Jane Dotson
When it comes to insurance reimbursement, the term medically necessary is crucial in determining whether an individual's health plan will cover the cost of a particular treatment, test, or procedure. Medically necessary refers to a determination by an insurance company that a specific healthcare service, item, or supply is required to diagnose, treat, or manage a medical condition or its symptoms. This means that the service must meet accepted standards of medicine and be deemed appropriate and effective for the patient's specific needs. While Medicare and private insurers have their own criteria for defining medical necessity, all plans generally require that a service be deemed medically necessary for coverage, although this does not guarantee full payment by the insurer.
| Characteristics | Values |
|---|---|
| Definition | Health-care services or supplies needed to diagnose or treat an illness, injury, condition, or disease and its symptoms, and that meet accepted standards of medicine. |
| Decision-making | The decision is made by the health insurance plan. |
| Coverage | Insurance companies provide coverage for care, items, and services deemed "medically necessary." |
| Medicare | Medicare defines medical necessity 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. |
| Private Insurers | Private insurers set their own criteria for non-Medicare plans, which may vary from Medicare's criteria, but they must comply with state and federal benefit mandates. |
| State Variation | States determine the services covered for each essential health benefit, leading to variations in specific services covered across different states. |
| Medicaid | Medicaid and other payers have specific guidelines for what is considered medically necessary for certain items, procedures, and/or services. |
| Cosmetic Procedures | Cosmetic procedures, such as Botox or tummy-tuck surgery, are generally not covered unless they are done for restorative purposes, such as breast reconstruction after a mastectomy or plastic surgery after an injury. |
| Experimental Procedures | Insurance companies typically do not cover procedures deemed experimental or unproven. |
| Pre-authorization | Pre-authorization is often used to determine if a service is medically necessary. |
| Appeals | Health plans have appeals processes that allow patients and healthcare providers to appeal if a pre-authorization request or claim is denied. The Affordable Care Act (ACA) guarantees the right to an external review if the appeal is unsuccessful. |
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What You'll Learn
Medically necessary vs. cosmetic procedures
Whether a procedure is deemed medically necessary or cosmetic can determine whether it is covered by insurance. Health insurance plans provide coverage only for services that they consider to be medically necessary. This means that a treatment, test, or procedure is necessary to maintain or restore health or to treat a diagnosed medical problem.
Most health plans will not pay for healthcare services that they deem to be unnecessary. Cosmetic procedures, such as Botox injections or tummy tucks, are the most common examples of procedures that are not covered by insurance. However, "cosmetic" procedures done for restorative purposes are generally covered by health insurance. For instance, breast reconstruction after a mastectomy, plastic surgery after an injury, or the repair of congenital defects such as a cleft palate.
The distinction between medically necessary and cosmetic procedures is not always clear-cut, and it can vary between different insurance providers. For example, hair transplants performed to correct male pattern baldness or age-related hair thinning in women are considered cosmetic by Aetna, whereas hair transplants to correct permanent hair loss caused by disease or injury are deemed medically necessary. Similarly, dental treatments can be classified as either medically necessary or cosmetic. Full-mouth reconstruction, which may involve replacing multiple teeth and addressing issues such as dental decay and periodontal disease, is considered medically necessary. On the other hand, a complete smile makeover, which may include adjusting tooth length and proportions and changing tooth texture, is classified as a cosmetic procedure.
Some argue that insurance companies' priorities on what they will pay for do not necessarily align with what can make a real difference in people's lives. For example, a dermatologist may recommend removing a benign skin tag to improve a patient's quality of life, but insurance companies may deem this cosmetic and refuse to pay for it. While insurance companies have protocols in place to determine medical necessity, patients and healthcare providers can appeal if a claim is denied.
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Experimental procedures
The definition of "medically necessary" varies depending on the health insurance plan and the patient's circumstances. Generally, a treatment, test, or procedure is deemed medically necessary if it is necessary to maintain, restore, or treat a diagnosed medical problem.
Most health insurance plans do not cover treatments they deem experimental or investigational. This is because insurance is designed and priced to cover the cost of proven treatments, and there is a risk that an experimental treatment will be unsafe or not cost-effective. However, the definition of "experimental" is not always clear, and there is often room for interpretation.
For example, a treatment may be considered experimental if it has not been proven to be more effective than other previously-developed drugs or treatments. This could include drugs that have not yet been approved by the relevant authorities, such as the U.S. Food and Drug Administration (FDA), or medical devices that are being used for a purpose other than their licensed purpose.
In some cases, a patient may be asked to sign an informed consent document stating that a treatment is experimental. In this case, it is highly unlikely that insurance will provide reimbursement. However, the treatment may be provided without charge by a pharmaceutical company or medical device manufacturer.
If a patient believes that a treatment is not experimental and has sufficient evidence to support this, they can appeal their insurer's decision. This may involve providing evidence that the treatment is safe and effective, such as journal articles, letters from their doctor, and approvals by the FDA. If the appeal is unsuccessful, litigation may be the only recourse to challenge the decision.
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Pre-authorisation and appeals processes
Pre-authorisation is a process that insurance companies use to determine medical necessity before a patient's treatment can begin. This process involves the insurance company requesting information about the patient's medical history, symptoms, test results, and previous treatments. The insurance company will then decide whether to approve or deny the request. If a request is denied, the insurance reviewer may reach out for additional information or request a "Peer-to-Peer", where a medical physician from the insurance company will talk to the patient's physician before making a final decision.
If a pre-authorisation request is rejected, patients and their healthcare providers have the right to appeal the decision through the insurance company's internal review process. This typically involves sending a letter of appeal to the insurance company, including relevant information such as the prior authorisation reference number, diagnosis, and CPT codes associated with the requested procedure. It is important to note that appeals must be made in writing and can be time-consuming. During this process, patients should maintain open communication with their physician's office and the insurance company to provide any additional information if needed.
The Affordable Care Act (ACA) has strengthened the appeals process, guaranteeing the right to an external review by an independent third party if the internal appeal is unsuccessful. This external review removes the insurance company's final say over whether to pay a claim. While there is no guarantee of a successful appeal, it is important for patients and their physicians to be aware of their right to appeal and to understand the specific processes and requirements of their insurance plan.
It is worth noting that each insurance plan may have different criteria for determining medical necessity, and it is important to understand the specific rules and requirements of your plan. Failure to comply with these rules may result in a denied claim, even if the treatment is medically necessary. Additionally, certain treatments, such as cosmetic procedures, may be deemed not medically necessary and may not be covered by insurance plans.
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State-by-state variation in the US
While there is no federal definition of "medical necessity", federal law requires states to cover "necessary healthcare, diagnostic services, treatment, and other measures" under the Early Screening and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit. This means that states can establish their own parameters for medical necessity decisions, provided they are not more restrictive than the federal statute.
In March 2021, a 50-state scan of medical necessity definitions used by state Medicaid programs for their EPSDT benefit found that all states defined medical necessity in their Medicaid programs, compared to 42 states and the District of Columbia in 2013. Generally, states define medically necessary services as those that improve health or lessen the impact of a condition, prevent a condition, or restore health. For example, services for children are covered under the EPSDT benefit if they are deemed medically necessary for the individual beneficiary.
State-specific variations also exist in the US when it comes to the specific services that are covered for each essential health benefit. For instance, Medicare uses National Coverage Determinations for some services and Local Coverage Determinations (made by local Medicare Administrative Contractors, or MACs) for other services. Private insurers that offer non-Medicare plans can set their own criteria, which may or may not mirror Medicare's criteria. However, they must provide coverage that complies with state and federal benefit mandates.
Additionally, prior authorization is often used to determine whether a service is medically necessary and, therefore, covered by insurance. This process can vary depending on the state and the insurance provider.
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The role of the physician's judgement
The role of a physician's judgement is critical in determining what constitutes "medically necessary" treatment, which is essential for insurance reimbursement. While insurance companies have their own criteria for defining medical necessity, they heavily rely on the physician's clinical judgement when deciding whether to reimburse a patient's treatment expenses.
Physicians are responsible for evaluating a patient's medical condition and recommending appropriate treatments. This involves making decisions about the type, frequency, extent, site, and duration of the treatment, as outlined by the American Medical Association (AMA). For example, a physician may recommend a specific medication or procedure based on their assessment of the patient's needs. Physicians also play a crucial role in determining the medical necessity of a service by providing documentation and supporting evidence to insurance companies. This documentation typically includes details about the patient's diagnosis, the treatment provided, and the expected outcomes.
Insurance companies often have specific guidelines and criteria for determining medical necessity, which physicians must adhere to when recommending treatments. These guidelines vary depending on the insurance company and the type of plan the patient has. For instance, Medicare and private insurers may have different criteria for deciding what constitutes medically necessary care. Additionally, some states have their own definitions of medical necessity, which further adds to the complexity of the reimbursement process.
In certain cases, insurance companies may deny reimbursement for treatments that are deemed medically necessary by the physician. This can occur if the treatment does not meet the insurance company's criteria for medical necessity or if it is considered experimental or not proven to be effective. However, patients and healthcare providers have the right to appeal these decisions through the appeals processes offered by health plans. The Affordable Care Act (ACA) also guarantees the right to an external review if the internal appeal is unsuccessful.
It is important to note that insurance companies do not always pay for everything that a physician believes is necessary. For example, routine annual health checks or screenings may not be covered by insurance plans. In such cases, patients may have to pay out-of-pocket for these services, even if they are recommended by their physician.
In conclusion, the physician's judgement plays a pivotal role in determining medical necessity and, consequently, insurance reimbursement. Physicians are responsible for making clinical decisions in the best interests of their patients, while insurance companies have their own criteria for reimbursement. By working together and adhering to established standards of medical practice, physicians and insurance providers can ensure that patients receive the necessary care they need while also managing costs effectively.
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Frequently asked questions
"Medically necessary" refers to a decision by your health plan that your treatment, test, or procedure is necessary to maintain or restore your health, prevent a condition, or treat a diagnosed medical problem.
Insurance companies provide coverage for care, items, and services that they deem to be "medically necessary". Medicare defines medical necessity as "health-care services or supplies needed to diagnose or treat an illness or injury, condition, disease, or its symptoms, and that meet accepted standards of medicine."
No, different insurance companies have different criteria for what they consider "medically necessary". For example, Medicare and private insurers have varying criteria based on the patient's circumstances. Private insurers that offer non-Medicare plans can set their own criteria, which may or may not mirror Medicare's criteria.
Cosmetic procedures, such as the injection of medications (e.g. Botox) to reduce wrinkles or tummy-tuck surgery, are generally not considered medically necessary. Many health insurance companies also do not cover procedures that they deem to be experimental or unproven.
You can appeal the decision through your health insurer's internal review process. If your appeal is unsuccessful, the Affordable Care Act (ACA) guarantees your right to an external review.
