Expert Article: Medical Necessity and the Hospitalist


Medical Necessity Definition

Medicare defines medical necessity as “services or items that are reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”


Other industry definitions include the following: services, procedures, treatments, supplies, devices, equipment, facilities, or drugs (all services) that a practitioner exercising prudent clinical judgment would provide to evaluate, diagnose or treat an illness, injury, disease, or its symptoms.


Such services must be in accordance with generally accepted standards of practice. They also must be clinically appropriate in terms of type, frequency, extent, site, and duration, and they must be considered effective for the individual’s condition or injury. In addition, services may not be primarily for the convenience of the patient or provider. Nor may they be more costly than an alternative service or sequence of services that are at least as likely to produce equivalent therapeutic or diagnostic results.


Background Considerations that Impact a Payer’s Determination of Medical Necessity 

If a claim is submitted without a “medically necessary” diagnosis code, a payer’s claims adjudication software is likely to deny it. While a clinician may believe that a specific service is medically necessary based on his or her treatment decisions for a patient, a payer may determine that service to be “not reasonable and necessary” and deny payment. As far as the payer is concerned, without an ICD-10 diagnosis to indicate the signs, symptoms, medical problems, or family history that support a specific test or service, that service could be considered a screening test or a convenience for the patient. Treating a patient for multiple, distinct conditions requires that a provider order and perform tests, and then evaluate the results to help diagnose or manage other potential problems. Each of these services – especially special studies (i.e., CT, US, MRI, CTAs, etc.) –  must be supported by specific diagnosis codes that help establish medical necessity for each distinct problem.


Payer medical directors are often called upon to determine whether a service or supply is “medically necessary” in, at a minimum, the following scenarios:

  1. off-label use of a pharmaceutical for a medical condition or diagnosis that falls outside what are referred to as typical uses or covered conditions;

  2. the use of a specific treatment or therapy not considered “standard medical practice” for the condition or disease at hand; and

  3. the presence of several medical conditions and/or comorbidities that, together, establish a unique and compelling set of clinical circumstances. 


Who Determines Medical Necessity?

Primarily, the clinician ordering any treatment modalities and ancillary studies and determining ultimate disposition of patients (i.e., inpatient hospital, observation, ICU, or discharge) uses his or her medical training and experience based on standard of care for the practice of hospital medicine. The clinician ordering studies, treatment, and disposition determines medical necessity. 

Why is Medical Necessity Important?

  1. No claim should be submitted for non-medically necessary activities.
  2. All coders and auditors, though not primarily determining medical necessity, must feel comfortable that the services provided by the clinician were medical necessary given the documentation for the date of service being coded. Contacting other clinicians (various payers’ medical directors) with experience in hospital medical practice can assist coders and auditors when evaluating each medical record and date of service. 
  3. Medical necessity can be reinforced though simple adjustments to hospitalist medical record documentation, making it easier to defend future denials or enhance the clinician’s audit defense capabilities. 
  4. Hospital coding and billing personnel code and bill for the ancillary studies ordered by the hospitalist. Examples include CT scans, Ultrasounds, laboratory, and radiographic studies. These and other studies are billed to the various payers using ICD-10 diagnoses that are confirmed or ruled out via the results of these studies. These diagnoses are obtained from the differential diagnoses list that should be documented by the hospitalist when any Special Studies are ordered.  


How can the hospitalist better emphasize medical necessity for each date of service?

The secret to getting reimbursed for medically necessary services is to document in such a manner that the payer can clearly tell what problems (i.e., differential diagnoses) were being evaluated, any services that were ordered and performed to evaluate these problems, and any therapy that was ordered to treat them. In general, clinician (i.e., Hospitalist, ARNP, or PA) documentation should thoroughly spell out the rationale for treatment decisions, and the ordering of specific tests or procedures. Documentation should address the following:

  1. Current signs, symptoms or diagnosis(es) for which the test or procedure is being considered.

  2. Comorbidities that may affect the diagnosis and management of a specific problem.

  3. The influences of age, gender, family history, occupation, lifestyle, and pertinent risk factors. 

The following documentation methodology should satisfy payer requirements for medical necessity: 

  1. Documentation of medical necessity items in the MDM portion of the initial hospital care or the initial date of placement into observation can be especially helpful to coders, auditors, and hospital coding and billing personnel. Documentation of an initial problem list is the easiest way to achieve this.

  2. On the initial date of service, the hospitalist should document all differential diagnoses that are being confirmed or ruled out via the order of any  ancillary studies, as well as any treatment modalities that are being ordered to treat a patient’s condition(s) or symptom(s). Examples include the following:

    1. Hypertension: plan to treat with diuretic and amlodipine.

    2. Diabetes: plan to treat with sliding scale insulin for today and adjustment to longer acting tomorrow.

    3. Congestive Heart Failure: will treat with daily furosemide, oxygen by nasal cannula, monitor cardiac rhythm and daily chest x-rays. Will follow Pro-BNP levels. 

    4. Headache: will rule out subarachnoid bleed, brain tumor, epidural or subdural hematoma with a CT scan of brain. CTA of neck and head will also be ordered to determine the blood supply in the neck and brain. 

    5. Urinary tract infection: will treat with IV Zosyn® and monitor culture for sensitivities. 

  3. In each of these examples, the hospitalist should document each problem, and then document any therapy that is required to treat each problem. For those problems requiring studies, particularly where Special Studies are required (i.e., CT, US, MRI, CTA scans, etc.), the working differential diagnosis(es) should also be documented, thus reinforcing the medical necessity for each study.

  4. For subsequent dates of service, the hospitalist should continue to use the problems list from the initial date of service. For any new problems requiring therapy or further work-up, the differential diagnosis(es) that the hospitalist is confirming or ruling out, any therapy required for treatment, and any procedures that are necessary to treat these new diagnosis(es) should also be documented. 

  5. Any change that has occurred for each problem, including if the problem has worsened or resolved, should also be documented.

  6. For those problems requiring additional work-up or therapy, the hospitalist should document any ancillary studies and therapeutic adjustments that have been ordered. 

  7. On the date of discharge, the hospitalist should re-examine the patient, and document the active problems list and the final diagnoses, as well as any prescriptions and follow-up instructions provided to the patient on discharge. 


Following these steps should diminish “medical necessity” claims denials, and bolster audit defense while also helping hospital coders make appropriate code choices.