Medical Necessity in Medical Billing: A complete guide

The insurance providers will not reimburse for medical procedures, treatments, or even prescriptions that don't meet their criteria for medical necessity. For successful reimbursements of your services, you must ensure that these services are medically necessary. This blog will help you understand what medical necessity is, how to determine it for your services, and the steps to take to fix claim denials related to medical necessity.

What is Medical Necessity?

Medical necessity in medical billing refers to healthcare services or products that are essential and appropriate for diagnosing or treating a patient's medical condition. Insurers, including Medicare and private insurance companies, require that the services billed are medically necessary to ensure coverage and reimbursement. Determining medical necessity involves a combination of clinical judgment, standards of practice, and payer guidelines.

Medicare defines "medical necessity" as services or items reasonable and necessary for diagnosing or treating illness or injury or improving the functioning of a malformed body member.

CMS has the power under the Social Security Act to determine whether treating a patient is reasonable and necessary on a case-by-case basis. For all payers and insurance plans, even if a service is reasonable and necessary, coverage may be limited if the service is provided more frequently than allowed under a national coverage policy, a local medical policy, or a clinically accepted standard of practice.

Medical necessity is based on several factors:

1. Diagnosis: The primary diagnosis and any secondary conditions that justify the need for treatment.
2. Clinical Guidelines: Established clinical guidelines and standards of practice relevant to the patient’s condition.
3. Severity of Symptoms: The severity and acuteness of the patient’s symptoms.
4. Prognosis: The expected outcome and potential benefit of the proposed treatment.
5. Cost-Effectiveness: Consideration of the most cost-effective approach to achieve the desired health outcome.

?Medically Necessary Services Under Original Medicare

Original Medicare is a federal healthcare program comprising Medicare Part A (hospital insurance) and Medicare Part B (medical insurance).

Let's see which services both Medicare Part A and Part B cover:?

Medicare Part A

Under Medicare Part A, you can get the following services in an inpatient setting:?

• Hospital care
• Skilled nursing facility
• Hospice care
• Home health services

Medicare Part B

Under Medicare Part B, you get outpatient services, and the medically necessary services in this setting include:?

• Wellness exams
• Preventive screenings
• Certain vaccinations, including flu shots
• X-rays
• Lab tests
• Mental health services
• Certain prescription drugs

Medically Necessary Services Under Medicare Advantage Plans

By law, Medicare Advantage plans must provide at least the same level of coverage as Original Medicare, which includes any services covered by Medicare Parts A and B deemed medically necessary (apart from hospice care).?

Individual Medicare Advantage plans, however, are also free to pay for additional services that Original Medicare does not deem medically necessary. Such services include regular dental or vision care, wellness initiatives, hearing aids, and prescription drugs under Medicare Part D.?

Medicare Advantage plans might differ significantly in the precise benefits they offer, so if you're interested in a particular treatment, always verify with the specific plan.

How to Prove Your Medical Necessity?

To get reimbursed by an insurance provider, you must prove that your services to your patients are medically necessary. Proving medical necessity involves comprehensive Documentation and adherence to clinical guidelines.

• Detailed Patient History

?You must document the patient's symptoms, medical history, and relevant family history. This information helps establish the context for the service or treatment provided. These elements must be closely related to the suggested treatment, demonstrating the necessity of that treatment.

• Physical Examination Findings

You need to record the results of a thorough physical examination, including any abnormalities or relevant observations that justify the need for the service. This will help you demonstrate strong evidence of eligibility for a medical necessity.

• Diagnostic Test Results

Healthcare providers must document their patient's diagnoses accurately and clearly. It includes describing the patient's condition, symptoms, and other relevant test results supporting the diagnosis. The Documentation should support the medical necessity of the proposed medical service or treatment and establish a direct link between the diagnosis and the need for the specific service.

• Treatment Plan

Outline a clear treatment plan that includes the rationale for the chosen interventions, therapies, or procedures.

• Progress Notes

Maintain detailed notes on the patient's response to treatment, including any changes in condition, improvement, or deterioration.

Medicare national coverage determinations (NCDs) and local coverage determinations (LCDs) dictate which diagnosis codes must be documented by clinicians to support the medical necessity of most services or supplies they provide to patients. Coders informed of these policies play an essential role in garnering uninterrupted cash flow for their clinicians.

How to Determine Criteria for Medical Necessity?

Insurance providers, hospitals, and some government auditing agencies use evidence-based criteria by the Centers for Medicare & Medicaid Services (CMS). The criteria help control costs by determining the medical necessity of the inpatient stay, service, or item. It is important to note that these criteria are not meant to replace a provider's professional opinion. A physician can request a peer-to-peer review, which may result in a denial overturning.?

Medical necessity is determined by several parties, including:

• Treating Physician: The primary responsibility lies with the treating physician, who uses clinical judgment to assess the patient's needs.
• Insurance Companies: Insurers review claims to verify that the services billed align with their medical necessity criteria, often using standardized guidelines.
• Review Professionals: These professionals, often employed by insurance companies, evaluate the appropriateness and necessity of healthcare services.

Medical Necessity Criteria Checklist

? Patient Information

• Patient's Name: Full legal name of the patient.
• Date of Birth: Patient's date of birth.
• Insurance Information: Include insurance provider, policy number, and group number.

? Diagnosis

• Primary Diagnosis: Document the primary diagnosis using ICD-10 codes.
• Secondary Diagnoses: Include any secondary or related diagnoses.

? Clinical Assessment

• History of Present Illness (HPI): Detailed narrative of the patient's current condition, including onset, duration, characteristics, and severity of symptoms.
• Past Medical History (PMH): Relevant medical history, including previous diagnoses and treatments.
• Medications: List of current medications and any changes in medication.
• Allergies: Document any known allergies.

? Physical Examination

• Vital Signs: Document essential signs such as blood pressure, heart rate, respiratory rate, and temperature.
• Physical Findings: Detailed Documentation of the physical examination findings relevant to the diagnosis.

? Diagnostic Tests

• Laboratory Tests: List ordered and completed lab tests, including dates and results.
• Imaging Studies: Details of any imaging studies ordered, including type of study, date, and results.
• Other Diagnostic Procedures: Document any other diagnostic procedures, including the rationale for ordering them.

? Treatment Plan

• Treatment Rationale: Clear explanation of why the treatment is necessary based on clinical findings and diagnosis.
• Goals of Treatment: The treatment aims to achieve specific, measurable goals.
• Alternative Treatments Considered: Document any alternative treatments considered and why they were not chosen.

? Progress Notes

• Response to Treatment: Document the patient's response to treatment, including any improvements or changes in symptoms.
• Follow-Up Plans: Outline follow-up care and any additional treatments or tests planned.

? Patient Education and Consent

• Education Provided: Document any education provided to the patient about their condition and treatment options.
• Informed Consent: Ensure that informed consent is obtained and documented, including the risks and benefits of the proposed treatment.

? Compliance with Guidelines

• Clinical Guidelines: Reference any clinical guidelines or evidence-based practices that support the necessity of the treatment.
• Insurance Requirements: Ensure compliance with specific insurance carrier requirements for medical necessity documentation.

? Documentation Quality

• Accurate Documentation: Ensure all Documentation is correct and legible.
• Timeliness: Document services and findings promptly.

Documentation Requirements for Medical Necessity

Documentation is crucial in substantiating medical necessity. The requirements typically include:

• Patient’s Clinical Condition: Document the patient’s symptoms, diagnosis, and clinical condition.
• Treatment Justification: Provide a thorough explanation of why the treatment is necessary based on the patient’s condition.
• Medical Records: Ensure that all relevant medical records, including test results and treatment notes, are complete and up-to-date.
• Physician’s Notes: Detailed notes from the treating physician outlining the necessity of the treatment or service.

Example: A patient with chronic back pain undergoes an MRI scan. The physician documents the patient's history of back pain, previous treatments, physical examination findings, and the clinical rationale for the MRI. The insurance company approves the claim based on the detailed Documentation provided.

What Happens if a Claim Lacks Medical Necessity?

If a claim lacks medical necessity, it may be denied by the insurer. This can lead to several consequences.

The effects include:?

• Non-Payment: The insurer will not reimburse for the services provided, leading to financial loss for the provider.
• Patient Responsibility: The patient may be financially responsible for the costs, causing dissatisfaction and potential disputes.
• Increased Scrutiny: Providers may face increased scrutiny and audits from insurers, potentially leading to more denied claims.

How to Fix Medical Necessity Claim Denials

When the diagnosis code, i.e., CPT code, doesn’t match a procedure or service, it causes claim denial. Denied claims can cause late payments and delay the billing workflow, resulting in a considerable revenue loss for a medical practice.

So, every medical practice must avoid claim denials.?

Here’s how you can fix medical necessity claim denials:

Review the Denial Reason:?

Understanding the exact reason for the denial is crucial for determining the appropriate steps to rectify the issue.

• Start by carefully reading the denial notice to identify the specific reason for the denial.
• Collect all relevant Documentation, including the initial claim, explanation of benefits (EOB), and any correspondence from the payer.
• Look for common reasons for denials, such as missing information, incorrect coding, or lack of medical necessity documentation.

Check Documentation and Coding

Proper Documentation and accurate coding are essential for demonstrating the medical necessity of a service, which is often a primary reason for denials.

• Ensure that all medical records, test results, and physician notes are complete and support the medical necessity of the service provided.
• Double-check the coding used in the claim to ensure it accurately reflects the services rendered. Utilize coding resources or consult a certified coder if necessary.
• Ensure that the Documentation clearly shows the medical necessity of the treatment or service.

Engage with Payer Representatives

Direct communication with the payer can provide insights into the denial and help you understand what is needed to resubmit the claim successfully.

• Reach out to the insurance company’s representative to discuss the denial. Be prepared to provide specific details about the claim and the reason for denial.
• Ask for clarification on what additional information or Documentation is required to support the claim.
• Document the conversation, including the representative’s name, date, and any advice or instructions provided.

Utilize EHRs and PMS

Electronic health records (EHRS) and practice management systems can help providers fix medical necessity claim denials. They offer features and tools like automated registration and claim scrubbing.?

• Utilize EHR and PMS to enhance the coding accuracy and document each item to ensure smooth workflow.?
• Using the claim scrubbing feature, address and fix claim issues, such as incorrect information.?
• Use the patient portal feature on PMS to engage and communicate with patients. Negotiate and discuss the services and insurance plans.?

Submit an Appeal

A well-prepared appeal, backed by comprehensive Documentation and clinical evidence, increases the likelihood of overturning the denial and obtaining reimbursement.

• Draft a detailed appeal letter addressing the specific reason for the denial. Include all necessary evidence and Documentation to support the claim.
• If applicable, reference relevant clinical guidelines or medical literature that support the medical necessity of the service.
• After submitting the appeal, follow up with the payer to ensure it has been received and is being reviewed.

Conclusion

Understanding and proving medical necessity is crucial for ensuring timely and successful reimbursements. You can reduce the risk of claim denials by maintaining thorough Documentation, adhering to clinical guidelines, and staying informed about insurance requirements. Systematic steps such as reviewing the reason for the denial, checking Documentation and coding, and engaging with payer representatives can help rectify the issue if faced with a denial. Staying proactive and informed is vital to navigating medical necessity challenges in medical billing.

Struggling with medical necessity claim denials?

BellMedEx can help. Our team of experts is dedicated to ensuring your practice meets all necessary criteria for successful reimbursements.

Contact us today to learn how we can assist you in reducing denials and optimizing your healthcare revenue cycle management.

Let BellMedEx be your partner in achieving financial success and compliance in medical billing.