How do medical insurance carriers determine medical necessity?

Many healthcare and medical innovators want to access the self-insured employer market.?Many companies focus on this channel as a way to commercialize and drive adoption before their product is reimbursed by a health insurance plan. If your innovation is a diagnostic or treatment, you must ask: "Why doesn't the medical insurance carrier already cover this?"

The goal of this newsletter article is to help health innovators understand how health insurance companies make medical necessity determiniations..

“Why should I pay for this if it isn’t covered by the insurance company?”

In other words, If an employer’s medical insurance company doesn’t cover a diagnostic or therapeutic service, why should the employer consider buying it separately?

The answer is found in the corridor between “medical necessity” and what can be argued is genuinely “medically necessary.”?In order to prove that your product/service is medically necessary, you first need to understand the medical insurance company’s medical necessity policies for your technology.

Medical Necessity: Health Plan Clinical Policies

Medical necessity is the process for determining benefits coverage and/or provider payment for services, tests or procedures that are medically appropriate and cost-effective.?

Some policies may be developed internally, some externally. Most medical insurance companies maintain a clinical policy unit of internal and external clinical advisors that apply their own process of medical diligence which includes:?

• Regularly monitoring new treatment, technologies and indications
• Reviewing new treatments submitted for coverage
• Searching the National Library of Medicine’s PubMed database of peer-reviewed medical literature
• Assessing regulatory statutes of new technologies (e.g., FDA)
• Reviewing evidence-based clinical practice guidelines, such as the Agency for Healthcare Research and Quality’s (AHRQ) National Guideline Clearinghouse database
• Reviewing recommendations of national medical societies and their guidelines.
• Considering the indications accepted by the USP DI (United States Pharmacopeia-Drug Information) and ASHP (American Society of Health-System Pharmacists) for drug treatments
• Assessing the opinions of relevant experts where necessary.

Most employers have insurance companies, or some other plan administrator, process medical claims. These insurance companies and administrators abide by a set of clinical policies around medical necessity established by the clinical policy unit(s). These policies apply these criteria for assessing a service, test or procedure:

• Is it in accordance with generally accepted standards of medical practice?
• Is it clinically appropriate and effective?
• Is it not primarily for convenience?
• Is it not more costly than an equivalent alternative service?
• Is it endorsed or recommended by national medical societies and associations?
• The technology must have final approval from the appropriate governmental regulatory bodies, when required. FDA approval, where applicable, is necessary but not sufficient to meet coverage criteria.
• Medical insurance companies are not obligated to follow Medicare policy for their commercial members. Medicare coverage policy is often considered, however, in formulating clinical policies for commercial plans.

Medical necessity determinations arise most commonly where the service requested is subject to pre-authorization procedures.

Each policy includes:?

• Coverage rationale that includes the scope of the decisions rendered, as well as their context
• Documentation requirements for treating providers
• Definitions of terms used in the policy
• Applicable codes including CPT (medical procedures) and ICD10 (medical diagnosis) codes?
• Description of services, e.g. a more complete review of when and how the services addressed shall be treated
• Clinical evidence including a discussion of major studies, guidelines and other research used to craft the decision.
• US Food and Drug Administration status, including relevant approvals from the FDA
• Centers For Medicare And Medicaid Services status, including relevant information about what Medicare and Medicaid typically cover in the area addressed
• References e.g. a useful bibliography for healthtech companies
• Policy history/revision information e.g. a review of previous iterations of the current policy
• Instructions for use e.g. a description of how the medical insurance company administers the policy.

Depending on the type of service, some healthtech companies may directly pursue the insurance companies. In most cases, however, marketing healthtech services directly to the self-insured employer should include a rationale as to why the covering insurance company does not cover the product or service.

Key Points For Healthcare Innovators

• Health and Medical Innovator companies need to understand how health insurance companies define medical necessity in order to make the case for the solution they are bringing to the self-insured employer.
• Medical necessity defines what is covered by a health insurance plan in a general population. That definition is intended to protect the self-insured employer and its covered members from paying for medical services that are excessive, cost-inefficient, or not clinically warranted.?
• The opportunities for health care innovators looking to directly reach self-insured employers lie in making the case for the business value of the solutions offered.?