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Medical necessity is an important issue. Just review the definition of medical necessity: “a legal doctrine, related to activities which may be justified as reasonable, necessary, and/or appropriate, based on evidence-based clinical standards of care.”

So, what does that really mean? A few years ago, I was preparing to speak at a national conference with a surgeon, and our topic was medical necessity. The first question this surgeon asked me was “what is medical necessity?” I asked him what his definition was, and his response was “whatever I feel is medically appropriate to care for my patient.” 

But the truth of the matter is that medical necessity and payment are determined by what the payer will pay for. For example, many payers, including Medicare and Medicaid, have medical coverage policies that determine what procedure and diagnosis codes are supported for each diagnostic or surgical procedure. If the diagnosis code is not listed in the policy, the payer determines that the procedure is not medically necessary for that condition. 

According to section 1862(a) (1)(A) of the Social Security Act, Medicare will not cover services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

Evaluation and Management Services

The Centers for Medicare & Medicaid Services (CMS) has stated that “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 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.”

A physician can document a comprehensive history and examination with every patient encounter if he or she chooses, and this is easy to accomplish with the electronic health record (EHR) when pulling information into the EHR, but is that medically necessary for every patient? The answer is no! Even though a physician documents a comprehensive history and examination, this does not mean it is always medically necessary to bill a Level 4 or 5 visit. So based on the CMS guidance for an evaluation and management service, medical necessity is the driving factor when selecting a level of service. Each practitioner needs to take a step back and ask themselves, based on the presenting problem(s), conditions managed, and/or co-morbidities, to what level should they bill? The diagnosis codes reported on the claim and the complexity of these conditions should actually determine the level. And of course, the level of service selected should be documented properly.

Diagnosis Coding to Support Medical Necessity

Many times surgeons or specialists don’t code the co-morbidities that affect management of their patients. This is a big mistake. If a practitioner has to consider those conditions when making medical decisions, these co-morbidities should be documented in and coded in order to help support medical necessity. For HCC coding this is especially critical.

For example, some medical coverage policies allow for destruction for actinic keratosis (L57.0), but we are finding now that some policies do not allow for this diagnosis to be covered for chemosurgery. If the service is not covered by a particular payer, the patient should be informed prior to performance of the service.

Another problem area is unspecified diagnosis codes, which can be an audit trigger if more specificity could be coded. For example, if a patient has congestive heart failure and is seeing a cardiologist in follow-up, it is important for the physician to document and code the type of heart failure to support medical necessity. Many times in documentation we see CHF without elaboration. Coders need to be more vigilant to query practitioners whose documentation lacks specificity. Think about it: if specificity is lacking, could a payer consider the encounter an illegitimate visit or a procedure that was not medically necessary?

A situation I see much too often when performing audits is lack of laterality in coding an encounter. For example, if a patient has otitis media and the physician selects H66.90 (otitis media unspecified, unspecified ear) would it be important for the physician to document at a minimum the ear affected? Sometimes the type of otitis might not be able to be identified initially, but the ear affected should be documented and coded. This type of error could trigger a payer audit unnecessarily.

What about the additional diagnosis codes that help validate the patient’s care? One example I run across frequently in OB care is failure to code the weeks of gestation for a pregnancy (Z3A.-). This information might be important to a payer, and a claim could be denied based on the lack of this important information.

It is also important to link the diagnosis to the procedure code (CPT, HCPCS, or ICD-10-PCS). The procedure and diagnosis must make sense together. For example, you can’t expect a payer to reimburse a provider when an echo was billed on the claim with a diagnosis of rhinitis. Another example would be when bariatric surgery is performed on a patient with a diagnosis of obesity when the medical policy indicates that the diagnosis supported is morbid obesity, with an additional diagnosis of the patient’s BMI required. In both examples it is clear that medical necessity is not supported. Take one last minute before submitting the claim and make sure the procedure and diagnosis links correctly.

I sometimes run across coders asking me what the payable diagnosis for a procedure or service is. This is not compliant practice. A coder or practitioner should never code a claim based on payer policy. Any diagnosis code selected should be based on the patient’s medical condition(s) even if the payer policy does not cover the service. If the service is not covered based on the diagnosis code, the patient should be informed that they will need to pay for it. For Medicare, the ABN is an important document that must be signed for a procedure or service that might not be covered, allowing the patient to decide if they wish to proceed. If the ABN is not signed, the patient will not be responsible for payment of the service. Reporting a diagnosis that the patient does not have solely for the purpose of obtaining reimbursement for a service can be construed as fraud and likely will result in fines, penalties, and in some cases, even criminal prosecution.

Ten Tips to Ensure Compliance with Medical Necessity

  1. Make certain for all the procedures and services you perform that you review your payer’s medical coverage policies annually, at a minimum. Some payers have a list-serv or alerts that you can subscribe to for receiving updates.
  2. For all services that are billed on the claim, make certain documentation supports the specificity and all diagnoses reported – even the co-morbidities that affect patient care.
  3. Link your procedure codes to the correct diagnosis codes that support medical necessity. The linkage has to make sense.
  4. Make certain when the coding guidelines instruct “use an additional code” that you review the instructional notes in ICD-10.
  5. Query the practitioner when unspecified diagnoses are selected, and obtain clarification.
  6. Review medical payer coverage policies routinely to ensure that you are informed of diagnoses not covered under the policy.
  7. When reporting an evaluation and management service, the practitioner must consider medical necessity before selecting the level of service even if the documentation supports a comprehensive level.
  8. Always review your denials to see if they are based on the diagnosis code. It could be that the denials were based on medical necessity or invalid diagnosis codes.
  9. Make certain your diagnosis codes contain the required characters and are coded to the highest level of specificity.
  10. Perform routine internal audits to validate that medical necessity is supported for each encounter. Educate providers when problem areas are identified.

It is important that every claim submitted to each payer is coded accurately, medical necessity is supported, and documentation is clear, concise, and complete.


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