What is the correct term used to determine if a procedure is covered in medically necessary?

By Morris A. Landau, J.D., M.H.A., LL.M. Candidate

Access to health services in both managed care plans and in government health care programs can depend in part on the medical necessity of a service provided. The definition of the term medical necessity varies depending upon whether the term is being used by providers, physicians, courts, government insurers, private insurers, or consumers.

From the providers� point of view, medical necessity is used by managed care plans as a rationing tool to deny access to necessary care, especially to those patients with special health care needs. From the federal government�s point of view, the Medicare and Medicaid statutes authorize payment only for medically necessary care and impose criminal and civil liability for filing claims that are "medically unnecessary."

The Office of Inspector General at the Department of Health and Human Services (DHHS) in its draft compliance program for Individual and Small Group Physician Practices states that "Medicare (and many insurance plans) may deny payment for a service that the physician believes is clinically appropriate, but which is not reasonable and necessary." See http://www.hhs.gov/oig. To distinguish between "clinically appropriate" and "medically necessary" care is a very fine line.

Even, the courts have not been consistent in interpreting medical necessity. Although some courts have held that the sole responsibility for determining medical necessity should be placed in the patient�s physician�s hands, other courts have held that medical necessity is strictly a contractual term in which a patient�s physician must prove that a procedure is medically appropriate and efficacious. One U.S. District Court defined as medical necessary a treatment that is commonly recommended, or not outside the mainstream of the usual customary practice of medicine, or meets the common standard of care. Whitehead v. Federal Express Corp., 878 F. Supp. 1066 (W.D. Tenn. 1994).

In April 2000, the State of Texas and Aetna U.S. Healthcare entered into a settlement agreement concerning alleged violations by Aetna of the Texas� Deceptive Trade Practices Act. See http://www.oag.state.tx.us/notice/avc_fin1.pdf. In the settlement agreement, Aetna agreed that medically necessary care was to be defined as "health services and supplies that under the applicable standard of care are appropriate: (a) to improve or preserve health, life, or function; or (b) to slow the deterioration of health, life, or function; or (c) for the early screening, prevention, evaluation, diagnosis or treatment of a disease, condition, illness or injury." Included in this definition is the cost effectiveness of services and supplies. A treatment is cost effective if it is the least expensive medically necessary treatment selected from two or more treatments that are "equally effective."

In a Health Affairs article entitled "Medical Necessity: Do We Need It?," Linda Bergthold states that there is little consistency among insurance plans in the ways they define and interpret medical necessity. She cited a U.S. General Accounting Office (GAO) study, which revealed substantial variation in denial rates for lack of medical necessity. See http://www.projhope.org/HA/. In the New England Journal of Medicine in a January 1999 article entitled "Who Should Determine When Health Care Is Medically Necessary?" Sara Rosenbaum argues that decisions about coverage should be weighed against clinically accepted standards of medical practice and that the insurer�s decision should be lawful only if the insurer can prove the decision rests on valid and reliable evidence. See http://www.nejm.org.

The Maternal and Child Health Bureau at the DHHS published a report entitled Defining Medical Necessity. In that report, it developed criteria for evaluating definitions of medical necessity. See http://www.jhsph.edu/centers/cshcn. The report recommended that the definition should: 1) incorporate appropriate outcomes within a developmental framework; 2) explicitly address the information needed in the decision-making process; 3) identify who will participate in the decision making process; 4) refer to specific standards; and 5) support flexibility in the sites of service delivery.

With the inconsistent definitions of medical necessity, providers and consumers are left uncertain about whether a particular medical service will be covered by their health plan and whether their health plan will pay for medical services that have been rendered. This uncertainty creates is major flaw in our health care system. The fundamental issue of medical necessity must be addressed in order to bring about meaningful change in our health care system. Medical Necessity must be debated in order to develop a health care policy for the 21st century. A comprehensive approach should be taken to define medical necessity that is clear, uniformly applied to all segments of our health care system, and most of all, distinguishable from third party payor rationing.

11/29/00

What is the process to determine if a covered medical service is medically necessary?

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