Editor’s Note: Using Medical Necessity Criteria (MNC) successfully requires constant attention, understanding, and on-going education. BHM’s reviewer network MNC expertise allows you to focus on patient care.  Click HERE and discuss how BHM’s MNC expertise can overcome medical necessity criteria challenges and improve your metrics.

Managed health care and medical necessity criteria are not a contemporary innovation. In fact, “its rudiments date back to the 19th century, when various homegrown health plans connected to urban benevolent societies and progressive rural groups provided prepaid physician services…As part of the extended managed care infrastructure, new external institutions for supervision of medical necessity, appropriateness, and quality of care were formed. With the support of the federal government, the Professional Standards Review Organization was established in the 1970s to review the Medicaid and Medicare programs.” from the articleMedical Necessity Review: History, Innovation, and Missed Opportunity by Robin T. Pedowitz, MD and Stuart L. Lustig, MD, MPH.Even after these many decades of use, medical necessity criteria present five issues that still cause grief and need attention for MNC success.

medical necessity criteriaEdits

“Medical necessity” is a broad term that essentially refers to two focused sets of edits defined by CMS: the national coverage determinations (NCDs) and the much broader, decentralized local coverage determinations (LCDs). As a result, medical necessity edits are not a single, centrally defined set of edits. LCDs add significant complexity because they cover a broad range of medical issues and vary by location/region.

There are few things more frustrating to a physician than a pile of Medical Necessity edits. Medical Necessity Criteria (MNC) is the term we use in healthcare to describe care what is reasonable and appropriate for a patient based on evidence-based care standards. This has become something of a major bone of contention between payers and physicians, because, often times, physicians don’t understand why their clinical judgment is being brought into question.

Level of Care

The reality is, payers are not always judging the clinician’s care, so much as they are questioning if the level of care was incorrect. The procedure or prescription may well have been appropriate for the patient – but if it was provided in the wrong care setting, a payer won’t cover those services.

To render services in such a way – say, making a patient an inpatient when an insurer feels the patient could have had those services as an outpatient- can be a very precarious conversation. Often, the physician involved reacts initially by being defensive that their decision to admit a patient was correct, due to perhaps something they were able to intuit about the patient that an insurer just wouldn’t know. In this case, the insurer will allow for an audit of the patient’s hospital chart, at which time they can review all the elements of the patient’s treatment, diagnosis and inpatient encounter and make a final determination.

Individuals may at times seek admission to clinical services for reasons other than medical necessity, e.g., to comply with a court order, to obtain shelter, to deter antisocial behavior, to deter runaway/truant behavior, to achieve family respite, etc. However, these factors do not alone determine a medical necessity decision. Further, coverage for services is subject to the limitations and conditions of the particular benefit plan.

[email-download download_id=”7229″ contact_form_id=”67819″]

BHM’s reporting package for peer review/physician advisor services allows on-demand drill down on each LOC, as well as, many other variables.


At times, physicians are dubious of these reviews because they feel that those who are auditing the charts may not have the right kind of medical training to truly understand the nuances of the chart. This is a valid concern. It’s up to the payers undertaking the audits to prove that those reviewing the charts are fully trained and capable to review the chart and that they will fairly and accurately assess the chart. If, in fact, their assumptions were wrong then they will agree that the care was correct at the inpatient level – but, by allowing them to deeply audit the chart, the payer and the physician can both be assured that the amount paid for the services is accurate.

Why Audit?

Now, what in a chart would make a payer question the validity of a claim? Sometimes, it’s simply based on something that they couldn’t intuit from the chart where there was seemingly a gap in physician documentation. Often, expert medical coders will catch this and can refer it back to the physician before the chart is coded. If they are able to catch these things before the claim is submitted, it will reduce the time and money spent on denials.

Coding Woes

Other times, the problem may be with the coding itself. It’s always possible that a coder made an honest mistake with a code, but with the advent of new computer assisted coding and the megalith of ICD-10. There are times when a coder might code to what they think is the highest diagnosis and perhaps the insurer doesn’t agree. This miscommunication can be resolved, but it’s frustrating for both parties – and the physicians, who come to think that there is something amiss with the hospital’s coding department.

Trust Issues

Researchers at ReviveHealth and Catalyst Healthcare Research developed a unique testing model to measure trust in business-to-business relationships. In 2016, 143 hospital executives and 602 practicing physicians participated in the survey. For the first time, the research firms also extended the survey to 74 health plan executives. One finding was business-to-business trust levels in the healthcare industry rank among the lowest of all industries in the U.S. This may explain why the transition to value-based care delivery is crawling at a snail’s pace.

When everyone’s faith in one another is undermined, it creates a difficult situation for resolving conflict and making sure that everyone is doing their part to reduce denials. Hospitals and physician groups think that payers are the enemy, payers are just trying to keep everyone honest and, of course, make money for themselves, and the coders are the monkeys-in-the-middle who regularly vacillate between hating the physicians for having sloppy documentation and hating the payers for being cool and disinterested in the nuances of their unique patient demographic.

Using Medical Necessity Criteria (MNC) successfully requires constant attention, understanding, and on-going education. BHM’s reviewer network MNC expertise allows you to focus on patient care.  Click HERE and discuss how BHM’s MNC expertise can overcome medical necessity criteria challenges and improve your metrics.