Demystifying Medical Necessity

When faced with so many options in the health insurance market or from your employer, how do you make the right plan choice? In this episode, we break down the essentials and take you step by step through the decision process. You can read the 50 pages of material from the carriers…or go through the 5 pages we will share with you here.
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Episode In Depth

What It is and What Does It Mean for Medical Claims

One of the most common reasons for a health plan denying a medical service is that it’s not determined to be “medically necessary.” The confusion about this type of denial is that your healthcare professional ordered the test, prescribed the medicine, recommended the procedure or treatment, so why is it not medically necessary?

Well, the answer is a bit complicated. Health plans include language in their Evidence of Coverage (EOC) that states what they will pay and why. This includes any treatments, tests, or procedures they determine are required to treat or diagnose a particular medical problem, or to restore your health if you have a medical condition that your healthcare professional has diagnosed. If you have Medicare, for example, their definition of medical necessity is: “Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice.

It’s important to know that just because a health plan says that something is covered, there still can be additional costs: copayments, deductibles, percentages. But our focus is on services for which they don’t allow OR pay those services that are deemed not medically necessary. Cosmetic surgery is one of the more common examples of denials. Facelifts, injections of Botox for facial wrinkles, and “nose jobs” to improve your appearance will typically not be covered for payment. However, some cosmetic procedures that restore function or appearance – like breast reconstruction after cancer surgery, reconstruction after an injury, or repair of a congenital defect like a cleft palate, are in fact covered expenses.

Let’s dive into what medical necessity is. It’s important to know that there’s not one standard set of criteria that’s used between private health plans and Medicare. Medicare may set a standard for approval when they do approve something that other health plans have not. Also, each health plan has the leeway to set their criteria. There are also state and federal requirements for coverage like under the Affordable Care Act or the ACA, commonly called “Obamacare.” Under this act, so-called “essential health benefits” are mandated to be covered. Examples include preventive care for which there can be no cost-sharing. Cancer prevention is a good example where screening colonoscopy including removal of any polyps if found during the course of this procedure is covered – again with no cost-sharing. Mammograms for screening purposes are another example. Other screening tests, such as HIV, STDS, hepatitis B, and many other immunizations have mandates for coverage.

However, it’s not a “free-for-all.” There are limits and exclusions related to whether a person is high risk or not, what age bands are included, and in some instances, gender. All of these aren’t pulled out of a hat. Health Plans and Medicare rely on decisions made by credible organizations like the United States Preventive Services Task Force, Advisory Committee on Immunization Practices, and the Health Resources and Services Administration. You can find all of the services that fall into the mandated coverage category by visiting Note that coverages and guidelines for coverage are a moving target – they change over time.

Also, if you get a routine screening, which is covered in full, but they find something and require another identical test, the second test will be covered – but not at 100%

Health Plans generally have committees that constantly review medical treatments, drugs, and surgical procedures since advances in medicine occur nearly daily. These committees meet on a regular schedule and are tasked with keeping up with the latest literature – reviewing peer reviewed studies – to make their determinations. Once determinations are made, they are included in the health plan’s Medical Policy Guidelines. The Chief Medical Officer or CMO of each health plan and their individual medical directors under the CMO are required to follow the determinations in the medical policy guidelines. So, if a plan member undergoes a treatment, has a procedure, or takes a drug that is excluded in the plan’s medical policy guidelines, a letter of denial is issued. That letter might include language that states that the denial is due to not meeting medical necessity guidelines, or that the treatment, procedure, or medicine was considered to be investigational or experimental.

There are other situations where medical necessity plays a role. Sometimes, a patient may want to remain in the hospital for a bit longer because of how they feel but the health plan or Medicare states otherwise – that it’s not medically necessary to remain. So-called length of stay guidelines are used when such decisions are made. Often, in defense of the health plan, a patient will recover more safely and comfortably at home than in the hospital. That’s because remaining in the hospital can expose you to possible medical errors – like getting the wrong medicine, or the wrong dose, or exposure to germs that can be difficult to treat since they’re resistant to many of our existing antibiotics. If you end up going to a hospital or an emergency room for treatment when a less expensive alternative may be available, or without calling the insurance carrier for approval, you may be issued a denial. That’s why it’s always important to check your policy to see what is and is not considered to be medically necessary.

There’s another important point to be made: medical necessity includes not only treatments, but the treatment setting. This is sometimes referred to as “level of care.” So, if someone has a stroke, for example, and the acute needs during a hospitalization have been met like getting a patient up and about and eating, and the vital signs are stable, a patient may be placed into what’s considered to be a “lower level of care” – a skilled nursing unit – where additional rehabilitation services can be given. This is not only a better place for a patient, but it’s more appropriate since the medical service aspects have been addressed and only the rehabilitation services are now necessary.

In the case of drugs, a listed “formulary” tells you what drugs are covered. This “drug list” may also show you when a proven safe generic alternative may be available, which is always at a lower cost. there are guidelines called formularies which tell you what drugs are covered.

The reason why health plans use formularies is to encourage use of medications that are found to be safe, effective, and are affordable. That’s why generic drugs are often first recommended by your treating healthcare professional since they meet these requirements. Health plans routinely review new drugs as they come out on the market to be sure that these standards are met. Like the Medical Policy committee, there is a Pharmacy and Therapeutics committee that also meets regularly to review all the data about these new drugs.

These committees, however, have gone a step further. In some cases, when multiple drug brands can be recommended, the carrier will require you use certain brands first, and only if they fail will they approve another, which may be the one your physician initially recommended.

Here’s another example of a denial for not meeting medical necessity guidelines: Your healthcare professional prescribed a new “wonder drug” for you and you get a denial. Why did that happen when this drug, according to the TV add, gets rid of high blood pressure, heart disease, and lung disease all at the same time? In the fine print, there are a lot of warnings. Well, in some instances, you would have had to try other drugs first – called “step therapy,” and only if they failed to improve your medical condition, the denied drug can be approved.

We hope you now have a better understanding of medical necessity – what it is, how its defined, the different types, reasons, circumstances for denials. As we have said in our previous podcast, don’t be frustrated and give up. Don’t be denied. Use the tools we at Medical Appeal Denial Experts and others provide.