Answer: You should normally use G0289 (Arthroscopy, knee, surgical, for removal of loose body, foreign body, debridement/shaving of articular cartilage [chondroplasty] at the time of other surgical knee arthroscopy in a different compartment of the same knee) only when you bill Medicare carriers. Most private payers still allow orthopedic practices to report 29877-59, Arthroscopy, knee, surgical; debridement/shaving of articular cartilage [chondroplasty]; Distinct procedural service) with 29881 (Arthroscopy, knee, surgical; with meniscectomy [medial OR lateral, including any meniscal shaving]).
In 2002, the National Correct Coding Initiative announced that it would no longer allow practices to append modifier -59 to separate this code combination, even when the surgeon treated separate compartments. This ruling led to the creation of G0289, which practices now report to Medicare payers.
It sounds as though your private payer might follow Medicare guidelines and bundle 29877 into 29881. Because your insurer instructed you in writing to submit G0289, you should report 29881 with G0289 for