Differentiating Between Medical Necessity and Medical Decision Making

Medical Decision Making specifically refers to the complexity of establishing a diagnosis and/or selecting a management option. Medical necessity refers to the appropriateness of the service provided for a certain condition. Medical necessity determines whether the service will get reimbursed. Problems arise when MDM and medical necessity are used interchangeably, or when practices and payers define medical necessity differently.

What is Medical Necessity?

In order for any medical service to be paid, it must be medically necessary. The AMA defines medical necessity this way: ‘Health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is: (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the economic benefit of the health plans and purchasers or for the convenience of the patient, treating physician, or other health care provider.’

Neither Medicare nor the AMA nor any payer has developed guidelines that describe the medical necessity for performing a specific level of history or exam for a particular presenting problem. If a clinician documents a detailed history and a detailed exam, should a payer or coder say that that wasn’t needed? The medical necessity for ordering an EKG or CT scan of the brain is clearly listed in medical policies. If the patient is going to have a blepharoplasty, there are clear diagnostic indications to separate out cosmetic from medically necessary services.

Medical Decision Making and Documentation Guidelines

To justify an E/M code level, the history, exam, and MDM must be medically appropriate and necessary. If your clinician documents no solid evidence of medical necessity, you cannot report a higher level of service — such a claim will not be reimbursed regardless of how severe the patient’s condition is or how complicated the provider’s thought process was.

The Documentation Guidelines were developed in 1995 and 1997 as a joint work product of Medicare and the AMA. The guidelines state that for established patient visits and some other visit types two of the three key components of history, exam, and medical decision-making must be met. Neither CPT nor CMS said that medical decision-making must be one of those key components. The quote from the Medicare claims to process manual states that there must be a medical necessity for the level of service, not that medical decision-making must be one of the key components. Medical necessity is not synonymous with medical decision-making and medical decision-making should not be used as a stand-in for medical necessity.

Revenue and Compensation

Many physicians are paid based on the relative value units (RVUs) associated with a CPT code. Coders and payers that arbitrarily down code visits based on an incorrect interpretation of the guidelines cost the organization or practice money. The medical necessity for performing history and exam are determined by the nature of the presenting problem, the patient’s own personal history, and the clinical judgment of the provider.

Medical decision-making, the number of problems treated and their status, data ordered or reviewed, and the risk associated with the problem diagnostics or treatment are formulated as the outcome of the history and exam needed for that problem for that patient. Medical decision-making is the result of the history and exam and is not a substitute for medical necessity. If CMS had wanted medical decision-making to be that substitute, then the Medicare Claims Processing Manual would read, “medical decision-making is the overarching criterion in selecting an E/M service” instead of medical necessity. They base it on a quote from the Medicare claims processing manual that says that the medical necessity is the overarching criterion in selecting a level of service, not the volume of documentation. Let’s hold on to that thought.  Medical necessity is the overarching criterion.

Evaluation and management (E/M) services are the most vulnerable to billing errors because it is complicated to select the proper code for the level of service captured in the documentation. A firm grasp of the differences between medical decision making (MDM) and medical necessity can improve your claims payment rate, as well as make the external audit process much easier, should an audit occur. MDM is a key component of an E/M service, in addition to history and physical exam.


Fortify Your Understanding of Medical Necessity