The Medicare statute defines the program's benefits, specifically excluding certain categories, such as personal care items or hearing aids, and explicitly including other broad categories, such as physician and hospital services. Within the categories, however, the statute provides that Medicare will only pay for items and services considered “reasonable and necessary.” The original statute delegated to the private local contractors—Part A Fiscal Intermediaries (FIs) and Part B Carriers—the responsibility to process claims. By 2003, there were approximately 40 local contractors.1 Medicare payment is based on a complex set of payment methodologies that depend upon a standard set of procedure and diagnostic codes. The contractor reviews each …show more content…
Evaluation of items and services occurred informally; contractors and physicians mediated disputes on a case-by-case basis (Foote 2002). In general, experimental products and services were not considered “reasonable and necessary.” Food and Drug Administration (FDA) approval signaled that a device or drug was no longer experimental. Procedures, however, do not receive FDA review, making the determination of experimental status uncertain. The advent of new, complex, and expensive technologies, such as heart transplantation in the late 1970s, prodded the Health Care Financing Administration (HCFA), predecessor agency to Center for Medicare and Medicaid Services (CMS), to develop specific limitations and conditions on a few high-profile technologies (Foote 2002). Coverage policy was born.
Over time, CMS developed explicit administrative procedures for national coverage determinations (NCDs) and currently issues approximately 20/year (McClellan and Tunis 2005; Neumann et al. 2005). CMS can trigger an NCD based on its own internal judgment or upon request of an external party. The final NCD is transmitted to local contractors for implementation. Although CMS can issue noncoverage NCDs, such as acupuncture in 2004 and artificial lumbar spinal disk replacement in 2006, it rarely does so. The majority of NCDs establish evidence-based conditions of