Credit portal




Why Medicare Has Not Established Criteria for Coverage Decisions

why was medicare established

Decisions about medical coverage by Medicare specify the forms of technology and services that the program will pay for on behalf of its 42 million beneficiaries. These decisions often have far-reaching effects through their influence on the policies of other public and private payers in determining medical necessity. For the nearly four decades since Medicare was created in 1965, coverage decisions have been based on section 1862(a)(1)(A) of the statute that enacted the program: “Notwithstanding any other provision of this title, no payment may be made. for any expenses incurred for items or services which. are not reasonable and necessary for the diagnosis or treatment of illness or injury.” No additional language from Congress explaining “reasonable and necessary” accompanied the 1965 law, and no documents providing any interpretation were issued until 1977. There is a common understanding among federal officials who participated in drafting the legislation that the “reasonable and necessary” provision was modeled on language from an Aetna health insurance policy for federal employees. Although there was concern at the time that services of unknown value would sometimes be used, payers generally accepted the judgments of physicians at face value. 1 Therefore, a precise definition of medical necessity would not be required.

Much has changed in health care since 1965, including a vast expansion in the available technological procedures and services, an increase in health care spending to greater than 15 percent of the gross domestic product, and a substantially broader role for public and private payers in making decisions about coverage. Despite several efforts over the years by Medicare to specify the criteria for “reasonable and necessary,” the particulars have never been defined in regulatory language. In this issue of the Journal, Gillick reviews the process by which three recent decisions about national coverage were made by Medicare, highlights the clinical and economic effects of these decisions, and proposes congressional action to establish explicit coverage criteria that would include cost effectiveness. 2 In this editorial, I discuss past efforts to develop regulatory language, why these may have failed, and whether it would be useful to have explicit criteria.

The failure to issue regulations defining “reasonable and necessary” reflects, in part, the inability of the primary stakeholders — employers, drug and device manufacturers, private payers, patient advocates, and organizations representing medical professionals — to reach a consensus. Among the most controversial issues addressed in past discussions has been the potential role of cost effectiveness in coverage decisions. 3 Although the lack of consensus is the proximate reason that rule making has not been completed, the more fundamental obstacle has been that every attempt to define “reasonable and necessary” triggers new debates about several challenging health policy dilemmas.

First, reaching agreement on the criteria that should be applied to determinations of medical necessity presupposes a level of stakeholder confidence in the process through which those criteria would be applied. In fact, the process by which Medicare and other payers make coverage decisions has not inspired great confidence on the part of stakeholders. 4 Until the past several years, few payers provided clear descriptions in their contracts or elsewhere of how coverage decisions were made, and there were no systematic mechanisms for gathering input from clinicians, experts, consumers, or other stakeholders as decisions were formulated. Once a decision was reached, the underlying analysis was generally considered proprietary information or simply not made available. 5 Given stakeholders' doubts about the coverage process, it is understandable that there would be limited enthusiasm for working toward a consensus on which criteria should be used in that process.

A second important policy issue provoked by the discussion of criteria for coverage is the pervasive and persistent discomfort with clinical decisions that are influenced by an entity other than the patient and the patient's clinician. Coverage decisions concerning medical necessity made by payers are inevitably resented when they prevent payment for a medical service that a patient and a physician have concluded is desirable. There is little question that clinical decisions should be made by an educated patient in consultation with an informed clinician whose advice is influenced solely by what is best for the patient. It is also generally accepted that clinical decisions may be influenced by factors other than reliable evidence of clinical effectiveness. 6 The tension between the population-at-large perspective inherent in coverage decisions and the individual-patient perspective intrinsic to clinical practice is highlighted in each discussion of the criteria to be applied to coverage policy. 7

The third fundamental challenge to the development of criteria for determining what is reasonable and necessary is the potential impact on innovation. The Medicare program is the largest single payer of health care in the world. Furthermore, many private payers adopt coverage policies from the Medicare program, amplifying the importance of these decisions. There is justifiable concern that the criteria guiding the decision-making process may have a considerable effect on the overall economic vitality of the pharmaceutical, biotechnology, and medical-device industries. In particular, the availability of investment capital for medical technology might be affected, perhaps resulting in fewer forms of technology, losses in employment, and reduced exports.

One of the most difficult policy issues confronted in any discussion of coverage criteria is the role of cost-effectiveness analysis in deciding what is to be considered reasonable and necessary. 8 The Medicare statute is silent on the role of costs, and Medicare has not explicitly considered costs in making coverage decisions. Health care services are generally covered when there is adequate evidence that they improve health outcomes, irrespective of the unit or aggregate cost. However, technology that is associated with very high costs is also very likely to have substantial clinical ramifications for the Medicare population and, therefore, these forms of technology receive comparatively greater scrutiny than other devices, procedures, and services.

There are several important difficulties to considering economic factors in decisions about medical necessity. Although notable progress has been made in developing and standardizing methods of cost-effectiveness analysis, economic models are inherently more complex and less transparent than studies of clinical effectiveness. The use of economic analyses in decisions about medical coverage will be challenging to defend whenever a specific patient is denied care as a result. 9 Using cost-effectiveness analysis for such decisions implies that a clinical benefit will not be available because of cost, which is considerably more difficult to justify than a decision not to provide a service because the risks are expected to outweigh the benefits.

These complicated health policy issues suggest that it will continue to be extremely difficult to develop criteria to define “reasonable and necessary,” even if the task were undertaken by Congress. It would, however, be valuable for Medicare to work with stakeholders to develop a consistently applied, evidence-based, and widely understood framework for decisions about medical necessity. The development of guidance documents for specific categories of disease or technology would provide stakeholders with a more detailed understanding of the requirements for obtaining Medicare coverage. Specific guidance, rather than general criteria, would inform the design of clinical studies and provide a greater degree of consistency and predictability in the coverage process. 10

In addition to guidance documents, ongoing changes to the coverage process should help to improve confidence in and the predictability of the process. In April

1999, Medicare published a notice in the Federal Register describing for the first time the steps followed in the coverage process. The agency also established an independent committee of experts and stakeholders, the Medicare Coverage Advisory Committee, which meets in public to consider complex and controversial coverage-related topics. On the Centers for Medicare and Medicaid Services Web site, the progress of all national coverage decisions can be tracked ( ), and detailed documents are posted that summarize all scientific evidence, expert input, and other information that was considered during the policymaking process. 11 The fact that Gillick was able to obtain detailed information about the three Medicare coverage decisions reviewed in her article is a good indication that the process has become highly transparent. Further procedural improvements currently being implemented include a mechanism for appeals of national coverage policies, better-defined timelines, and the opportunity for the public to comment on a draft decision before a final policy is issued.

Whether coverage decisions and other Medicare policy decisions should be influenced by economic factors remains an important and controversial issue. Given the trend in health care costs and the accelerating pace of medical discovery, policymaking should focus on getting good value from health care spending. At a minimum, there should be public dialogue about how to ensure a system of high-quality and safe health care that gives patients freedom of choice in making health care decisions, expands access to care, encourages innovation, and is affordable. Finding a robust and acceptable approach to evaluating costs in decisions about coverage and payment would increase the likelihood that patients will receive the greatest total health care benefit from any given level of Medicare spending.


Eddy DM. Benefit language: criteria that will improve quality while reducing costs. JAMA 1996;275:650-657

Gillick MR. Medicare coverage for technological innovations -- time for new criteria? N Engl J Med 2004;350:2199-2203

Foote SB. Why Medicare cannot promulgate a national coverage rule: a case of regula mortis. J Health Polit Policy Law 2002;27:707-730

Our lives in whose hands? In: Daniels N, Sabin J. Setting limits fairly. New York: Oxford University Press, 2002:1-12.

Medical necessity, coverage decisions and medical policy. In: Pearson SD, Sabin JE, Emanuel EJ. No margin, no mission: health-care organizations and the quest for ethical excellence. New York: Oxford University Press, 2003:67-95.

Fisher ES. Wennberg DE. Stukel TA. Gottlieb DJ. Lucas FL. Pinder EL. The implications of regional variations in Medicare spending. 2. Health outcomes and satisfaction with care. Ann Intern Med 2003;138:288-298

Redelmeier DA. Tversky A. Discrepancy between medical decisions for individual patients and for groups. N Engl J Med 1990;322:1162-1164

Power EJ. Eisenberg JM. Are we ready to use cost-effectiveness analysis in health care decision making? A health services research challenge for clinicians, patients, health care systems, and public policy. Med Care 1998;36:Suppl:MS10-MS147

Eddy DM. Cost-effectiveness analysis: a conversation with my father. JAMA 1992;267:1669-1675

Tunis SR. Stryer DB. Clancy CM. Practical clinical trials: increasing the value of clinical research for decision making in clinical and health policy. JAMA 2003;290:1624-1632

Tunis SR. Kang JL. Improvements in Medicare coverage of new technology. Health Aff (Millwood) 2001;20:83-85

Citing Articles

Sharon R.Kaufman, LakshmiFjord. (2011) Medicare, Ethics, and Reflexive Longevity: Governing Time and Treatment in an Aging Society. Medical Anthropology Quarterly 25. 209-231

Richard A.Frank, Donald W.Rucker, Michael A.Ferguson, Terry J.Sweeney. (2011) Evidence Requirements for Innovative Imaging Devices: From Concept to Adoption. Journal of the American College of Radiology 8. 124-131

Sharon R.Kaufman, Paul S.Mueller, Abigale L.Ottenberg, Barbara A.Koenig. (2011) Ironic technology: Old age and the implantable cardioverter defibrillator in US health care. Social Science & Medicine 72. 6-14

Kevin ASchulman, Sean RTunis. (2010) A policy approach to the development of molecular diagnostic tests. Nature Biotechnology 28. 1157-1159

D.Greenberg, C.Earle, C.-H.Fang, A.Eldar-Lissai, P. J.Neumann. (2010) When is Cancer Care Cost-Effective? A Systematic Overview of Cost-Utility Analyses in Oncology. JNCI Journal of the National Cancer Institute 102. 82-88

Joshua P.Cohen, John F. P.Bridges. (2009) Assessing comparative effectiveness research in the US. Applied Health Economics and Health Policy 7. 219-224

Antiel. Ryan M. Curlin. Farr A. James. Katherine M. Tilburt. Jon C. (2009) Physicians' Beliefs and U.S. Health Care Reform — A National Survey. New England Journal of Medicine 361 :14

STIRLINGBRYAN, SHOSHANNASOFAER, TARYNSIEGELBERG, MARTHEGOLD. (2009) Has the time come for cost-effectiveness analysis in US health care. Health Economics, Policy and Law 4. 425

Marjorie V.Neidecker, Mary LynnDavis-Ajami, RajeshBalkrishnan, Steven R.Feldman. (2009) Pharmacoeconomic Considerations in Treating Actinic Keratosis. PharmacoEconomics 27. 451-464

Bas GrootKoerkamp, Y. ClaireWang, Myriam G.M.Hunink. (2009) Cost-effectiveness analysis for surgeons. Surgery 145. 616-622

ImkeStrohscheer. Principles of Medical Oncology. 2009. 1223-1230.

Hansel J.Otero, Frank J.Rybicki, DanGreenberg, Peter J.Neumann. (2008) Twenty Years of Cost-effectiveness Analysis in Medical Imaging: Are We Improving? 1. Radiology 249. 917-925

David J.Cohen, Matthew R.Reynolds. (2008) Interpreting the Results of Cost-Effectiveness Studies. Journal of the American College of Cardiology 52. 2119-2126

Alan M.Garber. (2008) Commentary: The Impact of Medicare Coverage Policies on Health Care Utilization. Health Services Research 43. 1302-1307

H. DavidBanta, G. Ardinede Wit. (2008) Public Health Services and Cost-Effectiveness Analysis. Annual Review of Public Health 29. 383-397

John M.Hoffman, Sanjiv S.Gambhir, Gary J.Kelloff. (2007) Regulatory and Reimbursement Challenges for Molecular Imaging 1. Radiology 245. 645-660

Paul M.Knechtges, Beth G.McFarland, Kathryn J.Keysor, RichardDuszak, Matthew A.Barish, Ruth C.Carlos. (2007) National and Local Trends in CT Colonography Reimbursement: Past, Present, and Future. Journal of the American College of Radiology 4. 776-799

Susanne Kort, NualaKenny, Paulvan Dijk, SjefGevers, Dick J.Richel, Dick L.Willems. (2007) Cost issues in new disease-modifying treatments for advanced cancer: In-depth interviews with physicians. European Journal of Cancer 43. 1983-1989

JuliaAbelson, MitaGiacomini, PascaleLehoux, Francois-PierreGauvin. (2007) Bringing ‘the public’ into health technology assessment and coverage policy decisions: From principles to practice. Health Policy 82. 37-50

SanjoAdeoye, Kevin JBozic. (2007) Influence of economic evaluations on public health policy. Current Opinion in Orthopaedics 18. 28-32

G. GregoryRaab, David H.Parr. (2006) From Medical Invention to Clinical Practice: The Reimbursement Challenge Facing New Device Procedures and Technology—Part 2: Coverage. Journal of the American College of Radiology 3. 772-777

Carlos M.Ferrario, Ronald D.Smith. (2006) Cost-Effectiveness of Impedance Cardiography Testing in Uncontrolled Hypertension. The American Heart Hospital Journal 4 :10.1111/ahh.2006.4.issue-4, 279-289

PeterCram, DavidKatz, SandeepVijan, David M.Kent, Kenneth M.Langa, A. MarkFendrick. (2006) Implantable or External Defibrillators for Individuals at Increased Risk of Cardiac Arrest: Where Cost-Effectiveness Hits Fiscal Reality. Value in Health 9. 292-302

Elisa JillGordon. (2006) The political contexts of evidence-based medicine: Policymaking for daily hemodialysis. Social Science & Medicine 62. 2707-2719

Bruce E.Hillner, DeborahSchrag, Daniel J.Sargent, Charles S.Fuchs, Richard M.Goldberg. (2005) Cost-effectiveness projections of oxaliplatin and infusional fluorouracil versus irinotecan and bolus fluorouracil in first-line therapy for metastatic colorectal carcinoma. Cancer 104 :10.1002/cncr.v104:9, 1871-1884

Neumann. Peter J. Rosen. Allison B. Weinstein. Milton C. (2005) Medicare and Cost-Effectiveness Analysis. New England Journal of Medicine 353 :14, 1516-1522

Robert M.Califf, ThomasRyan, PamelaDouglas, Pascal J.Goldschmidt-Clermont. (2004) A time of accelerated change in academic cardiovascular medicine. Journal of the American College of Cardiology 44. 1957-1965

Leonard I.Ganz. (2004) Primary prevention of sudden cardiac death. Current Cardiology Reports 6. 339-347

(2004) Medicare Coverage for Technological Innovations. New England Journal of Medicine 351 :7, 719-720

Category: Insurance

Similar articles: