What Is Medical Necessity? Facility Overview and Best Practices
The term medical necessity is used to describe healthcare services that are required to treat a particular illness, disease, or injury. These essential treatments must be cost effective and aligned with the standard treatment protocols for any given condition. Health insurance companies hold organizations accountable for the type (and quality) of proposed care by limiting financial reimbursement to services determined to be medically necessary.
To help you streamline your reimbursements while maintaining compliant care standards, we’ll explain how necessity is determined. By the end of this article, you’ll have answers to the broad topical questions in addition to more specific inquiries (like, what is a letter of medical necessity?), simplifying the process for achieving optimal patient and organizational outcomes.
What Is Medical Necessity in Healthcare?
The medically necessary definition is somewhat fluid, depending on perspective. At its core, it involves the medications, supplies, and services critical to a particular treatment’s effectiveness. However, the term is used in a variety of contexts, so deciding what is medically necessary can vary interprofessionally.
1. Clinical Providers
From the prescribing perspective, clinical judgment and expertise builds the case for certain treatments, sometimes showcased within a letter of medical necessity. Denial codes (which jeopardize coverage of essential measures) may follow prescriptive orders that lack the appropriate medical justification. By providing evidence that indicates a real requirement (rather than preference), physicians help patients access necessary treatments.
2. Regulatory Agencies
The Centers for Medicare and Medicaid Services (CMS) utilizes the term when determining if services are truly appropriate for Medicare beneficiaries. In this context, necessity refers to the principle that healthcare services, treatments, and procedures should be provided to patients based on their clinical needs and the best interests of their health. The CMS medical necessity guidelines are meant to protect the patient’s best interest while regulating the cost of care.
3. Insurance Companies
To protect their organizational bottomline, insurance companies must ensure that the proposed medical benefits of treatment are worth the associated cost. Necessity classification ensures that medical interventions are both required and that they’re also the most cost-efficient option available. If neither of these parameters are fully met, then insurance companies have the option to refuse coverage.
How Does This Determination Affect Healthcare Facilities?
CMS provides guidelines and criteria for specific medical conditions and procedures to determine whether they’re medically necessary for Medicare beneficiaries. These guidelines (used by CMS and other private insurers) are published in the National Coverage Determinations, which use evidence-based practice to support decision-making. Understanding the basic parameters of coverage can help ensure streamlined reimbursements, protecting the facility’s bottom line by aligning the primary (or preliminary) clinical interventions with those that are covered.
Yet, despite the general guidance (from CMS and other insurers), patients often require more individualized care measures, making necessity determinations complex and frequently case-specific processes. In these instances, necessity determination relies heavily on the medical justification offered by healthcare providers. Meaningful use of healthcare technology and administrative support (with diagnosis coding and billing, for example) can help ensure treatments are deliverable and reimbursable while maintaining full compliance with treatment guidelines and billing regulations.
How to Support Patients and Maintain Compliance
Healthcare facilities can exercise best practices to support their billing efforts and advocate for patients by ensuring care meets medical necessity criteria. Leaders should ask themselves the following questions when reviewing whether their treatments are appropriate.
Is the treatment evidence-based?
Treatments and interventions that are considered medically necessary must be supported by scientific evidence and clinical guidelines. Procedures that are primarily for cosmetic purposes (or treatments that lack scientific support) may not be deemed necessary, risking coverage denial.
Is the care clinically justified?
Necessity is determined by the clinical judgment of licensed, qualified healthcare providers, such as physicians or nurse practitioners, who evaluate conditions and recommend necessary interventions. Healthcare providers have a duty to deliver care that improves patient outcomes, providing patients with the best chance at recovery and optimal health.
Is the plan cost-effective?
In addition to achieving the best clinical results, providers must consider the appropriate and efficient use of healthcare resources while designing treatment plans. They should aim to deliver the most effective treatment with the least amount of unnecessary expense. Going beyond the parameters of what’s deemed necessary risks denial codes and therefore, rejected service coverage.
Has the care been accurately documented?
A patient’s condition, treatment plan, and rationale must be clearly documented in an electronic health record (EHR) system to justify clinical care and insurance reimbursement. Healthcare providers should receive proper training on compliance with medical record documentation guidelines outlined by CMS.
Is the treatment plan collaborative between disciplines?
Healthcare providers are often required to work with insurance companies to ensure procedures, tests, or other medical treatments are authorized within a reasonable timeframe. This may include writing a medical necessity letter as part of a utilization review process.
They may also get involved in helping patients access medical equipment to receive care at home. However, as of January 2023, healthcare providers no longer need to submit a Certificate of Medical Necessity form (often abbreviated as the CMN) for claims related to certain types of durable medical equipment (DME).
Examples of Necessary vs. Unnecessary Care
There may be instances when Medicare or other insurance companies won’t cover services and supplies for beneficiaries because they’ve been deemed unnecessary. It’s important for healthcare providers to support any clinical decisions (such as diagnostic tests) with the appropriate clinical indicators at the time of a visit. Examples of services that aren’t considered essential include:
- A procedure conducted in a hospital that could have taken place in an outpatient clinic.
- An elderly patient who is hospitalized beyond Medicare’s length of stay limitation instead of being discharged to a long-term acute care facility.
- Ordering a screening test without documented symptoms that warrant the test.
- A surgery that’s performed for cosmetic reasons without additional medical benefits to the patient.
- Assistive death services.
Now, let’s take a look at some medically necessary examples in healthcare:
Example 1: A middle-aged woman is evaluated for breast cancer, and the surgeon recommends a bilateral mastectomy with concurrent reconstruction surgery. The reconstruction portion of the surgery is deemed necessary because it isn’t an elective cosmetic surgery.
Example 2: A Medicare beneficiary is hospitalized for advanced lung disease. They’re discharged home with a tracheostomy and ventilator. The insurance company pays for the durable medical equipment because it’s considered medically essential.
Example 3: A child presents to the emergency department (ED) for wheezing. The emergency physician orders an inhaler treatment, magnesium infusion, and supplemental oxygen. The vital signs and lung sounds are well-documented, supporting the need for the interventions.
Align Your Best Practices With Regulatory Requirements
Now that you can answer the question, Why is medical necessity important to your facility bottom line? you’re ready to streamline reimbursements while maintaining compliance. For other healthcare questions, IntelyCare’s consistently updated facility guides and management insights are a reliable source for expert-backed answers.