Medical necessity is the foundational concept connecting a patient’s medical care to their insurance coverage within the United States healthcare system. It is a requirement imposed by health insurance companies and government programs, like Medicare, to ensure a requested service or supply is appropriate and justified for the diagnosis or treatment of an injury or illness. This term is not simply a medical opinion; it is an administrative and clinical hurdle that providers must clear to secure payment for the care they deliver. When a physician recommends a procedure, the patient’s insurance company must agree that the service meets their specific criteria before covering the cost. This requirement creates a financial gap between what a professional recommends and what a payer agrees to reimburse, making it a central issue in medical billing.
Defining the Standard: Core Criteria for Medical Necessity
The determination of medical necessity is based on objective standards that a service must satisfy to qualify for coverage. While the exact language varies among different insurance carriers, the core criteria are largely consistent and based on accepted standards of medical practice. A service must be effective and safe, requiring support by credible scientific evidence and clinical research published in peer-reviewed literature. This means that unproven or experimental treatments are almost always excluded from coverage.
The service must be clinically appropriate in terms of its type, frequency, extent, and duration for the patient’s specific illness or condition. For instance, a complex surgical procedure would not be necessary if a less invasive, equally effective treatment, such as physical therapy or medication, could achieve the same outcome. The service must also be provided in a setting appropriate to the patient’s medical needs, such as an outpatient clinic instead of an inpatient hospital stay, if the condition allows. It must be directly linked to the diagnosis and cannot be primarily for the convenience of the patient or the provider.
How Necessity is Documented and Coded
Providers must translate the clinical justification for a service into a technical language that insurance payers can process, relying heavily on standardized medical coding. This proof of necessity is established through the correct pairing of two distinct code sets. The International Classification of Diseases, 10th Revision (ICD-10) codes specify the patient’s diagnosis, injury, or medical condition, answering the question of why the service was performed.
These diagnostic codes must then be linked to Current Procedural Terminology (CPT) codes, which describe the specific procedure, test, or treatment delivered, answering the question of what was done. For a claim to be paid, the ICD-10 code must clinically justify the CPT code—for example, a code for a broken bone must align with the code for an X-ray or surgical repair. Claims are often denied for lack of medical necessity due to a mismatch between these codes, where the diagnosis code does not support the procedure code. The underlying medical record documentation, including physician notes, test results, and operative reports, must thoroughly support both the coded diagnosis and the procedure.
The Payer’s Determination Process
Insurance companies use structured processes to evaluate medical necessity, collectively known as utilization management. One common method is Prior Authorization, also called pre-certification, where the necessity of an expensive service or drug is reviewed before it is delivered. This prospective review ensures the proposed treatment is covered by the policy and that clinical criteria have been met, placing the initial burden of proof on the provider. While approval is not a guarantee of payment, it signifies the payer’s initial agreement that the service is justified.
Another mechanism is Utilization Review (UR), which involves concurrent or retrospective reviews of services. Concurrent review assesses the need for services during a hospital stay, ensuring the length of stay and ongoing treatments remain appropriate. Retrospective review occurs after the service has been completed and the claim submitted, allowing the payer to scrutinize documentation to confirm that the services rendered were medically justified. These processes are designed to control healthcare costs by confirming that resources are used appropriately according to evidence-based clinical standards.
Understanding Claim Denials and the Appeals Process
When a claim is deemed “not medically necessary” by an insurance payer, it results in a denial, meaning the patient is typically held financially responsible for the full cost of the service. This determination is communicated through an Explanation of Benefits (EOB) document. Patients and providers have the right to challenge this decision through a structured appeals process.
The first step is usually an internal appeal, where the patient requests the health plan to reconsider the denial, often within 180 days of receiving the EOB. This appeal requires submitting additional documentation, such as a letter from the provider and supporting medical records, to demonstrate how the service meets the payer’s necessity criteria. If the internal review upholds the denial, the patient can pursue an external review. This second level involves an independent review organization, a third party unaffiliated with the health plan, providing an unbiased assessment of medical necessity. If the external reviewer overturns the denial, the insurance company is typically required to approve benefits for the covered service.