August 2002 Bulletin

Medicare intermediaries

Good intentions gone awry

By Alan H. Morris, MD

Who processes the bills you submit to Medicare? Who answers your questions when payment of your bill is denied? Who interprets Medicare payment and coverage policy in your community?

The answer to all these questions is the same—your local Medicare carrier. These are insurance companies under contract with the Centers for Medicare and Medicaid Services (CMS) that serve as fiscal intermediaries to administer the Medicare program. CMS contracts with carriers for both Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance). Each Medicare carrier covers a specific geographic region, which often spans several states. Orthopaedists who treat Medicare patients frequently deal with Medicare Part B carriers on issues such as reimbursement and coverage policy.

Each Medicare carrier employs a physician known as a contractor medical director (CMD) whose role is to provide guidance to the carrier in adjudicating claims and input on coverage and payment policy issues. Over the years, the role of CMDs has broadened to include interacting with medical societies and peer groups, educating physicians about billing and coding rules and serving as a readily available medical resource for both carriers and providers.1,2


Medicare carriers and CMDs can have a significant influence on orthopaedic practices. They affect the payment for Medicare services and impact the administrative burden placed upon medical offices. Carriers attempt to administer the Medicare program in a reasonable manner. However, since the introduction of the Medicare Fee Schedule (MFS), there have been several instances where Medicare carriers and CMDs have inappropriately interpreted or implemented Medicare regulations to the detriment of the physician community.

In 1991, the Health Care Financing Administration (HCFA, now known as CMS) refused to pay for injections given in a physician’s office on the same day as an office visit. The AAOS worked vigorously to ensure HCFA recognized all the appropriate uses of the –25 modifier ("significant, separately identifiable service on the same day of another service") with an Evaluation and Management (E/M) code. As a result of the AAOS’ efforts, HCFA issued directives to the Medicare carriers stating it is appropriate to bill for an injection and an E/M service with the –25 modifier, if the E/M service was a significant and separately identifiable service.

However, even after the directive was issued, many Medicare carriers and CMDs still incorrectly interpreted this policy and refused to reimburse bills to physicians when an injection code and E/M code with the –25 modifier were billed on the same day. To correct this problem, the AAOS and many individual orthopaedists had to repeatedly inform and educate local carriers and CMDs, citing the CMS directive and the AAOS’ position.

In 1995, CMDs commented to HCFA that there were many "over-valued" procedure codes in MFS. Typically, medical specialty societies are required to provide a scientific rationale and appropriate survey data to justify an increase or decrease in payment for procedures under the MFS. However, in this instance, the CMDs’ reports were not based on either scientific rationale or appropriate survey data.

While no procedures used by orthopaedists were identified, the spurious reports resulted in 150 urology codes being targeted for reductions. The list was finally paired down to 34 of urology’s most important codes. The American Urological Association (AUA) was forced to fly into Chicago and sequester 80 of its members for a full-day meeting in order to generate and then provide opposing data to HCFA. Ultimately, the AUA was forced to spend in excess of $85,000 in order to save $20 million in payments that would have been lost if the CMD reports were uncontested.

Role of the CAC

Medicare mandates a forum for carriers and physicians to exchange information with each other, the Carrier Advisory Committee (CAC). It is designed to be a mechanism to discuss and improve administrative policies that are within carrier discretion.3 The CAC must be composed of physicians, a Medicare beneficiary and representatives of non-medical provider organizations.

In my experience with the CAC in eastern Missouri, the CAC was more of a formality rather than a resource. It seemed that convening the CAC was done only to fulfill the local carrier’s contractual obligation to Medicare. I am sure my experience is not shared nationwide.

Thirty day recertification for PT treatment

Currently, CMDs must have patient care experience and be actively involved in the practice of medicine. The majority of CMDs are deeply concerned with medical practice, beneficiary care and lessening the administrative burdens placed upon physicians. However, these good intentions do not always lead to interpretations of Medicare regulations that are best for patients or providers. For example, a recent issue dealing with the recertification for physical therapy treatment has created additional burdens for both patients and providers.

Medicare regulations as provided in the Carriers Manual describes conditions for coverage (a.k.a. "payment") of physical therapy services (Manual Part 3, Chapter II, 08-89, 2215, paragraph E) as follows:

There must be evidence in the clinical record maintained by the therapist that the patient has been seen by the physician at least every 30 days and the therapist must indicate on the bill the name of the physician and the date the patient was last seen by the physician.

CMS recently informed the AAOS that it is a local carrier policy decision to determine whether a face-to-face visit or written review of the clinical record is appropriate for recertification of physical therapy services. This situation illustrates a dilemma often faced by Medicare carriers and CMDs.

If the Medicare carrier and CMD are liberal in their interpretation of the regulation and accept a physician’s written notification, there could be retribution for "not following the rules." Conversely, a Medicare carrier or CMD who "follows the book" will force the physician to have the patient come to the office every 30 days. Adhering to this latter strict interpretation of the rule has been burdensome to patients and orthopaedists in some areas of the country. I would support a more liberal interpretation of this recertification rule or, if necessary, a revision of the regulations.

Breaking the rules

Medicare carriers, as corporate entities, are not above misfeasance or malfeasance. General American Life Insurance Co. administered Medicare Part B in my area of eastern Missouri from 1966 through 1998. In June 2002, General American agreed to settle for $76 million in a Medicare fraud case. The settlement resolved allegations that General American failed to process claims properly over a 15-year period and then knowingly gave false information regarding their claims handling. This scheme allowed General American to become the number two-ranked Medicare carrier in 1986, rising from 84th in 1984.4

Medicare carriers and CMDs have clout and can materially impact the practice of the orthopaedist. However, the examples above show that local carriers and CMDs do not always correctly interpret and implement Medicare coding, payment and coverage regulations. Local carrier and CMD policy decisions are not above reproach or criticism. In light of my previous experience with carriers and CMDs, if you believe that your Medicare carrier is not interpreting Medicare payment policies correctly or is acting outside its authority, contact the CMS Program Integrity Group at (410) 786-5704.

Hopefully, a better understanding of how Medicare carriers and CMDs interpret Medicare rules and regulations will allow you to forge more productive working relationships with these entities.


  1. Medicare Program Integrity Manual. Chapter 1, Section 6.
  2. "Role of CMD under scrutiny," Part B News, December 17, 2001.
  3. Medicare Program Integrity Manual. Chapter 13, Section 8.
  4. "General American will pay $76 million in fraud case," St. Louis Post Dispatch June 26, 2002 pages 1 and 11.

Dr. Morris is chair of the AAOS Council on Health Policy and Practice. This article reflects over 12 years of experience with AAOS health policy and payment issues.

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