Medical necessity review

What Is Medical Necessity Review?

Medical necessity review is a critical process within Healthcare Finance where healthcare services, treatments, or procedures are evaluated to determine if they are appropriate and essential for a patient's medical condition. This review ensures that care provided is evidence-based, meets accepted medical standards, and is not primarily for convenience or experimental purposes. Both public and private health insurance providers conduct a medical necessity review to decide if a service will be covered, influencing reimbursement for healthcare providers and ultimately affecting overall healthcare costs. The process serves as a form of risk management for payers, aiming to control expenditures and prevent the overutilization of healthcare resources.

History and Origin

The concept of medical necessity has deep roots in the evolution of health insurance and efforts to manage burgeoning healthcare expenditures. Early forms of health coverage in the United States, often emerging from benevolent societies and employer groups, focused on providing affordable access to care. However, as the complexity and cost of medical services grew, particularly in the mid-20th century with the expansion of private health insurance and the introduction of government programs like Medicare and Medicaid in the 1960s, a more formal mechanism for cost control became necessary.²⁴, ²⁵

Utilization review, which encompasses medical necessity review, was introduced in the 1960s to identify waste and reduce the overutilization of healthcare resources.²³ This period saw the rise of managed care organizations that began to implement systematic reviews to ensure services were appropriate and justifiable. The establishment of entities like the Professional Standards Review Organizations in the 1970s, supported by the federal government, further formalized the oversight of medical necessity within government healthcare programs.²² This historical trajectory highlights how medical necessity review became an integral component of the healthcare system, evolving alongside its financial and administrative structures to balance quality of care with cost containment.

Key Takeaways

Medical necessity review assesses if a healthcare service is appropriate and essential for a patient's condition, aligning with accepted medical standards.
It is a core component of healthcare finance and insurance claims processing, influencing coverage decisions and provider reimbursement.
The review aims to control healthcare costs by preventing the overutilization of unnecessary or experimental services.
Determinations consider clinical guidelines, the patient's specific needs, and often the cost-effectiveness of the treatment.
Disputes over medical necessity can arise between patients, providers, and payers, sometimes leading to appeals.

Interpreting the Medical Necessity Review

Interpreting a medical necessity review involves understanding the criteria applied by payers and the documentation required from healthcare providers. A favorable review indicates that the proposed or rendered service meets the payer's guidelines for being "medically necessary." These guidelines typically stipulate that the service must be proper and needed for diagnosis or treatment, provided for direct care, meet accepted standards of medical practice, and not be primarily for convenience.²¹

Conversely, an unfavorable medical necessity review, often resulting in a denial of coverage, suggests that the service did not meet one or more of these criteria. This could be due to a perceived lack of clinical appropriateness, the availability of a less expensive yet equally effective alternative, or a determination that the service is experimental or investigational. Providers must ensure thorough documentation, adhering to established compliance standards, to support the medical necessity of their services. Patients, in turn, may need to engage in patient advocacy to challenge denials, often through an appeals process that might involve external, independent reviews.

Hypothetical Example

Consider a patient, Sarah, who experiences persistent knee pain after a minor injury. Her orthopedic surgeon recommends a specific, advanced magnetic resonance imaging (MRI) scan to investigate the extent of ligament damage. Before the scan can proceed, Sarah's health insurance company initiates a medical necessity review.

The insurance company's review team, often composed of medical professionals, examines the surgeon's documentation. They assess if the symptoms described, the preliminary examination findings, and Sarah's medical history justify such an advanced and costly diagnostic procedure. Their internal guidelines may suggest that standard X-rays and a period of physical therapy should be attempted first, as a form of cost-benefit analysis, unless there are clear indicators of severe or complex injury.

If the surgeon's notes clearly detail severe instability or other red flag symptoms that bypass the need for less invasive steps, the medical necessity review will likely approve the MRI. However, if the documentation is insufficient or if the case appears to fall within parameters where a less intensive approach is typically effective, the review might deem the advanced MRI not medically necessary at that stage, leading to a denial of coverage. Sarah would then be informed that the premium she pays may not cover this specific procedure without further justification or alternative steps.

Practical Applications

Medical necessity review is a pervasive practice across various facets of the healthcare and financial industries. In the context of underwriting health insurance policies, understanding what services are deemed medically necessary informs the pricing of coverage and the structure of benefits. For patients, medical necessity directly impacts their out-of-pocket maximum and the services for which they may owe a deductible or coinsurance. Insurers use the review process to determine if a service or supply is needed to diagnose or treat an illness, injury, condition, disease, or its symptoms, and if it meets accepted standards of medicine.²⁰ This is particularly relevant for government programs such as Medicare and Medicaid, where specific federal guidelines, like those outlined by HealthCare.gov, define what constitutes medically necessary care for beneficiaries.¹⁹

For healthcare providers, medical necessity review dictates much of their reimbursement and practice. Hospitals and clinics must ensure that their billing and documentation align with medical necessity criteria to avoid claim denials, which can significantly impact their revenue. The process also plays a role in the transition from traditional fee-for-service models to value-based care, emphasizing that care provided is both effective and appropriate.¹⁸ The broad application of medical necessity review underscores its foundational role in managing healthcare system efficiency and financial viability.

Limitations and Criticisms

While designed to ensure appropriate care and control costs, medical necessity review faces several limitations and criticisms. A primary concern is the inherent subjectivity in determining what is "medically necessary." Interpretations can vary among healthcare professionals, insurance companies, and even within different departments of the same organization.¹⁷ This variability can lead to inconsistent coverage decisions and disputes.

Patients may experience significant financial burdens and delayed access to care if a service they or their physician believe is essential is denied coverage due to a medical necessity review.¹⁶ This can put patients in a difficult position, forcing them to choose between incurring substantial personal expense or foregoing potentially vital treatment. Physicians also voice concerns regarding the potential for medical necessity reviews to interfere with clinical judgment and the physician-patient relationship. Some critics argue that the review process, particularly when conducted by individuals without direct patient knowledge, can be overly bureaucratic and may prioritize cost savings over optimal patient outcomes. Legal challenges have arisen, with cases like Rush Prudential HMO, Inc. v. Moran reaching the U.S. Supreme Court, highlighting the conflicts between state laws allowing independent review of medical necessity denials and federal regulations governing health plans. These criticisms underscore the ongoing tension between healthcare cost containment and ensuring equitable and timely patient access to care.

Medical Necessity Review vs. Prior Authorization

While closely related and often conflated, medical necessity review and prior authorization are distinct concepts in healthcare finance. Medical necessity review is the evaluation itself—the process of determining whether a requested or provided healthcare service meets the established criteria for being essential and appropriate for a patient's condition. It is the judgment applied to the clinical information.

Prior authorization, on the other hand, is an administrative process that often incorporates a medical necessity review. It is a requirement by many insurance plans that a healthcare provider obtain approval from the payer before rendering certain services, procedures, or prescribing specific medications. While a prior authorization request will almost always trigger a medical necessity review, not every medical necessity review requires prior authorization. For example, a retrospective review of claims after services have been rendered is a medical necessity review that occurs without prior authorization. The confusion often arises because a denial of prior authorization is frequently rooted in a determination that the service lacks medical necessity.

FAQs

Who performs a medical necessity review?

Medical necessity reviews are typically performed by healthcare professionals employed by or contracted with health insurance companies and government payers. These reviewers, often nurses or physicians, assess clinical documentation against established medical guidelines and internal criteria.

What happens if a service is deemed not medically necessary?

If a service is deemed not medically necessary, the insurance company may deny coverage for that service. This means the patient would be responsible for the full cost of the treatment or procedure, potentially impacting their out-of-pocket maximum. Patients usually have the right to appeal these denials.

Are medical necessity guidelines standardized across all insurers?

No, medical necessity guidelines can vary significantly among different insurance companies and even between different plans offered by the same insurer. While many align with general medical standards and some government benchmarks, each payer often develops its own specific criteria. This lack of universal standardization can lead to challenges for both providers and patients.

Can a physician override a medical necessity denial?

A physician cannot directly "override" a medical necessity denial, but they can appeal the decision. This often involves submitting additional documentation, providing more detailed clinical rationale, or participating in a peer-to-peer discussion with the insurance reviewer to advocate for the patient's care. The appeals process is a formal mechanism for challenging adverse determinations.

How does medical necessity review impact healthcare innovation?

Medical necessity review can indirectly impact healthcare innovation. Services or technologies considered "experimental" or "investigational" are often deemed not medically necessary and therefore not covered, which can slow the adoption of new treatments until sufficient evidence of their safety and effectiveness is established and widely accepted. This process aims to ensure that new treatments are proven beneficial before widespread reimbursement occurs.

References

Xsolis. The Utilization Management Process and the Origins of Medical Necessity.
HealthCare.gov. Medically necessary - Glossary.
BHM Healthcare Solutions. Navigating Medical Necessity Reviews.
BHM Healthcare Solutions. 5 Issues Associated with Medical Necessity. (Self-correction: Used a link from the search output that I should have converted. I will use a different BHM link for limitations if available or point to the first BHM link. Re-evaluating. I have two BHM links available. The first BHM link https://bhmsolutions.com/navigating-medical-necessity-reviews/ covers general controversies. The second https://bhmsolutions.com/5-issues-associated-with-medical-necessity/ focuses more on criticisms. I will use the second one as it is more specific to "Limitations and Criticisms.")
Self-correction: My external links list was:
1. History/Origin: https://xsolis.com/blog/the-utilization-management-process-and-the-origins-of-medical-necessity/ (Xsolis) - Used in History section as.
  ¹⁵ 2. Practical Applications: https://www.healthcare.gov/glossary/medically-necessary/ (HealthCare.gov) - Used in Practical Applications as.
  ¹⁴ 3. Limitations/Criticisms: https://journalofethics.ama-assn.org/article/conflicting-views-medical-necessity-moran-case/2002/09 (AMA Journal of Ethics) - Used in Limitations section as.
2. Additional: https://bhmsolutions.com/navigating-medical-necessity-reviews/ (BHM Healthcare Solutions) - Used in Practical Applications as.
  ¹³
  The citations in the article for "Limitations and Criticisms" section are currently referencing a¹²nd.
  Citation (¹¹from BHM Healthcare Solutions) and Citation (from AMA Journal of Ethics) look correct per my external link plan.
AMA Journal of Ethics. Conflicting Views of Medical Necessity: The Moran Case.¹ ² ³ ⁴ ⁵ ⁶ ⁷ ⁸ ⁹, ¹⁰