Medical necessity is a foundational concept in the United States healthcare system that determines whether a service will be covered by an insurance plan. It acts as the financial gatekeeper, distinguishing between medically appropriate care eligible for payment and care that must be paid for out-of-pocket. This standard is used by all payers—private and public—to manage the scope of covered benefits. Understanding how this standard is defined and applied is essential for navigating health coverage.
Defining the Standard of Medical Necessity
Payers generally define medical necessity as any healthcare service or supply that is reasonable, essential, and appropriate for the diagnosis or treatment of an illness, injury, disease, or its symptoms. The service must be directly related to a patient’s medical condition, not just for convenience or preference. To qualify, it must align with generally accepted standards of medical practice within the community.
The definition varies slightly between individual insurance carriers, but public programs often set the industry baseline. Medicare, for instance, defines medically necessary services as those needed to diagnose or treat a condition that meet accepted medical standards. This standard excludes services considered excessive, experimental, or those that could have been provided in a less costly setting. The requested service must be the appropriate level and type of care to address the patient’s medical need.
Specific Criteria Used for Determination
Insurance companies use specific, measurable criteria to evaluate if a requested service meets the standard of medical necessity. A primary criterion is evidence-based medicine, meaning the treatment must be supported by sufficient scientific literature to demonstrate its safety and effectiveness. Services lacking this backing are often categorized as investigational or experimental and are excluded from coverage.
Appropriateness also requires that the service is not substantially more costly than an equally effective alternative. If a less expensive, comparable alternative exists, the payer may only cover the lower-cost option. Furthermore, the service must not be primarily for the convenience of the patient or provider; it must be required to prevent a serious medical consequence or improve a function. Safety is also evaluated, ensuring the procedure’s risk profile is acceptable given the expected clinical benefit for the patient’s condition.
The Utilization Review Process
The administrative mechanism through which a payer evaluates medical necessity is called utilization review (UR). This process is conducted by trained personnel, often registered nurses or physician reviewers, who compare the requested care against the payer’s established clinical guidelines. Review can occur at three distinct points relative to the provision of care.
Prospective Review
Prospective review, commonly known as prior authorization, happens before the service is delivered, such as prior to a scheduled surgery or chemotherapy. This review requires the provider to submit clinical documentation to establish that the service is justified before the patient receives it.
Concurrent Review
Concurrent review takes place while the patient is receiving treatment, particularly during a hospital stay, to determine if the continued level of care remains necessary.
Retrospective Review
Retrospective review occurs after the patient has received the service and the claim has been submitted for payment. This post-service review determines if the care provided was medically necessary, and it is sometimes used for emergency services where prior authorization was impossible. If any review results in a denial, the payer must provide a written explanation detailing the specific criteria that were not met.
Recourse for Coverage Denials
When a service is denied because a payer deems it not medically necessary, the patient has structured options for recourse that follow a two-step process.
Internal Appeal
The first step involves an internal appeal, where the patient or provider submits a formal request to the insurance company to reconsider its decision. This appeal must be based on complete medical records, documentation supporting the service, and a letter from the treating physician explaining why the care is appropriate.
External Review
If the internal appeal is denied, the patient can proceed to an external review, which is an independent third-party review of the decision. This review is often mandated by law, allowing an impartial entity to examine the clinical evidence and the payer’s denial rationale. The result of an external review is typically binding on the insurance plan. Patients must adhere to strict, timely filing requirements for both internal and external appeals.