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Medical Necessity and Billing

Medical Necessity and Billing

The following Q&A on medical necessity was compiled in collaboration with the Academy of Doctors of Audiology (ADA), the American Academy of Audiology (AAA), and the American Speech-Language-Hearing Association (ASHA).

Questions & Answers

What is "medical necessity"?

Insurance companies provide coverage for care, items and services that they deem to be "medically necessary".  Medicare defines medical necessity as "Health care services or supplies needed to diagnose or treat an illness or injury, condition, disease, or its symptoms and that meet accepted standards of medicine." www.medicare.gov 

According to the American Medical Association, medical necessity mandates the provision of health care services that a physician or other health care provider, exercising prudent clinical judgment, would provide to a patient for the purpose of preventing, evaluating, diagnosing, or treating an illness, injury, disease, or its symptoms, and that are:

  1. In accordance with generally accepted standards of medical practice (based on credible scientific evidence published in peer-reviewed literature),
  2. Clinically appropriate, in terms of type, frequency, extent, site and duration, and considered effective for the patient's illness, injury or disease,
  3. Not primarily for the convenience of the patient, physician or other health-care provider, and not more costly than an alternative service or sequence of services that are at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of that patient's illness, injury, or disease.

In all cases, documentation in the patient's medical record must be consistent with and support the reason that the procedures were performed. See also: Medicare's definition of medical necessity

How does medical necessity factor into my billing practices?

Beyond the above-mentioned principles, many payers including Medicaid and private insurance have specific guidelines for what is considered medically necessary for certain items, procedures and/or services.  These policies will be found in the payers' payment policies or clinical guidelines. For example, the Medicare Benefit Policy Manual, Chapter 15, section 80.3 sections (A-I), outlines when coverage for audiology services is considered medically necessary, and therefore a covered Medicare benefit. Medicare Administrative Contractors may also publish Local Coverage Determinations (LCDs) to more specifically define coverage guidelines for specific procedures.

What if there is a service that I feel is in the patient's best interest that the insurance company does not consider to be medically necessary?

It is important to keep in mind that insurance does not always pay for everything that a provider may believe is necessary.  An example would be routine annual hearing testing to monitor hearing (and hearing aid) status for Medicare beneficiaries.  Medicare does not prevent a provider from billing a patient directly for this service.  Please make sure that any specific notice of non-coverage guidelines for the patient's insurance are followed. (including use of appropriate CPT modifiers).