Medical Necessity in Private Health Plans

Executive Summary

This report addresses how the term "medical necessity" is defined in private health insurance coverage decisions. It summarizes a review of the literature, an extensive review of legal cases that challenge insurer decisions, materials prepared by the insurance industry, consultation with experts in the field, a review of investigations conducted by State departments of insurance and attorneys general, and interviews with health care executives regarding the decisionmaking process itself. The report does not explore factors that can affect access to care that might be considered clinically necessary by treating professionals or the effects of medical necessity decisions on therapeutic outcomes.

Sources of medical necessity definition: Few regulations address the definition of medical necessity. There is no Federal definition, and only slightly more than one-third of States have any regulatory definition of medical necessity. As a result, the meaning of "medical necessity" is most commonly found in individual insurance contracts that are defined by the insurer and hold primacy in most determinations.

Rather than turning simply on whether a proposed treatment meets professional medical standards, the prevailing definition of medical necessity is broadly framed, multidimensional, and controlled by the insurer, not the treating professional. The process of medical necessity determination is rarely public information. Even where a claimant can show that a clinical recommendation is consistent with professional clinical standards, the insurer may reject a proposed treatment if it is inconsistent with other definitional elements such as relative cost and efficiency.

The multiple dimensions of the prevailing medical necessity definition: The evidence suggests that the medical necessity definition spans five dimensions:

Contractual scope-whether the contract provides any coverage for certain procedures and treatments, such as preventive and maintenance treatments that are not necessary to restore a patient to "normal functioning." This dimension preempts any other coverage decision.
Standards of practice-whether the treatment accords with professional standards of practice.
Patient safety and setting-whether the treatment will be delivered in the safest and least intrusive manner.
Medical service-whether the treatment is considered medical as opposed to social or nonmedical.
Cost-whether the treatment is considered cost-effective by the insurer.

Regulation of the medical necessity definition and coverage determination process: Some State external review laws provide appeals procedures that permit reviewers to reject the insurer's medical necessity definition and look at the evidence with a fresh eye. However, many State laws parallel insurers' multidimensional definitional approach. It does not appear that either the State or Federal regulatory process has moved away from the industry's prevailing medical necessity standard.

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