Medical Necessity and the Law
The term "medically necessary" is important because it helps to determine what Medicare, Medicaid, and private insurance companies will pay for. Most health plans won't cover procedures, treatments, or prescriptions that aren't approved as "medically necessary," depending on the terms of the plan. However, the definition of the term itself can be the source of confusion and ambiguity.
This article provides information about medical necessity and its relationship to federal and state laws, including information on the following:
- Various definitions of the term;
- Examples of what constitutes "medically necessary;"
- How insurance companies can reject medical claims for care not considered "medically necessary;" and
- The appeals process for coverage denied due to a lack of "medical necessity."
Medicare Definition of "Medically Necessary"
The Social Security Act defines "medically necessary" in terms of what Medicare will pay for: "No Medicare payment may be made for any expenses which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member."
There are certain services that Medicare has identified that aren't considered medically necessary, including (but not limited to) the following:
- Times where your hospital service surpasses the Medicare-approved stay length;
- Physical therapy treatment that surpasses Medicare's usage limit;
- Hospital-administered treatment that could have been delivered in a lower-cost setting; and
- Prescription of drugs to treat fertility, sexual or erectile dysfunction, weight loss/weight gain, and cosmetic purposes.
Medicaid Definition of "Medically Necessary"
There isn't a definitive interpretation for "medically necessary" for the federally mandated, state-administered Medicaid program. This means that the definitions used to determine the necessity standard come from state government laws and regulations. Many states define "medically necessary" in terms of cost considerations that correlate with the goals of keeping their Medicaid costs low.
Although there are differences in each state, they often correspond to the Medicare definition of prescriptions and services "necessary for diagnosis or treatment of the condition, illness, or injury." For example, a chest x-ray is performed on a patient who suffered chest pains. The x-ray provides a definitive diagnosis, while an additional chest MRI or a lung biopsy may be considered "medically necessary" for treatment.
Other commonalties among state definitions include provisions that the treatment:
- Is generally consistent with accepted principles of medical practice;
- Isn't experimental;
- Is within the bounds of community standards of care; and
- Significantly benefits the patient and isn't provided only as a convenience to the patient or to the physician.
Definition for Private Insurers
The "medically necessary" definitions for private insurance are found within the contracts between the patients and the insurance companies. They can be subject to state regulation and there is a lot of variation in them. For example, Massachusetts' definition is "health care services that are consistent with generally accepted principles of professional medical practice."
The American Medical Association (AMA) Definition
The Affordable Care Act doesn't detail what constitutes medical necessity directly, but rather the Act mandates the similar "essential health packages," which ensures that health plans offer a comprehensive package of services. This is a related concept, but is broader than the case specific criteria necessary for medical necessity evaluations.
However, The American Medical Association (AMA) does offer a definition in this context. It is as follows: Health care services or products that a prudent physician would provide to a patient for preventing, diagnosing, or treating an illness, injury, disease, or its symptoms in a manner that is:
- In accordance with generally accepted standards of medical practice;
- Clinically appropriate in terms of type, frequency, extent, site, and duration; and
- Not primarily for the economic benefit of the health plans and purchases or for the convenience of the patient, treating physician, or other health care provider.
Denial of Coverage
Although medical claims using the medically necessary criteria are judged on a case-by-case basis, there are types of claims that can be denied due to the absence of medical necessity. Sometimes there is conflict between what your physician considers "medically necessary" and what the insurer's coverage rules state.
There are some areas where it's obvious that something isn't a medical necessity, like a completely cosmetic procedure such as a facelift. Or some areas of contention have already been dismissed by the law such as the case of medicinal marijuana. The U.S. Supreme Court held that there is no medical necessity in cannabis used for medical purposes. However, there are other cases where the criteria will be tested.
Although the ACA's relationship with medical necessity is limited, the Act does dictate the decision-making. If your medical claim was denied due to the lack of medical necessity, you have the right to appeal the insurer's decision.
The U.S. Department of Health and Human Services has procedures in place for anyone in this situation. The first step is an internal appeal, where you ask the insurance company to complete a fair review of the decision. If you're still denied, you can move to the next step: an external appeal. You're legally entitled to have an independent third party either grant the insurer's decision or overturn it.
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