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What is Medical Necessity and How Does Documentation Support It?

By:  Aimee Wilcox, CPMA, CCS-P, CST, MA, MT, Director of Content
Published:  April 23rd, 2019

We recently fielded the question, “What is medical necessity and how do I know if it's been met?"

The AMA defines medical necessity as:

It is important to understand that while the AMA provides general guidance on what they consider medically necessary services, these particular coding guidelines are generic and may be accepted and applied differently by individual payers. For example, can something that is illegal be medically necessary? Laws play an important role in identifying and supporting medically necessary services.

The legislative branches of government pass statutes (laws) and then delegate authority and power to certain governmental agencies (state and federal) to create additional regulations to help them enforce those laws. For example, most states have some kind of a drug-free workplace act, which is enforced by a specific federal or state agency. This agency has additional power and authority given to it to adopt or create regulations that help to enforce the statute (e.g., employer drug testing, employer rights to terminate employees found in violation).

How does this translate into meeting medical necessity for a specific healthcare service?

For federal or state healthcare plans like Medicare or Medicaid, when the law specifies something is illegal, the federal or state healthcare plan is bound by that ruling and cannot provide coverage for that service or item as it would not be medically necessary due to its illegal status. For example, Supreme Court Justice Clarence Thomas delivered an opinion on whether there is a medical necessity exception for the use of marijuana for medicinal purposes. The opinion delivered states,

By law, marijuana is classified as a Schedule I (Class I) drug, along with heroin, cocaine, LSD, etc., and there is no justification of medical necessity for its use. If billed to a program that is funded by federal dollars, it will be denied as medically unnecessary, as there is no benefit for illegal activities, regardless of whether or not the specific state allows medicinal marijuana use or a healthcare provider swears it has medicinal benefits. The law has deemed it doesn't and the law stands until it is changed. In this way, statutes and regulations also help to define “acceptable standards of medicine.” Additionally, commercial health insurance programs that receive federal dollars to manage Medicare Advantage or other federally-funded insurance programs also cannot pay for services considered illegal by the federal government.

Another place we find definitions of medically necessary is within written payer policies. CMS publishes National Coverage Determination (NCD) policies that identify certain healthcare services and drugs, and whether they are deemed medically necessary (or not). An NCD may include a list of CPT or HCPCS codes to which the policy refers or it may be a generalized policy about a topic. Additionally, while the majority of NCDs do not identify specific ICD-10-CM codes for medical necessity, there are some that are very specific and do.

NCDs are created and defined by CMS for Medicare beneficiary coverage regardless of geographic location. They are often further defined by contracted Medicare Administrative Contractors (MACs) who publish Local Coverage Determinations (LCDs). These MACs (e.g., Noridian, WPS, Novitas, etc.) further define the NCD (or in the absence of an NCD, may create an LCD where needed) by identifying applicable CPT and HCPCS codes as well as a list of ICD-10-CM codes that support medical necessity for the identified CPT/HCPCS codes, and sometimes even provide a list of ICD-10-CM codes that will not, if reported, support medical necessity. When an NCD and an LCD have conflicting information, the NCD takes precedence.

TIP: Never put a medically necessary ICD-10-CM code on a claim unless the patient documentation clearly identifies the patient has the specified ICD-10-CM diagnosis.

The physician prescribed treatment is not considered medically necessary by the payer 

New technologies and treatments are always being introduced into medical care offerings. Although the FDA or federal or state legislature may have deemed the services to be appropriate doesn’t necessarily mean a specific payer will adopt the services and deem them medically necessary right away. Sometimes they are never adopted by a payer (e.g., orthotics (shoe inserts) are beneficial for many podiatric problems yet most payers refuse to cover them as a medical benefit) while some just take longer to become acceptable. When a service is deemed not medically necessary and denied by the payer, the patient often still has the right to simply pay for the service out of pocket instead.

"Acceptable standards of medical care" often mean if the testing or treatment option recommended by your provider is something that would be recommended by the majority of providers of the same specialty or subspecialty, then it would meet the "acceptable standards of medical care" statement by CMS and the AMA. Most providers would agree with a chest x-ray for a patient who presents with chest pain rather than ordering a more invasive and costly chest MRI with contrast as the first recommendation. Lower risk, lower cost, and less invasive but still accomplishing the same thing is almost always going to be the payer recommendation and policy. The same holds true for certain costly and risky prescription drugs. Payers often require a tried/failed approach to certain medications prior to authorizing a costlier or riskier prescription. It would be medically unnecessary to prescribe a costlier drug, surgery, or other treatment when a lesser one would be sufficient and accomplish the same thing. 

Medical Necessity is not the same as Medical Decision Making (MDM)

Medical necessity is often complex and subject to interpretation so no checkboxes or scoresheets are available as a one-size-fits-all medical necessity determination. Often, coders or auditors will down code an established patient E/M service because the MDM score wasn’t as high as the history or exam but that would be an error, as medical necessity is not the same thing as medical decision making (MDM). The E/M service level should be the level of service needed to formulate at least a working diagnosis and treatment plan. If the overabundance of unnecessary information from templates, copying, and/or pasting cause the service to score higher, then maybe it is time to reconsider the EHR templates and practices used by your organization. A great way to get providers thinking about medical necessity is to ask them if they had to author a patient note without a computer, what information would they need in order to properly assess and treat the patient. Most would agree a comprehensive ROS or exam would not be required for most, and neither would every lab result, imaging report, medication ever tried, or every single diagnosis the patient has ever had in their lifetime. 

Medicare states,

“Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT code.”

In other words, if a teenager with no other medical issues presented with symptoms of a strep throat, do you think the service would require a level of complexity associated with 99215? Would you then compare that patient's severity to one who could die, lose a limb or body function, or have organ failure if untreated today?

A few other great tools to help identify the medical necessity of an E/M level of service include:

  • Nature of Presenting Problem (NPP)
  • CPT Appendix C
  • CMS Table of Risk

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