What Is Medical Necessity? Facility Overview and Best Practices

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Written by Alexa Davidson, MSN, RN Content Writer, IntelyCare
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Reviewed by Danielle Roques, BSN, RN Content Writer, IntelyCare
A nurse consults with his supervising physician to discuss the medical necessity of a procedure.

The term medical necessity is used to describe healthcare services that are required to treat a particular illness, disease, or injury. These medically necessary treatments must be cost effective and should fall within standard treatment protocols for a given condition.

Healthcare regulatory agencies demand that certain vital services are classified as “necessary” to ensure patients receive safe, evidence-based care. Additionally, health insurance companies hold organizations accountable for the type and quality of care offered by providing financial reimbursement only for services that are medically necessary.

How does this concept of “necessary care” affect the way healthcare organizations provide clinical treatments? In this guide, we provide an overview of medical necessity and give examples of how to promote best practices throughout your organization.

What Is Medical Necessity in Healthcare?

The definition of medically necessary care is quite straightforward. Medications, supplies, and services offered should be necessary for the treatment of a particular condition or illness. However, the term is used in a variety of contexts, which can make it challenging to understand its meaning in relation to a particular setting or circumstance. Here, we explain medical necessity from three unique perspectives.

1. Clinical Providers

Often, a physician or healthcare provider is required to use their clinical judgment to deem a treatment medically appropriate. This indicates that a medical treatment is performed out of necessity and not for the patient’s convenience.

2. Regulatory Agencies

The Centers for Medicare and Medicaid Services (CMS) utilize the term when determining if services are 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 use of medically necessary treatment applies to Medicare and other healthcare payers, including private insurance companies, who may have their own criteria to justify clinical necessity.

3. Insurance Companies

If an organization chooses to offer a particular medical intervention, it must be the most cost-efficient decision over other options. Insurance providers must ensure that the medical benefits are worth the financial costs prior to reimbursing healthcare providers for a portion of the fees associated with care.

How Does This Determination Affect Healthcare Facilities?

While CMS provides general guidance, the determination of medical necessity can be a complex and case-specific process, often relying on the clinical judgment of healthcare providers. Medicare beneficiaries and their healthcare providers should refer to the specific CMS guidelines and policies for details on what services and procedures are considered medically necessary. Physicians and practitioners must document the necessity of the services they provide to ensure they meet CMS’s criteria and receive appropriate reimbursement.

CMS provides guidelines and criteria for specific medical conditions and procedures to determine whether they are medically necessary for Medicare beneficiaries. These guidelines are published in the National Coverage Determinations, which use evidence-based practice to support decision-making.

Healthcare leaders are responsible for overseeing processes involved in the meaningful use of healthcare technology, such as clinical documentation, coding, and billing to comply with CMS reimbursement rules. This ensures patients get the care they need and are appropriately billed for healthcare services.

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 considered medically necessary.

Is the care clinically justified?

Necessity is determined by the clinical judgment of 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 while considering the appropriate or efficient use of healthcare resources.

Is the plan cost-effective?

To deliver medically necessary care, providers aim to deliver the most effective treatment with the least amount of unnecessary expense. The use of available resources is considered during clinical decision-making.

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 (CMN) form for claims related to certain types of durable medical equipment (DME).

Examples of Medically Necessary vs. Unnecessary Care

There may be instances when Medicare or other insurance companies won’t cover services and supplies for beneficiaries, deeming them “not medically necessary.” It’s important for healthcare providers to support any clinical decisions, such as diagnostic tests, with clinical indications at the time of a visit. Examples of services that are not medically necessary 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 when the patient doesn’t have documented symptoms warranting the test.
  • A surgery that’s performed solely for cosmetic reasons that doesn’t offer any medical benefit to the patient.
  • Assistive death services.

Now, let’s take a look at some medically necessary examples in healthcare:

  • 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 medically necessary because it isn’t an elective cosmetic surgery.
  • 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 necessary.
  • 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.

Get More Tips on Healthcare Compliance

Exercising best practices for medical necessity in healthcare allows healthcare organizations to support patients to the best of their ability. Stay updated on the latest in healthcare compliance news and guidance through IntelyCare’s free newsletter.


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