Theoretical Considerations of Medical Necessity

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Coverage and payment for health care services begins with Medical Necessity. This term is critical to understanding Medicare coverage decisions. The origin of this term – medical necessity – is often traced to a frequently cited section of the Social Security Act with the following full and complete name:  The Social Security Laws,  Volume I, Social Security Act, Title XVIII (Health Insurance for the Aged and Disabled)  Part E, Section 1862 (a)(1)(A) [1] [2].  This is commonly abbreviated Section 1862 (a)(1)(A), which may also be written § 1862 (a)(1)(A).

The precise wording in section 1862 (a)(1)(A) of the law is the following:

Notwithstanding any other provision of this title, no payment may be made under part A or part B for any expenses incurred for items or services which, except for items and services described in a succeeding subparagraph, are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

This principle requires that it must be clear that a medical service is both reasonable and necessary before the Medicare entitlement provides coverage.

Some would opine that Medical Necessity, like beauty, may reside in “the eye of the beholder”  [3] , and therefore may be  based on the subjective point of view of either the physician or patient seeking payment and coverage for a medical procedure.

In order to remove subjective bias from determination of medical necessity (to the maximum extent possible), coverage guidelines for an intervention (or medical service) have been suggested as follows: [4]

  • The intervention is used for a medical condition;
  • There is medical evidence to draw conclusions about the intervention’s effects on health outcomes;
  • Medical evidence demonstrates that the intervention can be expected to produce its intended effects;
  • Expected beneficial effects on health outcomes outweigh expected harmful effects.

Other standards have been suggested for medical necessity to include the following [5], namely that a service be:

  • Appropriate for symptoms, diagnosis, and treatment of a condition, illness, or injury.
  • Provided for diagnosis, direct care, or treatment.
  • In accordance with standards of good medical practice.
  • Not primarily for the convenience of the member or member’s provider.
  • The most appropriate supply or level of service that can be safely provided to the member.

An economic, or financial criterion is frequently added by private health insurers, namely  that the intervention must be the most “cost-effective method available to address the medical condition.”  In contrast, Medicare, for the most part, excludes the cost of a medical procedure from final decisions on Medicare coverage.  [6]

In summary “medical necessity” is frequently cited in determinations of coverage by Medicare and its Administrative Contractors. Some combination of the criteria listed above are the guidelines employed for most Medicare coverage decisions.