Skip to main content

Understanding Medical Necessity to Prevent Claim Denials

July 27, 2021

Common Denial CodesOne of the key ways to protect your practice revenue is to avoid claim denials. While medical billing claims may be denied for various reasons, denials due to a lack of medical necessity — often called hard a hard denial — are quite common. Fully understanding medical necessity is a critical part of preventing denials that cost your practice.

Payers use specific criteria to decide whether services offered to patients are medically necessary. In most cases, payers don’t reimburse for treatments, prescriptions, or procedures that don’t meet the criteria for being medically necessary. Here’s a closer look at what your practice needs to know.

How is Medical Necessity Determined?

Evidence-based criteria designed by the Centers for Medicare & Medicaid Services (CMS), Interqual, or Milliman are generally used by auditing agencies, insurance providers, and hospitals to determine medical necessity. These criteria are used to help control medical costs by determining whether an item, service, or inpatient stay is medically necessary. These criteria haven’t been designed to replace the professional opinions of providers, and physicians do have the ability to ask for peer-to-peer reviews, which can help overturn “medical necessity” denials.

One good definition of medical necessity comes from Cigna. Their definition refers to services that physicians using clinical judgment would offer to patients, and those services have to be for diagnosing, treating, or evaluating a disease, injury, illness, or the symptoms of those problems. Cigna also mentions that services should be appropriate clinically in site, extend, duration, and frequency.

Medical and Medical Necessity

Medicare Administrative Contractors (MACs) are permitted by CMS to decide whether services offered to Medicare beneficiaries are medically necessary.  The criteria MACs use to decide if services or items are medically necessary include:

  • It’s not investigational or experimental
  • It’s effective and safe
  • It’s appropriate when
    • Ordered and provided by qualified personnel
    • Provided in accordance with medical practice accepted standards
    • Meets medical needs of a patient
    • Provided in a setting that’s appropriate to the condition and patient’s medical needs

Diagnosis Drives Medical Necessity

From the payer’s perspective, one of the key criteria driving medical necessity is a patient’s diagnosis. Medical necessity gets determined by providers based upon medical data that’s evidence-based. The data may be used to request more testing to diagnose a condition or to order more procedures to treat that condition.

From the perspective of payers, medical necessity is determined by clinical conditions and diagnosis codes. When preapprovals are required, submitting the procedure to be performed and the patient’s diagnosis is essential. Providers also need to offer the severity of the patient’s diagnosis, any interventions or previous diagnostic studies, and the risk of not doing the ordered procedure.

When it comes to medical necessity, providers, billers, and coders all need to be on the same page.

Importance of Prior Authorization

According to America’s Health Insurance Plans, prior authorization is a specific process a provider follows to request authorization or approval from a health plan for the patient before providing a service or treatment in order for it to be covered by the patient’s health plan. This allows payers to ensure care is medically necessary and helps prevent the misuse or overuse of services and treatments.

Some of the additional purposes of using prior authorization include:

  • Ensuring services and medications are used appropriately and to ensure they won’t interfere with other conditions or medications.
  • Making sure that providers stick to care criteria that are nationally recognized. For example, ensuring that a physician prescribes opioids in a way that’s consistent with current federal guidelines.
  • Ensure that medicines are co-prescribed with other medications that may result in interactions.
  • Promoting dialogue with providers to ensure they offer patient-focused treatments to boost adherence and improve outcomes.
  • Makes sure that devices or drugs are only used for federally approved clinical indications or those medical evidence supports.

Tips to Ensure Your Practice Meets Medical Necessity Criteria

Several tips can help your practice ensure they are meeting payer guidelines and showing medical necessity, including:

  • Make sure documentation is complete
  • Documentation must support the billed services and validate the medical necessity for the treatment/care provided.
  • Patient progress and response to treatment should be documented by providers.
  • If patients fail to comply, it needs to be noted in the patient record.
  • Diagnose codes must be correct. The diagnosis codes are part of the supporting evidence to show medical necessity.

Providers must take care to not just establish medical necessity, but to validate it clinically. This involves providing the right documentation, processes, and procedures when filing claims. Providers, and their medical billing and coding staff, must be informed on medical necessity requirements and work to follow them to close gaps in the revenue cycle that may open their practice up to denials.

At, we specialize in medical billing and coding, helping practices like yours ensure they prevent claim denials. If you’re concerned about denials or improving your practice revenue, contact today to find out how we can help you.


Get the Latest RCM News Delivered

Receive practical tips on medical billing and breaking news on RCM in your inbox.

Get in Touch