Q&A: Defining medical necessity

Q: We are trying to educate our coding department about medical necessity, but has CMS or Medicare defined it anywhere? How can we explain it to staff?

A: Coders and billers struggle to understand what the term “medical necessity” really means. Unfortunate­ly, these two words can easily lead to misinterpretation and misunderstanding of what needs to be clear­ly communicated in a variety of healthcare areas.

CMS provides this specific definition of medical necessity under the Social Security Act (SSA): “No Medicare payment shall be made for items or services that are not reasonable and necessary for the di­agnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

In essence, the diagnosis drives medical necessity. Coders need to understand the diagnosis, as well as what services or treatment options are available to the provider, in order to evaluate whether medical necessity has been met.

When submitting claims for reimbursement and payment, the diagnosis and service codes will “tell the story” of care and explain to the payer why a service was performed. The reported code is the determin­ing factor in supporting, or not supporting, the medical necessity of the procedure. Unfortunately, it is this nebulous concept of medical necessity that may ultimately determine whether the payer will reim­burse the provider for services that have already been rendered.

The definitions of medical necessity are important, but it’s how they get applied in the claims settlement process that gives them shape, particularly where evaluation and management (E/M) services are con­cerned. According to the Medicare Claims Processing Manual, medical necessity is the “overarching crite­rion for payment in addition to the individual requirements of the CPT code.” This means that it would not be medically necessary or appropriate to bill a higher level of E/M code when a lower-level code is more appropriate.

The volume, length, or amount of clinical documentation should not be the primary reason for the choice of the E/M level code to be billed. The clinical documentation should be clear and concise and should directly support the appropriate level of service to be reported for claims reimbursement. Medical necessity will always be a subjective term that may never have clear parameters as to what is or is not considered “necessary.”

In other words, medical necessity trumps everything else. If the insurance claims adjudicators and/or auditors find that the medical necessity is lacking, the claim won’t be paid, even if the physician deems the treatment necessary.

Editor’s note: This article originally appeared in Revenue Cycle Advisor. This question was adapted from the HCPro book The Complete Guide to Medical Necessity: JustCoding’s Training and Education Toolkit by Lori-Lynne A. Webb, CPC, CCS-P, CCP, CHDA, CDIP, COBGC. If you have a CDI question, please contact ACDIS Editor Linnea Archibald (larchibald@acdis.org).