Medical Necessity: Overview and Best Practices for Facilities

Healthcare organizations have a duty to provide patients with the best practice care for their conditions. They’re also responsible for advocating for patients by proving their treatment is medically necessary for the sake of insurance reimbursement.

Patient advocacy occurs on both the clinical and administrative sides of a healthcare organization. In this guide, we provide an overview of medical necessity in healthcare and give examples of how to promote best practices throughout your organization.

What Is Medical Necessity in Healthcare?

According to the Centers for Medicare and Medicaid Services (CMS), the term medically necessary is defined as “health care services or supplies needed to diagnose or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.”

It’s used in various contexts, and one of the most common situations is when a physician or healthcare provider uses their clinical judgment to deem a treatment medically appropriate. This indicates medical treatment is performed out of necessity and not for the patient’s convenience. It also indicates a medical intervention is the most cost-efficient decision over other options. In return, the insurance payer reimburses the healthcare provider for a portion of the costs associated with care.

CMS uses the term when determining if services are appropriate for Medicare beneficiaries, or individuals receiving healthcare benefits through the Medicare program. In this context, necessity refers to the principle that healthcare services, treatments, and procedures should be provided to patients based on their clinical needs and the best interests of their health. The CMS use of medically necessary treatment applies to Medicare and other healthcare payers, including private insurance companies, who may have their own criteria to justify clinical necessity.

How Does This Determination Affect Healthcare Facilities?

While CMS provides general guidance, the determination of medical necessity can be a complex and case-specific process, often relying on the clinical judgment of healthcare providers. Medicare beneficiaries and their healthcare providers should refer to the specific CMS guidelines and policies for details on what services and procedures are considered medically necessary. Physicians and practitioners must document the necessity of the services they provide to ensure they meet CMS’s criteria and receive appropriate reimbursement.

CMS provides guidelines and criteria for specific medical conditions and procedures to determine whether they are medically necessary for Medicare beneficiaries. These guidelines are published in the National Coverage Determinations, which use evidence-based practice to support decision-making.

Healthcare leaders are responsible for overseeing processes involved in the meaningful use of healthcare technology, such as clinical documentation, coding, and billing to comply with CMS reimbursement rules. This ensures patients get the care they need and are appropriately billed for healthcare services.

How Facilities Can Support Patients and Maintain Compliance

Healthcare facilities can exercise best practices to support their billing efforts and advocate for patients by ensuring care is:

• Evidence-based. Treatments and interventions that are considered medically necessary must be supported by scientific evidence and clinical guidelines. Procedures that are primarily for cosmetic purposes or treatments that lack scientific support may not be considered medically necessary.
• Clinically justified. Necessity is determined by the clinical judgment of healthcare providers, such as physicians or nurse practitioners, who evaluate conditions and recommend necessary interventions. Healthcare providers have a duty to deliver care that improves patient outcomes while considering the appropriate or efficient use of healthcare resources.
• Cost-effective. To deliver medically necessary care, providers aim to deliver the most effective treatment with the least amount of unnecessary expense. The use of available resources is considered during clinical decision-making.
• Accurately documented. A patient’s condition, treatment plan, and rationale must be clearly documented in an electronic health record (EHR) system to justify clinical care and insurance reimbursement. Healthcare providers should receive proper training on compliance with medical record documentation guidelines outlined by CMS.
• Collaborative. Healthcare providers are often required to collaborate with insurance companies to ensure procedures, tests, or other medical treatments are authorized within a reasonable timeframe. This may include writing a letter as part of a utilization review process. They may also get involved in assisting patients in accessing medical equipment to receive care at home. However, as of January 2023, healthcare providers no longer need to submit a Certificate of Medical Necessity (CMN) form for claims related to certain types of durable medical equipment (DME).

Examples of Medically Necessary vs. Unnecessary Care

There may be instances when Medicare or other insurance companies won’t cover services and supplies for beneficiaries, deeming them “not medically necessary.” It’s important for healthcare providers to support any clinical decisions, such as diagnostic tests, with clinical indications at the time of a visit. Examples of services that are not medically necessary include:

• A procedure is performed in a hospital that could’ve taken place in an outpatient clinic
• An elderly patient is hospitalized beyond Medicare’s length of stay limitation instead of being discharged to a long-term acute care facility
• A screening test is performed when the patient doesn’t have documented symptoms warranting the test
• Assistive death services

Now, let’s take a look at some medically necessary examples in healthcare:

• A middle-aged woman is evaluated for breast cancer, and the surgeon recommends a bilateral mastectomy with concurrent reconstruction surgery. The reconstruction portion of the surgery is deemed medically necessary because it isn’t an elective cosmetic surgery.
• A Medicare beneficiary is hospitalized for advanced lung disease. They’re discharged home with a tracheostomyand ventilator. The insurance company pays for the durable medical equipment because it’s considered medically necessary.
• A child presents to the emergency department (ED) for wheezing. The emergency physician orders an inhaler treatment, magnesium infusion, and supplemental oxygen. The vital signs and lung sounds are well-documented, supporting the need for the interventions.

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Exercising best practices for medical necessity in healthcare allows healthcare organizations to support patients to the best of their ability. Stay updated on the latest in healthcare compliance news and guidance through IntelyCare’s free newsletter.