“Medical necessity” is difficult to define, with as many different interpretations as there are payers; however, most definitions incorporate the idea that healthcare services must be “reasonable and necessary” or “appropriate,” given a patient’s condition and the current standards of clinical practice. Yet typically, the decision as to whether services are medically necessary is made someone who has never seen the patient.

Medicare defines “medical necessity” as services or items reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member. CMS has the power under the Social Security Act to determine, on a case-by-case basis, if the method of treating a patient is reasonable and necessary. For all payors and insurance plans, even if a service is reasonable and necessary, coverage may be limited if the service is provided more frequently than allowed under a national coverage policy, a local medical policy, or a clinically accepted standard of practice.

Claims for services deemed to be not medically necessary will be denied. Further, if Medicare (or any other payer) pay for services that they later determine to be not medically necessary, they may demand that those payments be refunded (with interest). If a pattern of such claims can be established, and the provider knows or should know that the services reported were not medically necessary, the provider may face monetary penalties, exclusion from Medicare program, and criminal prosecution.

Most payers use claim edits (automated denial/review commands) to review claims. These edits ensure that payment is made for specific procedure codes when provided for a patient with a specific diagnosis code or predetermined range of ICD-10-CM codes. ICD-10-CM codes should support medical necessity for any services reported. Diagnosis codes identify the medical necessity of services provided by describing the circumstances of the patient’s condition.

To better support medical necessity for services reported, you should apply the following principles:

1.    List the principal diagnosis, condition, problem, or other reason for the medical service or procedure.

2.    Assign the code to the highest level of specificity.

3.    For office and/or outpatient services, never use a “rule-out” statement (a suspected but not confirmed diagnosis); a clerical error could permanently tag a patient with a condition that does not exist. Code symptoms, if no definitive diagnosis is yet determined, instead of using rule-out statements.

4.    Be specific in describing the patient’s condition, illness, or disease.

5.    Distinguish between acute and chronic conditions, when appropriate.

6.    Identify the acute condition of an emergency situation; e.g., coma, loss of consciousness, or hemorrhage.

7.    Identify chronic complaints, or secondary diagnoses, only when treatment is provided or when they impact the overall management of the patient’s care.

8.    Identify how injuries occur.

All of the above information must be substantiated in the patient’s medical record, which should be available to payers, on request.