Medical Necessity and Coding
Medical necessity is the cornerstone of healthcare billing. Even if the correct medical code is used, a claim can still be denied if the service is not considered medically necessary. For a claim to be paid, both clinical justification and proper coding must align.
This guide explains what medical necessity means, how it relates to coding, and how providers can document and code accurately to avoid claim denials.
1. What Is Medical Necessity?
Medical necessity means that a healthcare service:
Is needed to diagnose or treat a medical condition
Meets accepted standards of medical practice
Is appropriate for the patient’s symptoms
Is not primarily for convenience
Is safe and effective
Payers—such as Medicare, Medicaid, and private insurers—use medical necessity rules to determine whether a claim should be reimbursed.
Examples of services requiring medical necessity justification
Imaging (e.g., MRI, CT, ultrasound)
Lab tests
Procedures and surgeries
Hospital admissions
Durable medical equipment (DME)
If documentation does not support the need for the service, the payer can deny the claim—even if the CPT, HCPCS, or ICD-10 codes are correct.
2. How Medical Necessity Relates to Coding
Correct coding supports medical necessity but does not replace it.
Coding components that support medical necessity
• ICD-10-CM (Diagnosis Codes)
Explain why the service was needed.
These codes must clearly reflect the patient’s condition or symptoms.
• CPT/HCPCS (Procedure Codes)
Explain what service was performed.
The code must match what was done, documented, and needed.
To justify the service, the ICD-10 diagnosis must align with the CPT or HCPCS procedure.
3. The “Why” and the “What” Must Match
A critical rule:
The diagnosis (ICD-10) must justify the procedure (CPT/HCPCS).
Example:
CPT Code: 93000 – Electrocardiogram (ECG)
To be covered, ICD-10 diagnoses might include:
Chest pain
Shortness of breath
Irregular heartbeat
But if the diagnosis is “annual exam,” the ECG may be denied for lack of medical necessity.
4. Key Elements of Medical Necessity
1. Appropriate Diagnosis
Symptoms, abnormal findings, or clinical reasoning must support the need for the service.
2. Clear Documentation
Progress notes should include:
Chief complaint
History and symptoms
Clinical findings
Reasoning for tests or treatment
Treatment plan
3. Correct Coding
Codes must match the documentation—not assumptions or templates.
4. Compliance with Payer Policies
Medicare and insurers publish:
Local Coverage Determinations (LCDs)
National Coverage Determinations (NCDs)
Policy guidelines
These specify which diagnoses support which procedures.
5. Common Reasons for Medical Necessity Denials
Diagnosis codes do not support the service
Insufficient documentation
No specific symptom documented
Use of unspecified diagnosis codes
Wrong CPT/HCPCS code chosen
Payer policy not followed
Example:
Ordering a “Vitamin D test” for general screening is usually not considered medically necessary.
6. Improving Medical Necessity Compliance
✔ Use specific ICD-10 codes
More specificity = clearer clinical justification.
✔ Educate providers on documentation
Providers should document:
Patient symptoms
Clinical assessment
Decision-making rationale
Response to treatment
✔ Map ICD-10 to CPT
Use diagnosis-to-procedure crosswalks to ensure alignment.
✔ Review payer coverage policies
Check LCDs/NCDs for allowable diagnoses.
✔ Avoid cloning/copy-paste documentation
Repeated or irrelevant information fails audits.
✔ Use coding audits and compliance checks
Regular internal audits reduce risk of denials and penalties.
7. Examples of Proper Medical Necessity Coding
Example 1: Diagnostic Imaging
Service: Knee X-ray (CPT 73560)
Justified by ICD-10:
Knee pain (M25.561)
Injury from fall (W19)
Not justified by:
General screening codes
Routine exam
Example 2: Laboratory Testing
Service: A1C test (CPT 83036)
Justified by ICD-10:
Diabetes (E11.9)
Prediabetes (R73.03)
Not justified by:
Non-specific codes like Z00.00 (general exam)
Example 3: EKG
Service: EKG (CPT 93000)
Justified by ICD-10:
Chest pain (R07.9)
Hypertension crisis (I10)
Palpitations (R00.2)
Not justified by:
No symptoms documented
8. Why Medical Necessity Matters
For Providers
Ensures proper reimbursement
Avoids audits and penalties
Supports accurate clinical care
For Patients
Avoids unexpected bills
Ensures appropriate and needed care
For Payers
Controls costs
Ensures evidence-based practice
9. Summary
Medical necessity ensures that healthcare services are clinically justified and appropriately coded. Coding accuracy alone is not enough—documentation must clearly show why a service was needed and match the procedure being billed.
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