American Academy of Professional Coders (AAPC) Practice Exam

Under what circumstance may Medicare and insurance plans deny payment for services?

1. If the service is performed by an out-of-network provider

2. If the service is considered cosmetic

3. If the service is not reasonable or necessary

4. If the patient requests a specific procedure

The correct answer is: If the service is not reasonable or necessary

The correct choice focuses on the principle of medical necessity, which is a key criterion for Medicare and insurance plans when determining payment for services. Medicare and most insurance plans require that services provided to patients are not only reasonable, meaning they are appropriate for the patient’s condition, but also necessary, indicating that the service is essential for the diagnosis or treatment of the illness. If a service is deemed not reasonable or necessary according to established medical guidelines and standards, it can result in denial of payment. This is because insurance providers, including Medicare, are obligated to manage costs and ensure that funds are utilized for treatments that are actually beneficial and essential for patient care. This includes evaluating the appropriateness of tests, procedures, and other interventions based on medical evidence. Other options may lead to complications in coverage but do not inherently guarantee denial of payment the same way that a lack of medical necessity does. For instance, while services performed by an out-of-network provider may lead to higher out-of-pocket costs for the patient, they may still be covered under certain circumstances. Cosmetic services might be denied based upon the item's purpose, but specific rules may allow for payment if the procedure is deemed medically necessary. Additionally, a patient's request for a specific procedure doesn’t automatically result in denial