Medical Necessity versus MDM: There is a Difference

Many healthcare professionals use these terms interchangeably.

Medical decision-making specifically refers to the complexity of establishing a diagnosis and/or selecting a management option. Medical necessity refers to the appropriateness of the service provided for a certain condition. Medical necessity determines whether the service will get reimbursed. Problems arise with training and documentation when MDM and medical necessity are used interchangeably, or when practices and payers define medical necessity differently.

First, what is Medical Necessity?

The American Medical Association (AMA) defines medical necessity this way: “healthcare services or products that a 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 healthcare provider.”

Medicare defines medical necessity this way: Title XVII of the Social Security Act, Section 1862[a][1][a], states:

“No payment may be made under Part A or Part B for expenses incurred for items and services which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

The Centers for Medicare & Medicaid Services (CMS) Internet Only Manual (IOM) Medicare Claims Processing Manual, Publication 100-04, Chapter 12, Section 30.6.1, goes on to state:

“Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT® code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower-level service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed. Documentation should support the level of service reported.”

Neither Medicare nor the AMA (or any other payer, really) has developed guidelines that describes the medical necessity for performing a specific level of history or exam for a particular presenting problem. If a medical provider documents a detailed history and a detailed exam, should a payer or coder say that it wasn’t needed? In the upcoming 2021 Evaluation & Management (E&M) Documentation rule changes, AMA has adjusted the “scoring inclusion” of the history and exam as part of leveling an E&M code. But they have not omitted the need of a “medically necessary” current problem and pertinent history and exam, as some think.

The medical necessity for ordering an EKG or CT scan of the brain is clearly listed in medical policies. If the patient is going to have an extremity vein ablation, for example, there are clear diagnostic indications to separate out cosmetic from medically necessary services. Policies need to be read, understood, and adhered to. Medical necessity is the concept that healthcare services and supplies must be necessary and appropriate for the evaluation and management of a given disease, condition, illness, or injury. The care must be considered reasonable when judged against current medical standards of care.

Clinical Example for Medical Necessity

Say an established patient comes in complaining of intermittent chest pain and occasional shortness of breath.

It would be medically necessary to perform a comprehensive history to address this issue. First, the provider would take an extensive history of present illness, describing the location, severity, duration, modifying factors, and any associated signs and symptoms related to the patient’s chest pain. The provider would then review and confirm the patient’s past medical history to identify any potential risk factors for coronary artery disease, such as hypertension or dyslipidemia. The physician would also ask about a family history of cardiovascular disease and perform a social history to determine if the patient is a smoker or has a sedentary lifestyle.

Finally, because the clinical spectrum for diagnosing chest pain is broad, the provider performing a complete review of systems is justified to uncover any clue that may point to a diagnosis. As the etiology of the patient’s condition is unknown, sound medical practice would merit that a complete eight+-system physical exam be performed to guide the provider towards a definitive diagnosis and treatment plan.

An EKG was performed at the encounter and was abnormal. It was determined that the patient was to be scheduled for an immediate cardiac catheterization for suspected coronary artery disease. The patient is also diabetic and is on an anticoagulant medication that would need to be adjusted prior to the procedure. The patient also has hypertension and was recently diagnosed with early onset of osteoporosis. The EKG performed in the office was abnormal. Therefore, the medically necessary comprehensive history, detailed or comprehensive exam, and the MDM of high complexity for this patient, who also has risk factors, would support coding 99215 (… a comprehensive history; a comprehensive examination; medical decision-making of high complexity) for this encounter.

Medical Decision-Making and Documentation Guidelines

Now, let’s flip the switch to medical decision-making (MDM). To justify an E&M code level, the history, exam, and MDM must be medically appropriate and necessary. If your clinician documents no solid evidence of medical necessity, it would be considered a false claim to report a higher level of service; such a claim will not be reimbursed, regardless of how severe the patient’s condition is or how complicated the provider’s thought process was, if the medical necessity is not apparent.

The current Documentation Guidelines were developed in 1995 and 1997 as a joint work product of Medicare and the AMA. The guidelines state that for established patient visits and various other visit types, two of the three key components of history, exam, and medical decision-making must be met. Neither CPT nor CMS said that medical decision-making must be one of those key components. The quote from the Medicare claims processing manual states that there must be medical necessity for the level of service, not that medical decision-making must be one of the key components. Medical necessity is not synonymous with medical decision-making, and medical decision-making should not be used as a stand-in for medical necessity.

Revenue and Compensation

The quality of E&M documentation is paramount for provider reimbursement.

E&M services are the most vulnerable to billing errors, because it is complicated to select the proper code for the level of service captured in the documentation. A firm grasp of the differences between MDM and medical necessity can improve your claims payment rate, as well as make the external audit process much easier, should an audit occur.

Again, problems can arise when MDM and medical necessity are used interchangeably. Medicare addressed “payment” in the Social Security Act, as stated above.

Medical necessity drives the final level of E&M code choice — not MDM alone. For every encounter, documentation must show that the levels of history, exam, and MDM performed were all medically appropriate and necessary. This includes documenting the medical necessity for any ancillary studies and therapeutic interventions ordered or performed.

When auditors and coders apply the definition of medical necessity, how do they ascertain what level of history and exam is medically necessary for a presenting diagnosis or chief compliant, and therefore choose the appropriate E&M code level?

There are no published regulations that define the medical necessity criteria for performing a certain level of history and exam for a given chief complaint. The auditor and coder must use their clinical knowledge and best judgment to determine the severity of a patient’s presenting problem, again, based on the provider’s documentation and subsequent outcome of the encounter. If there is a question on the provider’s thought process, a query would be in order. Coders should not make a judgment or question the provider’s thought process for workup decisions such as ordering imaging, medication, etc. to diagnose and treat a patient condition, unless there is no direct correlation to the medical decision-making from the presenting problem.

For example, say a patient presents with signs and/or symptoms suggestive of gallstones, but the exam elements are general exam, eyes, ears, cardiac, and neurological. There is no GI exam, and the ROS part of the history does not support any problem or pertinent positives suggestive of a gallstones diagnosis. The MDM then states that an abdominal ultrasound will be ordered for cholelithiasis. Where is the medical necessity? There is no clinical medical necessity for this order in the medical decision-making portion of the record, and so the level of service cannot be established. This would warrant a query to the provider.

Medical decision-making can be used as “weight” against the history and physical exam, in determining a level of E&M service. As we get closer to the 2021 E&M updates, MDM will play a key role in choosing a level of service, as determined by the medical necessity of the services ordered, reviewed, and/or performed.

It is time to understand the difference now.

Programming Note: Listen to Terry Fletcher report this story live today during Talk Ten Tuesdays, 10-10:30 a.m. EST.