Health Information Management

Clear up confusion surrounding medical necessity

JustCoding News: Outpatient, April 18, 2012

Want to receive articles like this one in your inbox? Subscribe to JustCoding News: Outpatient!

by Lori-Lynne A. Webb, CPC, CCS-P, CCP, COBGC, CHDA

Understanding and determining medical necessity can be very complex for physicians, clinicians, coders, and billers.

A physician or clinical provider of care may have a completely different understanding, interpretation, and definition of medical necessity than the patient or a patient’s family member. A third-party insurance payer may also have another completely different understanding and application of the term.

Defining medical necessity

So what is medical necessity? Coders or billers struggle to understand and sort out as the term, which leads to misinterpretation and misunderstanding of what needs to be communicated in a variety of areas.

CMS provides a specific definition under the Social Security Act:

… no Medicare payment shall be made for items or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

In essence, the diagnosis drives medical necessity. Coders need to understand the diagnosis itself, as well as what services or treatment options are available to the provider.

Third-party payers add more confusion

Medical necessity can also be confusing when it comes to who is going to pay for the procedure or services. Many third-party payers have specific coverage rules regarding what they consider medically necessary or have riders and exclusions for specific procedures. Third-party payers may have a specific exclusion for procedures that they consider experimental, unproven for a specific diagnosis, or cosmetic.

One example is a surgeon using a daVinci robotic surgical device to perform a laparoscopic surgery. Upon pre-authorization for the surgery, the insurance payer states it will not pay for the surgery if the daVinci is used. The insurer’s policy includes a rider that deems the daVinci as an experimental surgical device. However, if the physician uses a traditional laparoscopic or open procedure, the third-party payer would reimburse. In this case, the insurance carrier is not stating that the surgery is not medically necessary, just that it will not reimburse for this surgery if the robotic device is used.

Even if a particular procedure or service is considered medically necessary, some payers impose limits on how many times a provider may render a specific service within a specified time frame. For Medicare and Medicaid, these limitations are known as National Coverage Determinations (NCD) and Local Coverage Determination (LCD). Private payers may simply refer to this type of limitation as a policy guideline or policy exclusion or rider.

Within these guidelines, payers may define where or when they will cover a specific service, but may limit coverage to a specific diagnosis. For example, insurance policies may have a wellness or preventive care benefit, but may only cover one such visit per year. Some payers may only reimburse for a single Prostate-Specific Antigen (PSA) test per year. The payer may require a documented screening diagnosis in coordination with the test.

If the patient underwent a PSA test January 1, 2012, for screening, his insurance may not pay for another test until 365 days (or one calendar year) have elapsed. However, if the patient undergoes a PSA blood test for screening and the test results are abnormal, the clinician may decide another PSA test is needed. The coder must submit that claim as a PSA blood test with the appropriate diagnosis for a sign, symptom, or abnormality, not as a screening.

Documenting medical necessity

Medical necessity continues to be open for interpretation by all parties involved. Many third-party payers have created lists of criteria they use to interpret medical necessity. These lists do not necessarily reflect all options, but payers include this reference in their policy guidelines.

Most providers have not developed a comprehensive listing of medically necessary qualifiers, so coders and clinicians must focus on good documentation and coding accuracy to communicate the medical necessity of services accurately to payers. If third-party payers deny reimbursement for medical services, physicians, clinicians, and coders need to rely on the formal appeal process.

Medical necessity documentation from a physician or provider should include the following:

  • Severity of the “signs and symptoms” or direct diagnosis exhibited by the patient. This is our diagnosis driver, and multiple diagnoses may be involved.
  • Probability of an adverse or a positive outcome for the patient, and how that risk equates to the diagnosis currently being evaluated. This is the medical risk vs. gain.
  • Need and/or availability of diagnostic studies and/or therapeutic intervention(s) to evaluate and investigate the patient’s presenting problem or current acute or chronic medical condition. In other words, does the facility, office, or hospital have what the provider or clinician needs to render care?

These bullet points reflect the basics of evaluation and management (E/M) guidelines that are currently in place from CPT®: the history, exam, and medical decision making processes. Coders will have an easier time evaluating medical necessity from this aspect. Of course, a good understanding of this integration of medical necessity within the E/M guidelines makes communicating this same principle to the providers much easier. Coders should encourage providers to continually enhance their documentation to improve overall coordination between the medical record, coding accuracy, and third-party payer reimbursement.

The third-party payers employ a wide spectrum of policies defining medical necessity is and should encompass. Physicians, clinical providers, and coders should review what these payers have established within their guidelines. Someone within the physician office, hospital, or medical facility should thoroughly scrutinize these guidelines before establishing a contractual relationship with a particular third party payer. This up-front communication will help avoid claim denials in the future.

Here are some examples of what some third party payers are currently including in their medically necessary verbiage:

  • Treatment is consistent with the symptoms or diagnosis of the illness, injury, or symptoms under review by the provider of care.
  • Treatment is necessary and consistent with generally accepted professional medical standards (i.e., not experimental or investigational).
  • Treatment is not furnished primarily for the convenience of the patient, the attending physician, or another physician or supplier.
  • Treatment is furnished at the most appropriate level that can be provided safely and effectively to the patient, and is neither more or less than what the patient is requiring at that specific point in time.
  • The disbursement of medical care and/or treatment must not be related to the patient’s or the third party payer’s monetary status or benefit.

Documentation of all medical care should accurately reflect the need for and outcome of the treatment.
Treatment or medical services deemed to be medically necessary by the provider of those services,(e.g., physician, therapist, clinician, etc.) does not imply or infer that the service(s) provided will be covered by or deemed a medically necessary service payable by a third-party insurance payer.

Coders must understand the complex relationships between the physician, the patient, the medical record documentation, the coder, the biller, the insurance payer, and the communication between all of these entities to successfully guide the interpretation of medical necessity.

Editor’s note: Lori-Lynne Webb, CPC, CCS-P, CCP, is an independent consultant in Melba, Idaho. Email her at or

Want to receive articles like this one in your inbox? Subscribe to JustCoding News: Outpatient!

Most Popular