8

0.0

2.8

12.2

4.2

16.5

3.6

4.0

7.6

99231 Subsequent hospital care, per day Med.

Cov.

Total

7.7

0.4

8.1

20.7

11.8

32.5

5.8

35.2

41.0

3.2

0.0

3.2

17.6

6.1

23.7

10.1

8.8

18.9

(continued)

Page 44 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

99232 Subsequent hospital care, per day Med.

Cov.

Total

8.7

0.3

9.0

20.8

10.6

31.3

4.7

39.5

44.2

4.1

0.0

4.1

17.8

4.5

22.3

9.8

11.6

21.4

99233 Subsequent hospital care, per day Med.

Cov.

Total

11.4

0.1

11.4

24.8

7.4

32.2

4.1

53.6

57.7

5.7

1.4

7.1

17.1

7.0

24.2

12.0

17.8

29.8

99238 Hospital discharge day management Med.

Cov.

Total

0.1

0.6

0.8

34.1

12.8

46.9

2.1

41.9

44.0

0.3

0.5

0.8

15.4

6.6

22.0

7.2

9.3

16.5

Consultations

99243 Office consultation, new or

established patient

Med.

Cov.

Total

0.5

0.3

0.8

0.9

16.6

17.6

1.5

175.4

176.8

0.0

1.3

1.3

0.0

1.2

1.2

5.2

5.7

11.0

99244 Office consultation, new or

established patient

Med.

Cov.

Total

0.3

0.3

0.6

2.2

16.9

19.1

0.9

143.9

144.7

0.0

0.0

0.0

0.0

1.9

1.9

1.1

9.1

10.3

99245 Office consultation, new or

established patient

Med.

Cov.

Total

0.4

0.0

0.4

3.5

18.8

22.4

0.0

173.4

173.4

0.0

0.0

0.0

0.0

2.5

2.5

0.0

3.4

3.4

99253 Initial inpatient consultation, new or

established patient

Med.

Cov.

Total

0.0

0.0

0.0

3.8

36.0

39.8

2.2

120.8

123.0

1.1

0.0

1.1

0.0

0.8

0.8

2.5

6.0

8.6

99254 Initial inpatient consultation, new or

established patient

Med.

Cov.

Total

0.8

0.2

1.0

3.2

14.5

17.7

2.2

87.6

89.8

0.0

0.0

0.0

0.0

2.6

2.6

1.9

6.9

8.8

99255 Initial inpatient consultation, new or

established patient

Med.

Cov.

Total

0.0

0.6

0.6

2.5

14.4

16.8

0.0

120.7

120.7

0.0

0.0

0.0

0.0

3.7

3.7

4.4

7.6

12.0

99262 Follow-up inpatient consultation for

an established patient

Med.

Cov.

Total

0.0

0.7

0.7

33.3

10.9

44.2

1.9

198.1

200.0

0.0

0.0

0.0

0.0

9.6

9.6

4.5

23.8

28.3

Emergency department services

99283 Emergency department visit Med.

Cov.

Total

0.3

0.0

0.3

17.1

5.4

22.6

6.0

20.3

26.3

0.0

0.0

0.0

0.0

3.4

3.4

1.1

4.9

6.0

(continued)

Page 45 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

99284 Emergency department visit Med.

Cov.

Total

0.0

0.1

0.1

14.0

8.4

22.4

1.9

16.9

18.8

0.5

0.0

0.5

0.0

1.4

1.4

3.1

6.4

9.5

99285 Emergency department visit Med.

Cov.

Total

0.0

0.0

0.0

79.6

9.8

89.4

2.1

33.4

35.5

0.7

0.7

1.4

0.0

1.5

1.5

4.5

7.2

11.7

Critical care services

99291 Critical care, including diagnostic

and therapeutic services, first hour

Med.

Cov.

Total

12.0

0.7

12.7

6.7

6.7

13.5

3.9

164.2

168.1

1.8

0.0

1.8

12.9

15.0

27.9

12.5

60.4

72.8

Nursing facility services

99311 Subsequent nursing facility care, per

day

Med.

Cov.

Total

0.0

0.1

0.1

3.8

18.8

22.6

0.5

22.8

23.3

0.0

0.2

0.2

6.8

0.5

7.2

1.3

8.0

9.2

99312 Subsequent nursing facility care, per

day

Med.

Cov.

Total

0.1

0.1

0.1

4.2

20.2

24.4

2.0

18.8

20.8

0.0

0.7

0.7

4.2

1.4

5.6

1.6

5.8

7.4

HCPCS

A0010 Ambulance service, basic life support Med.

Cov.

Total

1.4

0.0

1.4

13.7

21.6

35.3

114.0

299.1

413.2

0.8

0.8

1.5

0.0

2.2

2.2

31.1

90.8

121.9

A0020 Ambulance service, (BLS) per mile,

transport, one way

Med.

Cov.

Total

3.1

0.0

3.1

64.3

79.5

143.7

98.0

664.6

762.6

0.0

0.0

0.0

0.0

1.9

1.9

38.4

92.0

130.4

A0150 Ambulance, nonemergency

transport, base rate, one way

Med.

Cov.

Total

169.5

0.3

169.8

81.2

72.5

153.7

59.2

311.8

371.1

0.8

0.0

0.8

b

b

b

b

A0220 Ambulance service, advanced life

support, all-inclusive services

Med.

Cov.

Total

0.0

0.0

0.0

15.3

23.9

39.2

29.7

83.2

112.9

0.0

0.0

0.0

0.0

0.3

0.3

b

b

A2000 Manipulation of the spine by

chiropractor

Med.

Cov.

Total

145.0

0.9

145.9

66.2

67.6

133.8

236.5

106.3

342.8

0.0

14.0

14.0

133.8

12.5

146.2

94.0

111.9

205.9

(continued)

Page 46 GAO/PEMD-95-10 Medicare Part B
Appendix III 

1993 Denial Rates (Per 1,000 Services

Allowed) for Medical Necessity and

Noncovered Care by Carrier

Code Description Typea

N.

Calif.

S.

Calif. N.C. S.C. Ill. Wis.

J9217 Leuprolide acetate, for depot

suspension, 7.5 mg

Med.

Cov.

Total

0.8

0.8

1.5

0.0

7.3

7.3

21.1

7.0

28.2

0.0

0.0

0.0

0.0

0.0

0.0

11.9

5.9

17.8

aCategories are Med. = medical necessity denial rate; Cov. = noncovered care denial rate; Total

= medical necessity + noncovered care. (The “Total” category may not always be equal to the

sum of the “Med.” and “Cov.” categories because it was independently rounded.)

bNo allowed services were found for this code.

Page 47 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

A carrier might not pay for a particular service for numerous reasons. And,

because carriers must explain denials in writing to providers and

beneficiaries, carriers must track the specific reason for a denial when

processing a claim. This is accomplished by assigning a unique “action

code” to each billed service on a claim. For example, code “AB” might

indicate that the carrier denied a B-12 injection because the diagnostic

code listed on the claim was, based on HCFA coverage parameters, not

medically necessary. Similarly, “BB” might indicate that an office visit was

denied because the claimant was ineligible for Medicare. While the

reasons for denials are generally comparable across all carriers, the

“action codes” that carriers use to record the reasons are not; hence, the

code “AB” might not be used by all carriers or, if used, might mean

something different for each.

Before transmitting information to the National Claims History (NCH) File,

HCFA’s central database for claims, HCFA requires that each carrier translate

its set of action codes into 10 broad denial categories (see table I.2).1 HCFA

does not instruct carriers in how to make this classification. Thus, “AB”

might be translated for NCH as “C” (for noncovered service) and “BB” as

“O” (other denial). However, given that carriers have different sets of

action codes to classify, the question naturally arises: Is the resulting NCH

classification comparable across carriers? In other words, Does

“noncovered service” or “medically unnecessary” mean the same thing to

different carriers?

To answer this question, we made use of the fact that carrier action codes

are connected to HCFA denial messages (a common set of messages that

carriers are required to use in their written communications with

beneficiaries). That is, while North Carolina and Wisconsin may use

different internal action codes to record the reason for denying a service,

they use the same set of HCFA messages to describe that reason to the

beneficiary. By comparing the HCFA messages, rather than action codes,

with NCH categories, it is possible to gain a sense of how similar different

carriers’ coding practices are. For illustrative purposes, table IV.1 displays

a sample of carrier action codes, HCFA denial messages, and NCH categories

for two carriers.2

1

Before data reach NCH, they are compiled in an intermediate database called the Common Working

File (CWF). The CWF is a repository for Medicare claims that carriers use to check patient history and

verify claimant eligibility.

2

HCFA issues over 300 different standard messages that carriers are required to use when

communicating with beneficiaries. Carriers are free to “pick and choose” from this universe messages

that best suit the needs of their jurisdictions.

Page 48 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

Table IV.1: Sample Translation Table

for Two Carriers

Carrier action code

HCFA

message

number

NCH reason

category

North Carolina

AA 1.01 Noncovered care

II 14.13 Noncovered care

IJ 15.01 Medical necessity

IH 9.44 Noncovered care

VI 10.05 Noncovered care

Wisconsin

30 1.01 Noncovered care

I1 14.13 Noncovered care

AR 15.01 Medical necessity

Not applicable Not used Not applicable

18 10.05 Medical necessity

Table IV.1 shows that when North Carolina uses “AA” and Wisconsin “30,”

both carriers send the beneficiary the same message: “Medicare pays for

transportation to the closest hospital or skilled nursing facility that can

provide the necessary care” (HCFA message 1.01). Similarly, when they

transmit this information to NCH, both carriers report the denial as relating

to “noncovered care.” However, when North Carolina and Wisconsin send

the beneficiary the message, “HCFA does not pay for routine foot care”

(HCFA message 10.05), they report different reasons for denial to NCH.

North Carolina reports this as a “noncovered” care denial while Wisconsin

considers it a “medical necessity” denial. Reporting consistency among

carriers varies by type of message. For example, table IV.1 shows that

there is agreement for three actions and disagreement for one action and,

in a third instance, one of the carriers uses a particular HCFA message that

the other does not.

We collected translation tables, similar to table IV.1, for all six carriers in

this study and compared HCFA message numbers with corresponding NCH

categories. We restricted our comparison of HCFA messages to those that

were (1) used for communicating denials, (2) used by at least three

carriers, and (3) classified as a “medical necessity” denial by at least one

carrier. Table IV.2 shows how carriers report the service denial reason to

NCH when a particular HCFA message is sent to a beneficiary. Table IV.3

displays the actual messages that correspond to the HCFA message

numbers. As table IV.2 demonstrates, carriers generally agree on how they

classify HCFA messages for reporting purposes; instances of carrier

Page 49 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

disagreement center primarily on the distinction between “medically

unnecessary” and “noncovered care” and, to a lesser extent, on “other.”

For messages that HCFA has explicitly designated as pertaining to “medical

necessity” (messages 15.01 through 15.33), we found the highest level of

carrier agreement.

Table IV.2: CWF Categories by HCFA Message Number and Carriera

HCFA message number

Northern

California

Southern

California

North

Carolina

South

Carolina Illinois Wisconsin

1.01 N C C C C C

1.03 O C C N

1.05 N C C C

1.10 N/O N N N

1.11 N N N N

1.12 N N N C

3.01 N N C/N

3.02 N C C C

3.03 N C N C N

3.04 N C N C O

4.01 O C C C N

4.02 C O C C/N

4.04 N C C C

4.05 N C C C

4.06 N C C C

4.07 N O O C C C

4.08 N O O C C C/M

4.18 N O C O C C

6.02 N N C C

6.04 N C C

9.01 O O C C C/I/N/O/S

9.16 N O C O C/O O

9.18 N O C

10.05 C C C N

11.04 N C O S C/I/O

14.02 N C C C C

14.04 N C C

15.01 N N N N N/O N

15.07 N N N N C/N I/N

15.09 N N N N C/N C/N

(continued)

Page 50 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message number

Northern

California

Southern

California

North

Carolina

South

Carolina Illinois Wisconsin

15.10 N N N

15.11 N N N N N C/N

15.12 N N N C/N/O N

15.13 N N N N N C/N

15.14 N N N N C/N/O C/N

15.15 N N N N

15.16 N N/O N N

15.17 N N N N

15.18 N N N N N

15.19 N N N

15.21 N N N N C

15.22 N N/O C

15.26 N C C N

15.32 N N N C C

15.33 N N N C C

16.04 N I C O C/O C

16.05 N C C O C/N

16.07 N O C C O C

16.14 N C/O C/O C C/O C

16.16 C O O O C/N/O C

16.17 N C C C/N C

16.18 N O C C C C

16.19 N C N N N

16.20 N C C C C

16.21 N C C C C C

16.25 N C C C

16.74 C N C O C

16.75 C N C O C C

16.76 N N C O C C

16.77 N N C O C

16.78 C N C O C C/L

16.79 N C O C/O C/L

17.01 C C C C N

17.36 N C O

18.01 C C C C C/N/O C/N

18.03 N C C C C

18.05 N O C C C

18.06 N O C/O C C C

(continued)

Page 51 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message number

Northern

California

Southern

California

North

Carolina

South

Carolina Illinois Wisconsin

18.07 N O O C

18.08 N O O C C/O C

18.12 N N C

19.01 C O C O C/N

19.05 C N C O C C

19.06 C N C O C

21.09 C C/N/O C C C/N/O C

23.04 N/O C O O C/N

23.05 C C C N C

23.10 N/O C N

23.14 N C C

26.01 C C/O C C C C/N

26.04 N C C C N

26.05 N C O C C N

26.06 N C C C C

29.11 N C O S S C

33.02 N O C

aCWF categories are C = noncovered service; I = invalid care; L = Clinical Laboratory

Improvement Act (that is, unapproved lab); N = medically unnecessary; O = other; P = physician

ownership denial; S = secondary payer; X = Medicare secondary payer cost avoided; Y =

IRS/SSA data match. Empty cells indicate that the carrier does not use that message.

Table IV.3: HCFA Messages for Denied

Services HCFA message numbera Narrative

1.01 Medicare pays for transportation to the closest hospital or

skilled nursing facility that can provide the necessary care.

1.03 Medicare does not pay for separate charges by the mile.

1.05 Medicare does not pay for transportation in a wheelchair

van.

1.10 The information we have in your case does not support

the need for this ambulance service.

1.11 The information we have in your case does not support

the need for this transportation. (NOTE: Use of

transportation between places of medical care.)

1.12 The information we have in your case does not support

the need for extra help in the ambulance.

3.01 Medicare pays for the services of a chiropractor only

when “recent” x-rays support the need for the services.

“Recent” means the x-rays were taken within the past 12

months.

(continued)

Page 52 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message numbera Narrative

3.02 Medicare pays for chiropractic services only to correct a

subluxation of the spine.

3.03 Medicare does not pay for this because your x-ray does

not support the need for the service.

3.04 Medicare does not pay for this because the x-ray was not

taken near enough to the time treatment began.

4.01 Medicare does not pay for this because it is part of the

total charge at the place of treatment.

4.02 Medicare does not pay for this because it is part of the

monthly charge for dialysis.

4.04 Medicare does not pay for immunosuppressive drugs that

are not approved by the Food and Drug Administration.

4.05 Medicare pays for this service up to 1 year after

transplant and release from the hospital.

4.06 Each prescription for immunosuppressive drugs is limited

to a 30-day nonrefillable supply.

4.07 Medicare can pay for this supply or equipment only if

your supplier agrees to accept assignment.

4.08 Medicare can pay only one supplier each month for these

supplies and equipment.

4.18 Medicare cannot pay more than $ — each month for

these supplies. (NOTE: The limits for 1992 are $1,600 and

$2,080 for CCPD. Update these figures when limits

change.)

6.02 Medicare does not pay for drugs that have not been

approved by the Food and Drug Administration.

6.04 Medicare pays for this drug only when Medicare pays for

the transplant.

9.01 Medicare cannot pay for this because we have not

received the information we requested. (NOTE: If

assigned claim, add: “The assignment agreement

remains in effect and will apply to the new claim.”)

9.16 Medicare cannot pay for this because your provider used

an invalid or incorrect procedure code and/or modifier for

the service you received. Please ask your provider to

resubmit the claim with the valid procedure code and/or

modifier.

9.18 No certification of medical necessity was received for this

equipment.

10.05 Medicare does not pay for routine foot care.

11.04 Another agency handles the bills for these services. We

have sent the information to them. They will send you a

notice. (Applies to RRB, United Mine Workers.)

14.02 Medicare does not pay for this because the laboratory is

not approved for this type of test.

(continued)

Page 53 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message numbera Narrative

14.04 Medicare does not pay for laboratory procedures which

have not been approved by the Food and Drug

Administration.

15.01 The information we have in your case does not support

the need for this many visits or treatments.

15.07 The information we have in your case does not support

the need for this equipment.

15.09 The information we have in your case does not support

the need for this service. (If the claim was reviewed by

your Medical Staff, add: Your claim was reviewed by our

Medical Staff.)

15.10 The information we have in your case does not support

the need for this number of home visits per month.

15.11 The information we have in your case does not support

the need for this injection.

15.12 The information we have in your case does not support

the need for this many injections.

15.13 The information we have in your case does not support

the need for similar services by more than one doctor

during the same time period.

15.14 The information we have in your case does not support

the need for this many services within this period of time.

15.15 The information we have in your case does not support

the need for more than one visit a day.

15.16 The information we have in your case does not support

the need for the level of service shown on the claim.

15.17 The information we have in your case does not support

the need for similar services by more than one doctor of

the same specialty.

15.18 The information we have in your case does not support

the need for this laboratory test.

15.19 The information we have in your case does not support

the need for the level of service shown on this claim. We

have approved this service at a reduced level.

15.21 The information we have in your case does not support

the need for this foot care.

15.22 The information we have in your case does not support

the need for more than one screening PAP smear in three

years.

15.26 Medicare does not pay for a surgical assistant for this

kind of surgery. The doctor should not bill you for this

service.

15.32 Medicare does not pay for two surgeons for this

procedure.

15.33 Medicare does not pay for team surgeons for this

procedure.

(continued)

Page 54 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message numbera Narrative

16.04 Medicare does not pay for this in the place or facility

where you received it.

16.05 Medicare does not pay for this because the claim does

not show that it was prescribed by your doctor.

16.07 Medicare cannot pay for this service because the claim

did not show that the Peer Review Organization approved

it.

16.14 Medicare does not pay for this service separately since

payment of it is included in our allowance for other

services you received on the same day.

16.16 Medicare does not pay for this service because it is part

of another service that was performed at the same time.

16.17 Medicare does not pay for this item or service.

16.18 Medicare does not allow a separate charge for this

because it is included as part of the primary service. The

provider cannot bill you for this.

16.19 Medicare does not pay for this because it is a treatment

that has yet to be proved effective.

16.20 Medicare does not pay for these services or supplies.

16.21 Medicare does not pay for drugs you can give yourself.

16.25 Medicare does not pay for discussions on the telephone

with the doctor.

16.74 Medicare does not pay separately for a hospital

admission and a visit or consultation on the same day.

You should not be billed separately for this service. You

do not have to pay this amount. (NOTE: Assigned claim.)

16.75 Medicare does not pay separately for a hospital

admission and a visit or consultation on the same day.

You do not have to pay this amount. (NOTE: Unassigned

claim.)

16.76 Medicare will pay for only the nursing facility service when

performed on the same day as another visit in a different

site. You should not be billed separately for this service.

You do not have to pay this amount. (NOTE: Assigned

claim.)

16.77 Medicare will pay for only the nursing facility service when

performed on the same day as another visit in a different

site. You do not have to pay this amount. (NOTE:

Unassigned claim.)

16.78 Medicare does not pay separately for this service. You

should not be billed separately for this service. You do not

have to pay this amount. (NOTE: Use for global denials

for assigned claims.)

16.79 Medicare does not pay separately for this service. You do

not have to pay this amount. (NOTE: Use for global

denials for unassigned claims.)

(continued)

Page 55 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message numbera Narrative

17.01 Medicare does not pay for services performed by a

private duty nurse.

17.36 Medicare cannot pay for this service as billed. (NOTE:

Use when nonphysician practitioners do not separate

professional and technical services on the claim.)

18.01 Medicare does not pay for routine examinations and

related services.

18.03 Medicare does not pay for this screening examination for

women under 35 years of age.

18.05 The place where you had this examination is not

approved by Medicare.

18.06 Medicare does not pay for this examination because less

than one year (two/three years) has (have) passed since

your last examination of this kind.

18.07 Medicare will pay for this screening examination again in

one year (two/three years).

18.08 Medicare pays for this examination only once for women

age 35-39.

18.12 Medicare pays for screening pap smears only once every

three years unless high risk factors are present.

19.01 Medicare does not pay for services of a hospital

specialist unless there is an agreement between the

hospital and the specialist on how to charge for the

services.

19.05 Medicare will pay for only one hospital visit or consultation

per physician per day. You do not have to pay this

amount.

19.06 Medicare will pay for one hospital visit per day. You do

not have to pay this amount.

21.09 Medicare does not pay for this service when performed,

referred or ordered by this provider of care.

23.04 Medicare does not pay for these charges because the

cost of the care before and after surgery is part of the

approved amount for the surgery. (NOTE: Use for global

denials.)

23.05 Medicare does not pay for cosmetic surgery and related

services.

23.10 Medicare does not pay for a surgical assistant for this

kind of surgery.

23.14 Medicare does not pay a doctor for assisting at this kind

of surgery. The doctor cannot bill you for this service.

26.01 Medicare does not pay for routine eye examinations or

eye refractions.

26.04 Medicare does not pay for eyeglasses or contact lenses

except after cataract surgery or if the natural lens of your

eye is missing.

(continued)

Page 56 GAO/PEMD-95-10 Medicare Part B
Appendix IV 

Carrier Reporting of Service Denials

HCFA message numbera Narrative

26.05 Medicare pays for only one pair of glasses after cataract

surgery with lens insertion.

26.06 Medicare does not pay the extra charge for deluxe

frames.

33.02 Medicare does not pay for this service when it is

performed in an ambulatory surgical center.

aFor presentation in this table, HCFA message numbers with one decimal place were modified.

For example, message 1.1 was changed to 1.01, message 1.3 to 1.03, and so on.

Page 57 GAO/PEMD-95-10 Medicare Part B
Appendix V 

Major Contributors to This Report

Program Evaluation

and Methodology

Division

Sushil K. Sharma, Assistant Director

Richard M. Lipinski, Project Manager

Patrick C. Seeley, Communications Analyst

Penny Pickett, Communications Analyst

Venkareddy Chennareddy, Referencer

(973413) Page 58 GAO/PEMD-95-10 Medicare Part B
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. Orders for 100 or more copies to be mailed to a

single address are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (301) 258-4097 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Mail

Postage & Fees Paid

GAO

Permit No. G100
GAO/PEMD-95-10 Medicare Part B