Defining Medical Necessity

Medical necessity plays a crucial role in receiving reimbursement for delivered services. As government and commercial payers provide coverage only for health-related related services that define or determine to be medically necessary, justifying medical necessity ensures accurate insurance reimbursements. Before we understand complete documentation requirements for justifying medical necessity, let’s understand how various government authorities and commercial payers define medical necessity. 


Medicare defines medical necessity as, services or supplies that are needed for the diagnosis or treatment of your medical condition and meet accepted standards of medical practice.

American Medical Association (AMA)

Services or procedures that a prudent physician would provide to a patient in order to prevent, diagnose or treat an illness, injury, or disease or the associated symptoms in a manner that is:

  • In accordance with the generally accepted standard of medical practice. 
  • Clinically appropriate in terms of frequency, type, extent, site, and duration. 
  • Not intended for the economic benefit of the health plan or purchaser or the convenience of the patient, physician, or other health care provider.

The Centers for Medicare & Medicaid Services (CMS)

The CMS defines medical necessity under the Social Security Act as 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. Providers must document the diagnosis as well as what services or treatment options are available.

Commercial Payers 

Medical necessity can also be confusing when it comes to who is going to pay for the procedure or services. Many commercial or third-party payers have specific coverage rules regarding what they consider medically necessary or have riders and exclusions for specific procedures. Commercial payers may have a specific exclusion for procedures that they consider experimental, unproven for a specific diagnosis, or cosmetic. Even if a particular procedure or service is considered medically necessary, some payers impose limits on how many times a provider may render a specific service within a specified time frame. For Medicare and Medicaid, these limitations are known as National Coverage Determinations (NCD) and Local Coverage Determination (LCD). Private payers may simply refer to this type of limitation as a policy guideline or policy exclusion or rider.

Documenting Medical Necessity

Physicians should be able to explain the rationale for their treatment, demonstrating that procedure necessity equals medical necessity. Consistent use of correct/appropriate/specific diagnosis coding is critical. Many diagnosis codes are not specific enough in themselves. Understanding and determining medical necessity can be very complex for coders and billers. While documenting medical necessity follow basic tips like telling a story; not assuming a level of knowledge at the claim review level, and not relying on diagnosis documentation alone. Always review payer policies and document in their terms. 

Note that, a physician might have a completely different understanding, interpretation, and definition of medical necessity than the patient or a patient’s family member. A commercial payer may also have another completely different understanding and application of the term. Medical necessity continues to be open for interpretation by all parties involved. Many commercial payers have created lists of criteria they use to interpret medical necessity. These lists do not necessarily reflect all options, but payers include this reference in their policy guidelines. Most providers have not developed a comprehensive listing of medically necessary qualifiers, so coders and clinicians must focus on good documentation and coding accuracy to communicate the medical necessity of services accurately to payers. 

Justifying Medical Necessity

Commercial payers employ a wide spectrum of policies defining what medical necessity is and should encompass. Physicians and coders should review what these payers have established within their guidelines. Someone within the provider’s office, hospital, or medical facility should thoroughly scrutinize these guidelines before establishing a contractual relationship with a particular third-party payer. This up-front communication will help avoid claim denials in the future.

You can refer following as general guidelines for justifying medical necessity:

  • Treatment is consistent with the symptoms or diagnosis of the illness, injury, or symptoms under review by the provider of care. 
  • Treatment is necessary and consistent with generally accepted professional medical standards (i.e., not experimental or investigational). 
  • Treatment is not furnished primarily for the convenience of the patient, the attending provider, or other provider or supplier. 
  • Treatment is furnished at the most appropriate level that can be provided safely and effectively to the patient and is neither more or less than what the patient is requiring at that specific point in time. 
  • The disbursement of medical care and/or treatment must not be related to the patient’s or the third-party payer’s monetary status or benefit. 
  • Documentation of all medical care should accurately reflect the need for and outcome of the treatment. 
  • Treatment or medical services deemed to be medically necessary by the provider of those services,(e.g., dentist, therapist, clinician, etc.) does not imply or infer that the service(s) provided will be covered by or deemed medically necessary service payable by a third-party insurance payer.

Always remember the basic formula of documentation, ‘if not documented, it didn’t happen.’ Take care to avoid carrying forward non-pertinent information from past to current notes. Most payers will not accept documentation that appears to be carried over from prior visits or another patient’s notes. 

For justifying medical necessity, providers must understand the complex relationships between the patient, the medical record documentation, the coder, the biller, the insurance payer, and the communication between all of these entities. Medical Billers and Coders (MBC) is a leading medical billing company providing complete medical billing and coding services.

We shared this article for the sole purpose of provider education, as mentioned above, you can refer to payer-specific documentation guidelines for justifying medical necessity. If you need any assistance in medical billing and coding for your practice, email us at: or call us at: 888-357-3226.

Published By - Medical Billers and Coders
Published Date - Nov-18-2022 Back

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