Medical Necessity and the Revenue Cycle

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By Ann Knutson, CPC-A

According to the Center for Medicare & Medicaid Services (CMS), medical treatment or supplies provided by a physician is considered medically necessary when they “are proper and needed for the diagnosis or treatment of your medical condition, meet the standards of good medical practice in the local area, and aren’t mainly for the convenience of your or your doctor.” However, commercial insurance companies (payers) may have their own definition of medical necessity and criteria that must be met so that a procedure or treatment is considered medically necessary. Establishing medical necessity is essential to getting claims paid by any insurance company. It’s also crucial to clinically validate the medical necessity of a procedure/service with documentation that includes accurate clinical findings and a thorough history, exam, assessment, and plan of the patient that supports the treatment given and the services billed.

CMS and its Medicare Administrative Contractors (MACs) use certain criteria to determine medical necessity to minimize improper billing, determine if a service/treatment is justified, cut costs, and improve quality of care. Some of the criteria that they use include:

  • The safety and effectiveness of the service/treatment
  • Checking to make sure the procedure/treatment is not experimental or investigational
  • The service/treatment is ordered and rendered by qualified healthcare personnel
  • The service/treatment meets the medical needs of the patient
  • The service/treatment is performed within the standards of medical practive and in the appropriate medical setting

Medical billers can look to their local and national coverage determinations for more information on this criterion. Furthermore, commercial insurances may have some of their own criteria that providers and billers need to be aware of to avoid medical records reviews, denials, and overpayment requests.

A few important criterions used by insurance companies to determine medical necessity that providers and medical billers need to keep in mind are:

  • Any diagnosis code(s) or clinical conditions of the patient included in each payer’s policy
  • Any coverage limitations put on certain services/procedures, such as the number of treatments allowed or experimental treatments.

Many payers also require prior authorizations before a service, treatment, or even medication can be furnished to the patient. The prior authorization shows that the service, treatment, or medication meets their criteria for medical necessity. It can also help prevent the misuse or overuse of services and treatments. It usually involves submitting to the payer the patient’s diagnosis, service, or procedure to be performed, and any provider will receive payment. For more information about prior authorizations, please see https://www.cms.gov/research-statistics-data-systems/medicare-fee-service-compliance-programs/prior-authorization-and-pre-claim-review-initiatives.

It’s also important for the provider to identify any coverage limitations that may apply to the patient’s situation in order to avoid payer denials. To check for any coverage limitations that could lead to payment issues, a provider may contact their MAC or HIPAA Eligibility Transaction System. The HETS allows the provider to receive data about Medicare beneficiary’s eligibility in real-time. For further information about the system, go to https://www.cms.gov/research-statistics-data-and-systems/cms-information-technology/hetshelp.

To summarize, medical providers, coders, and billers need to be aware and up to date on CMS and other payer’s medical necessity policies and be able to implement their requirements into their revenue cycle. This due diligence will help with getting claims paid in a timely and efficient manner. For a thorough review of your revenue cycle, contact MedCycle Solutions.

For more information on medical necessity, please visit http://aapcperfect.s3.amazonaws.com/5548A1AF-4C9F-49A2-BFE0-BFA7D2344700/c9ab9ece-9569-49b8-a590-7e783764c9b7/a31acf6a-414b-4c50-82cb-fb96104fa799.pdf.


Ann Knutson, CPC-A is an Accounts Receivable Specialist at MedCycle Solutions, which provides Revenue Cycle Management, Credentialing, Outsourced Coding, and Consulting Services to a number of healthcare providers in a variety of specialties. To find out more about MedCycle Solutions services, please visit www.MedCycleSolutions.com