Differentiating Between Medical Necessity and Medical Decision Making

Differentiating Between Medical Necessity and Medical Decision Making

Medical coders and physicians often confuse between terms medical necessity and medical decision making and this confusion might lead to an inaccurate selection of Evaluation and Management (E/M) codes. It’s important to understand both concepts and clear the confusion as it could result in denied payments.

Any service reported to a payer, whether it’s a surgical service, radiologic test, cast application, or evaluation and management service, it must be supported by medical necessity. For example, it would not be appropriate to perform a level 5 E/M service for a simple ankle sprain because it is simply not medically necessary. Medical necessity is typically communicated to the payer for E/M services using diagnosis codes and is not as well defined for E/M services as it is for surgical procedures.

On the other hand, medical decision-making is used to describe the amount of effort the physician must exert to decide how to treat the patient. Medical decision-making is well-defined in the evaluation and management guidelines. The Centers for Medicare & Medicaid Services (CMS) has identified history, examination, and medical decision-making as key components for selecting the appropriate level of E/M service. Medical decision-making can be complex, relying heavily on the physician’s knowledge, experience, and judgment. Let’s have a brief understanding of these concepts to how to differentiate them.

Defining Medical Necessity

Medical necessity is a term used by health insurance carriers to describe the coverage that is offered under a benefit plan. In the policy and benefits summary, the language that informs a person about what is covered under their insurance plan will generally describe benefits that are available ‘when medically necessary.’ The way any health plan defines medical necessity impacts how it decides which health care services it will pay for. Generally, health plans pay a portion of the bill for covered services that fit the definition of medical necessity. Cigna defines as, ‘Medically Necessary’ or ‘Medical Necessity’ means health care services that a physician, exercising prudent clinical judgment, would provide to a patient. The service must be:

  • For the purpose of evaluating, diagnosing, or treating an illness, injury, disease, or its symptoms
  • In accordance with the generally accepted standards of medical practice
  • Clinically appropriate, in terms of type, frequency, extent, site, and duration, and considered effective for the patient’s illness, injury, or disease
  • Not primarily for the convenience of the patient, health care provider, or other physicians or health care providers
  • Not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of that patient’s illness, injury, or disease

Medicare defines ‘medically necessary’ 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. Each state may have a definition of ‘medical necessity’ for Medicaid services within its laws or regulations. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is acceptable.

Defining Medical Decision Making

Medical decision-making involves choosing a level of service based on the documented effort the physician expends in deciding a course of treatment. As per the Office of Inspector General (OIG), physicians’ documentation must support the medical necessity and appropriateness, as well as the level, of the E/M service. Large healthcare organizations have created internal compliance policies that require medical decision-making to be a contributing component for selecting the established patient visit levels of service. This is an internal audit compliance decision and must not be confused with coding rules and code selection.

During audit services or coding services, the clinical relationship is significant and used to identify when the documentation associated with the problem, exam findings, or medical decision-making does not support the level of service reported. This is where the key component of medical decision-making and the concept of medical necessity cannot be confused. Medical necessity involves documentation that the patient’s condition actually needed the treatment.

Medical Billers and Coders (MBC) is a leading medical billing company providing complete revenue cycle services. We discussed the basics of medical necessity and medical decision-making to avoid mistakes in E/M code selection. Being a leading medical billing company, we can assist you in appropriate coding and claim submission to avoid denials and receive accurate insurance reimbursements. To know more about our complete billing and coding services, email us at: info@medicalbillersandcoders.com or call us at: 888-357-3226.