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Every claim answers two questions. What was done? That is the CPT or HCPCS code. Why was it done? That is the ICD-10-CM diagnosis, backed by the medical record. Medical necessity is the second question. If the answer is weak, the claim is denied even when the procedure code is perfect.
Part 1 of 4
The rule behind it
For Medicare, the rule comes from the law itself. Section 1862(a)(1)(A) of the Social Security Act says Medicare does not pay for items and 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."
Commercial payers write their own definitions into their contracts and medical policies, but they follow the same idea. So the skills in this module apply to every payer, even though the examples use Medicare.
What makes a service "reasonable and necessary"
Medicare's review contractors judge a service against a few plain questions (Medicare Program Integrity Manual, chapter 13). A service is reasonable and necessary when it is:
- Safe and effective for the patient's condition.
- Not experimental or investigational.
- Appropriate for the patient, which means it is:
- given in line with accepted standards of medical practice,
- given in a setting that fits the patient's medical needs and condition,
- ordered and given by qualified staff,
- the right amount: it meets, but does not exceed, the patient's medical need.
That last point catches many claims. A test repeated too often, a hospital stay that could have been outpatient, or an E/M level higher than the problem called for can all fail medical necessity, even though each service really happened.
Done: The rule
Part 2 of 4
Who decides what is necessary
| Source | What it controls | Where you find it |
|---|---|---|
| Clinician | Decides what the patient needs and documents why | The medical record |
| National Coverage Determination | Medicare rules that apply in every state | Medicare Coverage Database (MCD) |
| Local Coverage Determination | Rules from the Medicare contractor (MAC) for its region | MCD, with a billing and coding article |
| Commercial medical policy | Each insurer's own coverage rules | The payer's provider website |
| Frequency and quantity limits | How often a service can be paid (for example, once every 5 years) | NCDs, LCDs, payer policies |
| Coding guidelines (ICD-10-CM, CPT) | How the diagnosis and service must be reported | Official Guidelines, CPT book |
The next lessons cover each of these: linking diagnoses to services, NCDs and LCDs, ABNs and the GA/GZ modifiers, and what to do when a claim is denied.
Done: Who decides
Part 3 of 4
Medical necessity is not the same as MDM
Since 2021, the office E/M level is chosen by medical decision making (MDM) or total time. It is tempting to think a well-documented MDM proves medical necessity. It does not.
- MDM measures how complex the provider's thinking was: problems, data and risk.
- Medical necessity asks whether the visit, and its level, was needed for the patient's condition.
Time is documented, but was it needed?
A patient with one stable, controlled chronic condition comes in for a routine refill. The provider documents 45 minutes and bills 99215 by time. The time is real, but 45 minutes of work for a stable refill is hard to defend. An auditor may lower the level because the record does not show why that much time was needed.
The fix is not to write less. It is to make the record say why: the new symptom, the worsening condition, the drug that needed monitoring, the decision that was hard.
Done: Not the same as MDM
Part 4 of 4
What the documentation has to show
Coders cannot add medical necessity that is not in the record, but they can spot when it is missing. Look for:
- The reason for the encounter: the chief complaint, symptom or condition being addressed.
- The status of each problem: stable, worsening, new, not at goal. "HTN" alone says little; "HTN, BP 168/98 despite two drugs" shows why care was needed.
- The plan and its reason: why a test was ordered, why a drug was changed, why the patient was admitted.
- A link between each service and a diagnosis: every test, procedure or injection should trace back to a documented reason.
- A signed, dated note by the person who gave the service.
Check yourself
Done: Documentation and check