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The Changing Definition of Medical Necessity

(July 16, 2014): The term “medical necessity” has varying definitions depending on who is using it. Providers, physicians, courts, private insurers, state governments, and the federal government all have their own interpretation of what constitutes medical necessity.  This changing definition of medical necessity can be problematic when a provider’s claims are audited by a Zone Program Integrity Contractor (ZPIC) or another program integrity contractor working for the Centers for Medicare and Medicaid Services (CMS).

I. Definition of Medical Necessity Under the Social Security Act:

The Social Security Act authorizes payment only for medically reasonable and necessary care. It imposes criminal and civil liability for filing claims that are medically unnecessary. Medicare regulations do not specifically define medical necessity, but rather characterize the concept as providing adequate care according to the practices of the medical community.

II. Definition of Medical Necessity Under the Texas Administrative Code:

The Texas Administrative Code has separate definitions of medical necessity for different age groups and services. For example, for Texas Medicaid members under the age of 20, the following services are considered medically necessary:

  • “…screening, vision, dental, and hearing services; and
  • other health care services or dental services that are necessary to correct or ameliorate a defect or physical or mental illness or condition…”

The Texas definition also states that medical necessity for children may take into account other factors relevant in the state’s adult medical necessity definition.

III. Case Law Holdings Defining Medical Necessity:

Courts have not been consistent in interpreting medical necessity. Although some have held that the sole responsibility for determining medical necessity should be placed in a patient’s physician’s hands, other courts have held that medical necessity is just a contractual term in which a patient’s physician must prove that a procedure is medically appropriate and worthwhile.

The U.S. District Court for the Western Division of Tennessee defined medical necessary as a treatment that is commonly and customarily recognized as standards of good practice, appropriate and consistent with the diagnosis or treatment of an illness or injury, and an appropriate supply or level of service that can safely be provided. 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 signed a settlement agreement  in which Aetna agreed that medically necessary care is “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.”

IV.  The American Medical Association’s Definition of Medical Necessity:

The American Medical Association (AMA) defines medical necessity as: “Health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is:

a)      in accordance with generally accepted standards of medical practice;

b)      clinically appropriate in terms of type, frequency, extent, site, and duration; and

c)      not primarily for the economic benefit of the health plans and purchasers or for the convenience of the patient, treating physician, or other health care provider.”

V.  Final Remarks:

As is evidenced by these varying definitions, the way the term medical necessity is used comes down to who is using it and for what purpose. Providers generally use medical necessity as a reason to deny access to care. This sometimes arises where there are patients with unique or special health care needs. Healthcare advocates use medical necessity in conjunction with the concept of a standard of care to ensure the necessary treatments are provided.

Inconsistencies in the definition and application of the term medical necessity make it difficult for consumers and providers to determine 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. It is important for providers to clearly define medical necessity to eliminate ambiguity.

Healthcare LawyerRobert W. Liles, Esq., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law.  Liles Parker attorneys represent health care providers around the country in connection with both regulatory and transactional legal projects. For a free consultation, call Robert at: 1 (800) 475-1906.

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