Q & A: Defining Medical Necessity

Question: Our office has been contacted by Ms. G., a 32-year-old Medicaid recipient. She tells us that the state Medicaid agency is seeking to implement a definition of ?medical necessity? that, when applied to her condition, will cause her physical therapy services to be terminated. What is the Medicaid Act definition of ?medical necessity? and are there elements of the state?s definition that we should be concerned about? 
Brief Answer: The Medicaid Act does not define the term ?medical necessity.? Over the years, recipients have relied on regulatory and decisional principles to define the scope of coverage. However, a number of states are now reviewing medical necessity and defining it restrictively for Medicaid purposes. You must monitor the situation in your state closely and, if necessary, conduct education on the topic and submit written comments. 
The Basic Rules of Coverage2
From the early days of the Medicaid program, federal rules, federal and state court opinions, and administrative fair hearing decisions prescribed the following standards for deciding when a service should be covered by Medicaid: 
  1. The Medicaid Act lists the mandatory and optional benefits that are available to recipients. E.g., 42 U.S.C. §§ 1396a(a)(10), 1396d(a).
  2. States must establish reasonable coverage standards that are comparable for eligibility groups. Services must be covered in sufficient amount, duration and scope to reasonably achieve their purpose, and states cannot deny a mandatory service solely because of the diagnosis, type of illness, or condition. E.g., 42 U.S.C. §§ 1396a(a)(10)(B), 1396a(a)(17); 42 C.F.R. § 440.230.
  3. States must make all mandatory and optional Medicaid services available to children under age 21 and cover these services when needed to ?correct or ameliorate? a mental or physical condition of the child. E.g., 42 U.S.C. §§ 1396a(a)(10)(A), 1396a(a)(43), 1396d(a)(4)(B), 1396d(r). 
Noticeably, these criteria do not refer to ?medical necessity.? This gap has not affected most Medicaid recipients, however, because the vast majority of decisions regarding services and treatment have been made by health care providers in the clinical setting. Medical necessity has been defined in legal terms only in the uncommon situation where the recipient has contested the 
state?s denial of a service in an administrative or judicial appeal. 
Defining Medicaid Necessity 
The Medicaid Act does not use the term ?medical necessity.? Medicaid regulations allow states to place appropriate limits on a service, based on criteria such as ?medical necessity,? 42 C.F.R. § 440.230(d), but do not define the term. 
In Beal v. Doe, 432 U.S. 438, 444 (1977), the Supreme Court stated that Medicaid ?confers broad discretion on the states to adopt standards for determining the extent of medical assistance? that will be provided through the Medicaid programs. Until relatively recently, the decision of whether a particular covered treatment was medically necessary rested with the individual?s treating physician. This is consistent with Congressional intent: 
The Committee?s bill provides that the physician is to be the key figure in determining utilization of health services?and provides that it is a physician who is to decide upon admission to a hospital, order tests, drugs, and treatments, and determine the length of stay. 
S. Rep. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S.C.C.A.N. 1943, 1986. See also, e.g., Pinneke v. Preisser, 623 F.2d 546, 550 (8th Cir. 1980) (recognizing that ?the decision of whether or not certain treatment or a particular type of treatment is ?medically necessary? rests with the individual recipient?s physician and not with clerical personnel or government officials?); Hope Med. Group for Women v. Edwards, 860 F. Supp. 1149, 1151 (E.D. La. 1994) (holding that ?[e]ach state?s Medicaid plan must cover those mandatory covered services which an individual patient?s physician certifies as ?medically necessary.??); Preterm v. Dukakis, 591 F.2d 121 (1st Cir. 1979) (describing two levels of judgment as to medical necessity: macrodecisions of the legislature that only certain services are covered and micro-decisions of a physician that a patient needs a covered service).3
Recently, a number of states have moved to curb Medicaid spending by defining the term medical necessity restrictively in regulations or contracts, most often as an element of Medicaid utilization review or managed care. For example, some states are introducing limitations that shift deference from the treating provider to standards of medical practice and that require there to be no equally effective, less costly alternative treatment. 
Clearly, the legal concept of ?medical necessity? will play an increasing role in deciding the extent to which individuals with chronic and disabling conditions receive appropriate services through Medicaid. Careful monitoring and informed advocacy must assure that any legal definition of medical necessity used by the state Medicaid program promotes high-quality care for individuals with disabilities. 
Much research has focused on articulating appropriate definitions of medical necessity. These definitions have evolved into a multidimensional evaluation that includes consideration of: whether the treatment accords with professional standards of practice, whether it will be delivered in the safest and least intrusive manner, whether the treatment is medical in nature (as opposed to social or otherwise non-medical), and whether the treatment is cost effective.4 For example, the American Medical Association suggests that medical necessity be defined as: 
health care services or products that a prudent physician would provide to a patient for the purposes of preventing, diagnosing, or treating an illness, injury, disease, or its symptoms in a manner that is (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the convenience of the patient, physician, or other health care provider.5
Furthermore, when cost is considered, the assessment should occur within the context of comparing equally efficacious treatments. For example, in the health services research community, a seminal article developed a consensus definition of medical necessity which states that an intervention should be ?cost-effective for this condition compared to alternative interventions, including no intervention. ?Cost-effective? does not necessarily mean lowest price.?6 In sum, any attempt to impose a medical necessity requirement beyond that inherent in a doctor having prescribed the particular treatment should meet the following five criteria. It should: 
  1. incorporate appropriate outcomes within a developmental framework, including preventing or ameliorating the effects of a condition, assisting in maintaining or facilitating functional capacity, and promoting physical, intellectual and psychological development. 
  1. explicitly address the information that will be needed in the decision making process, emphasizing individually tailored treatment strategies. 
  2. identify who will participate in the decision making process. 
  3. refer to specific standards as a starting point?scientific evidence where it is available and, otherwise where available, practice guidelines and consensus statements from expert panels. 
  4. support flexibility in the sites of service delivery.7
Pending Threats?the Tennessee Example 
Unfortunately, a number of states are considering medical necessity definitions that will neither promote high-quality health care for people with disabilities nor meet the prevailing standards for defining the term. Tennessee illustrates this situation. That state has recently developed a definition of medical necessity that is to be submitted to the Centers for Medicare & Medicaid Services as part of a section 1115 waiver request to restructure its Medicaid program, called ?TennCare.? The definition works an unprecedented reconceptualization of the notions of medical necessity.8 To obtain a service, even if included within the scope of benefits, the service must meet a four part definition, which is quoted (in bold) and then analyzed below. The burden of demonstrating that any given service meets the test rests solely with the patient and/or her provider. 
Part 1 ? A medical item or service must be required in order to diagnose or treat an enrollee?s [Medicaid patient?s] medical condition. The convenience of an enrollee, the enrollee?s family, or a provider, shall not be a factor or justification in determining that a medical item or service is medically necessary.
Diagnose or treat. The requirement that a service be required to ?diagnose or treat? a medical condition eliminates much of the preventive care authorized, and in some cases mandated, by Medicaid. It would eliminate immunizations, newborn hearing screens, children?s developmental screens, lead blood tests, diabetes and colorectal screenings, pap smears, and mammograms. Any service provided to monitor, but not treat, a patient?s condition would presumably be excluded, for example, glucose monitoring of a diabetic patient. The definition would exclude a number of services, which TennCare now covers, that maintain functional capacity and/or improve the quality of life but do not actually treat or diagnose. These include home health care for ventilator dependent children and adults; personal care and home health aid services for elderly patients with Alzheimer?s disease; and physical and occupational therapy services that prevent regression for children with cerebral palsy. Other services that would likely be precluded by this definition include genetic testing and many services for individuals with mental illness. 

Medical condition. The definition further requires that an item or service will only be provided if used to diagnose or treat an enrollee?s ?medical? condition. On its face, the definition excludes many services that Medicaid currently covers for non-medical conditions. 
For example, children with developmental disabilities may not have a ?medical? condition per se but receive Medicaid services essential to assist in day-to-day functioning. It is not clear whether dental services, prosthetic devices, and durable medical equipment would be covered under this definition. Since pain medications are almost always used for treatment of a symptom rather than a medical condition, this definition would seem to exclude coverage of them. 
Part 2 ? A medical item or service must be safe and effective. To qualify as safe and effective, the type and level of medical item or service must be consistent with the symptoms or diagnosis and treatment of the particular medical condition, and the reasonably anticipated medical benefits of the item or service must outweigh the reasonably anticipated medical risks based on the enrollee?s condition and scientifically supported evidence. 
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