The Controversy Continues: Medical Necessity versus MDM

“Medical necessity” is a much-used but often-misunderstood concept.

After our recent four-part series on the “Pitfalls of an Audit” and our last Talk Ten Tuesdays segment on the series, I had taken a position on medical decision-making (MDM) of the evaluation and management (E&M) record being the overarching criteria for choosing an E&M level of service. Well, that opened the floodgates of feedback, as remarks on E&M rule interpretations always do, and as such, I wanted to clarify my position and state my case so you can follow the thought process of not only this auditor, but of many payers, including Centers for Medicare & Medicaid Services (CMS) Medicare Administrative Contractor (MAC) carriers.

The Social Security Act defines medical necessity as follows: “Notwithstanding any other provisions of this title, no payment may be made under Part A or Part B for any expenses incurred for items or 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.”

Well, that clarifies matters, doesn’t it?

With definitions like that, it’s no wonder “medical necessity” is a much-used but often-misunderstood concept. Not to mention, with healthcare organizations facing mounting pressure from pay-for-performance directives, the confusion is bound to get worse, and actually is getting worse.


Welcome to the Falsehoods of the Rules

The Social Security Act’s definition of medical necessity is all about payment and not necessarily about patient care. It’s an important distinction, especially from a compliance (auditing) and coding perspective, and one that must be made clear in discussions with providers.

Perhaps the best way to help clarify “medical necessity” is to agree on what it’s not: a clinical or patient care description. In fact, it’s a coverage and payment concern. Moreover, it should never be used to cast aspersions on clinical care. What I mean by that is when a physician wants to order a test for a patient and the reason for the test is not part of the patient’s contract coverage or the diagnoses listed do not support the “medical necessity” of the order, we as auditors then try and explain the “medical necessity” issue to the physicians. Often there is a look on their faces seeming to ask, “why are you questioning my clinical expertise when you are in the business end of medicine, not the clinical side?” That is a tough question to respond to until, again, you look at how medical necessity is tied to payment, reimbursement, and contract language.


Nuts and Bolts

What information do providers need to supply in order to support medical necessity? In short, what’s needed is any documentation that links the patient’s chief complaint with any problems found and a list of comorbidities that affect care, complicate treatment, or add detail to explain medical actions being taken.

Medicare’s National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs) for some diagnostic and therapeutic services outline when or if a test is covered. NCDs and LCDs often provide specific criteria, including diagnoses that support coverage.

For E&M services, the medical necessity criteria are less clear. In the electronic health record (EHR) era, these visit types have taken on even greater importance, from a coding and auditing perspective. Unlike with NCDs and LCDs, medical necessity for the level of service billed for an E&M service is solely dependent upon how well the provider thinks on paper.

Coders know that the three key components of history, exam, and medical decision-making (MDM) usually determine the level of service a provider may bill. When the documentation guidelines were introduced in 1995, consultants often told providers to count on their fingers and toes when determining the history and exam. They used bullet points to account for the updated 1997 documentation guidelines, then spent a brief time talking about MDM before moving on to selecting the level of service.

They also frequently glossed over the link between MDM and medical necessity because it “only really mattered” for new patients, admissions, or consultations for which all three of the key components had to be met or exceeded for coding. The MDM criteria were not a priority because they were too ambiguous to explain to practitioners or fellow coders.

The arrival of EHRs and their easy-to-check-off boxes introduced problems associated with cloning and over-documentation of histories and exams. Then, there was this heretofore little-known caveat in the CMS manual system, Pub. 100-4, Chapter 12, Subsection 30.6.1 A: 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 E&M service when a lower level of 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.



What does this edict mean and how is it applied, in relationship to an audited E&M record?

This is where I believe the disconnect is, and maybe the origin of the feedback I am getting on the “MDM versus medical necessity” issue. When I mentioned the “overarching criteria” being the medical decision-making in my last Talk-Ten-Tuesdays appearance, my comments were calculated to actually spark this discussion. MDM has a direct link to the “medical necessity” of the patient encounter.

In short, patients visit physicians to be assessed, treated, and hopefully, healed, or at least worked up to figure out the next step of care. Generally speaking, these encounters are documented in the assessment and plan (MDM) sections of the note. The goal of the E&M documentation is, of course, to support medical necessity.

With this in mind, it’s probably better if E&M documentation does not begin with history, because the orderly, top-down approach can be confusing. Too often this method leads to documenting a large number of review of systems, as well as the complete family and social histories, which may or may not be problem-pertinent (or even relevant to the presenting problem), but necessary when following either set of documentation guidelines.

The finer points of documenting the exam, especially, for example, a complete multisystem exam according to either the 1995 or 1997 guidelines, are even more complicated. The intricacies of these two key components can leave healthcare professionals in a daze. Worse yet, many providers may consider it easier to just document a comprehensive history and exam and let the chips fall where they may. This results in providers being confused about the coding rules for E&M services, and excessive documentation.

A better approach may be to focus on the acuity of the patient’s condition, including the comorbidities. For example, documentation should clearly indicate why a patient with a cold and poorly controlled asthma differs from other patients suffering from a cold, or how it’s more complex to treat an injured patient with poorly managed diabetes than an injured but otherwise healthy 18-year-old. By doing this, providers can better explain medical necessity.


Key Points

To give themselves the best shot at meeting medical necessity requirements, providers should keep in mind the following considerations:

  • The overarching criteria for code selection must involve medical necessity;
  • Medical necessity is best supported in MDM documentation;
  • Thorough documentation of a thought process, including the issues ruled out, will support medical necessity; and
  • While established office visits and subsequent hospital visits require only two of the three key components, it’s vital that medical necessity be supported in the MDM. 

In other words, MDM should be one of the two key components to support the level of service. I am not saying this is mandatory, just merely explaining that to link the medical necessity requirement to MDM would be the logical way to support MDM and pass an audit.

What does this mean for providers? They must document more than just a diagnosis code, and act and think as if they’re still documenting on paper. Document the problems addressed, the comorbidities that affect treatment, and, for new issues, the concerns related to the presenting condition. Documentation of the thought process supports the acuity of care and ultimately the medical necessity of the service billed.

Once the thought process is determined, focus on tying the assessment and plan (MDM) to the subjective/objective (history/exam). The key is to document the questions asked and/or what was examined that enabled the provider to make the assessment and create a plan.

When it comes to the importance (or the differentiation) of MDM versus medical necessity, I try and direct clients, and now our readers and listeners, to learn from your top payers and how they incorporate both concepts for a parallel. For example:

Novitas Solutions (the Medicare carrier for jurisdictions H and L) advises on its website:

  • When scoring medical records, how is medical necessity considered?
  • All services under Medicare must be reasonable and necessary, as defined in Title XVIII of the Social Security Act, Section 1862(a)(1)(A). This section states, in so many words, that no payment may be made for any expenses incurred for items or services which are not reasonable and necessary for the diagnosis or treatment of injury or to improve the functioning of a malformed body member. Therefore, medical necessity is the first consideration in reviewing all services.

Wisconsin Physicians Service Insurance Corp. (the Medicare carrier for jurisdictions 5 and 8) provides another example:

Documentation Requirements:

Providers can ensure accurate Medicare payments with correct documentation of MDM for E&M services. Either the 1995 or the 1997 E&M Documentation Guidelines may be utilized, but the elements from each set of guidelines may not be mixed. Documentation requirements include:

  • Complete, clear, and legible medical records supporting the medical necessityfor the service performed.
  • Two of the three elements must be met or exceeded to qualify for a given type of decision-making.
  • All problems directly addressed in the encounter should be used to determine the level of decision-making.
  • MDM level billed depends on the status of the patient and/or the services performed by the provider.


Understanding payers’ requirements is very important. Finally, and a point not to be overlooked, be aware that some payers may have specific rules regarding MDM as a “must” for one of the two components for established patients. Anthem BC and Noridian insist on MDM as one of the two components needed to choose the level of service.

I believe it is all up to interpretation of the rules, and I tend to align on the conservative side as an auditor and educator. For any client or non-client I have had that has gone through an audit, the MDM is always the criteria CMS, or the commercial payer has used as the primary reason for the pass or fail of the record.

Yes, the lack of an appropriate HPI has been an issue as well, but when the MDM fails to support the medical necessity, or is not one of the two of three components needed to support the level of service, it is almost impossible to pass an E&M audit.


Program Note:

Listen to Terry Fletcher report on topic today on Talk Ten Tuesday, 10 a.m. EDT.

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Terry Fletcher, BS, CPC, CCC, CEMC, CCS, CCS-P, CMC, CMSCS, CMCS, ACS-CA, SCP-CA, QMGC, QMCRC, is a healthcare coding consultant, educator, and auditor with more than 30 years of experience. Terry is a past member of the national advisory board for AAPC, past chair of the AAPCCA, and an AAPC national and regional conference educator. Terry is the author of several coding and reimbursement publications, as well as a practice auditor for multiple specialty practices around the country. Her coding and reimbursement specialties include cardiology, peripheral cardiology, gastroenterology, E&M auditing, orthopedics, general surgery, neurology, interventional radiology, and telehealth/telemedicine. Terry is a member of the ICD10monitor editorial board and a popular panelist on Talk Ten Tuesdays.

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