How to determine if something is medically necessary?


Editorial team Published on

Medical necessity is determined by how well a healthcare provider's clinical judgment and patient documentation align with an insurance payer's established coverage rules and evidence-based medical standards.

Core Criteria

To be considered medically necessary, a healthcare service, item, or treatment must meet these baseline rules according to organizations like the American Medical Association (AMA):

  • Diagnostic or therapeutic value: It is needed to prevent, evaluate, diagnose, or treat an illness, injury, disease, or its symptoms.
  • Accepted standards: It follows generally accepted standards of medical practice and evidence-based guidelines.
  • Appropriateness: It is not experimental, purely cosmetic, or done primarily for the convenience of the patient or provider.
  • Proper setting: It is provided in the most appropriate and cost-effective care setting (such as an outpatient clinic instead of an inpatient hospital).

The Evaluation Process

Medical necessity is evaluated by healthcare providers and insurance payers through specific review stages:

  • Clinical Assessment: The treating doctor uses medical training and patient records to decide what care is needed, often submitting a Letter of Medical Necessity or clinical notes.
  • Payer Review Policies: Insurance companies and programs like Medicare compare the submitted treatment against their own internal medical policies and coding requirements.
  • Timing of Reviews:
    • Precertification (Prior Authorization): Done before care is delivered to approve coverage.
    • Concurrent Review: Done during ongoing treatment (like a hospital stay) to confirm continued necessity.
    • Retrospective Review: Done after services are provided to validate a claim before final payment.

Role of Billing and Coding

Payers validate medical necessity using a match between diagnosis codes (such as ICD-10) and procedure codes (such as CPT). If the diagnosis code does not justify the specific procedure—or if documentation is missing or vague—the insurer may deny the claim. If a claim is denied, providers or patients have the right to submit an appeal with additional clinical documentation.