The concept of medical necessity forms the bedrock of health insurance coverage and payment in the United States, acting as the foundational principle insurers use to determine which services they will cover. While the term is frequently mentioned in policy documents and denial letters, its specific application often remains a source of confusion for patients navigating the complex healthcare system. Understanding what medical necessity means is the first step toward clarifying why an insurer agrees to pay for one procedure but not another.
Defining Medical Necessity
Medical necessity is the requirement that a healthcare service or treatment must be appropriate, consistent with a patient’s diagnosis, and required to treat an illness, injury, or disease. It is the baseline standard a service must meet to be considered a covered benefit under an insurance plan or government program. This standard ensures that patients receive care that will genuinely help their medical condition, rather than services provided solely for convenience or non-medical reasons.
This definition serves as the minimum threshold for coverage, but the specific wording can vary between private insurance plans and public programs. For instance, Medicare defines “medically necessary” as services or supplies needed to diagnose or treat a condition that also meets accepted standards of medical practice. While the core meaning is consistent, the practical application is ultimately determined by the individual payer’s policy language.
Standardized Criteria for Determination
Insurers rely on a set of standardized, objective criteria to determine if a service meets the requirements of medical necessity. These detailed standards ensure that any approved treatment is supported by current scientific evidence and best practices. A treatment must be required to evaluate, diagnose, or treat a specific disease, illness, or injury to qualify for coverage.
Treatments must also align with generally accepted standards of medical practice, meaning they are recognized by the wider medical community and supported by peer-reviewed literature. This criterion often prevents coverage for procedures that are considered experimental or investigational because they lack sufficient data to prove efficacy and safety. Many private payer definitions are modeled after the standards set by the Centers for Medicare & Medicaid Services (CMS), which requires services to be safe and effective.
Furthermore, a service must be the most appropriate level of care, meaning it meets but does not exceed the patient’s medical need. For example, an insurer may deny coverage for an inpatient hospital stay if the treatment could have been safely and effectively delivered in a less intensive outpatient setting. The service must also not be for the sole convenience of the patient or the provider, and it must not be primarily for cosmetic purposes without an underlying medical indication.
The Role of Prior Authorization and Utilization Review
Insurers enforce medical necessity through formal processes known as utilization management, which includes prior authorization and utilization review. These mechanisms act as administrative checks to ensure that the services being delivered or requested meet the policy’s established criteria. Prior authorization, sometimes called pre-certification, is the requirement that a healthcare provider obtain approval from the insurance company before a specific service is rendered.
This pre-service review allows the insurer to confirm that the proposed treatment is medically necessary and covered under the patient’s specific benefit plan. The provider typically submits a request along with supporting clinical documentation, such as a Letter of Medical Necessity, for the insurer’s review. While an approval does not guarantee payment, it confirms that the service meets the clinical criteria for necessity at that time.
Utilization review is a broader process used to evaluate the appropriateness of care, either while it is being delivered or after the fact. Concurrent review occurs during a patient’s treatment, such as a hospital stay, to confirm that continued care remains medically necessary and appropriate. Retrospective review happens after the service has been completed and the claim has been submitted, allowing the insurer to check for medical necessity before issuing a final payment.
Actions Following a Denial of Necessity
If an insurer denies coverage, claiming a service was not medically necessary, the patient has rights to appeal the decision. The denial letter, often accompanied by an Explanation of Benefits (EOB), outlines the specific reason for the refusal and provides instructions on how to initiate the appeals process. Patients should review this documentation carefully and note the deadlines for filing an appeal.
The initial step is typically an internal review, where the patient files an appeal directly with the insurance company. This process requires the insurer to have the claim reviewed by a medical professional who was not involved in the original denial. Crucially, the patient’s treating physician can provide additional documentation or a detailed argument supporting the medical necessity of the treatment.
If the internal appeal is denied, the patient can escalate the matter to an external review by an independent third party. This independent review organization is not affiliated with the insurance company, ensuring an unbiased assessment of the medical necessity determination. The right to both internal and external review is often governed by federal rules, such as those established under the Affordable Care Act, providing a clear path for patients to challenge coverage denials.