Three-step medical necessity action plan


Published 11/1/2018
Michael Marks, MD, MBA; Karen Zupko

Medical Necessity Monopoly: How to Avoid ‘Chance’ and Advance to ‘GO’

A three-step medical necessity action plan can help ensure payment

Consider the following: A patient presents to your office complaining of symptoms that indicate a possible herniated disk. A history notes symptoms following the S1 nerve root, and your examination finds right radicular signs. You order an MRI to confirm your findings and proceed to discuss herniated disk surgery with the patient.

Is it time to escort the patient to the surgery scheduler? Not yet. The unanswered question in this scenario is whether the herniated disk surgery is medically necessary for this patient. Scheduling the case at this time would be akin to picking a card from the game of Monopoly’s Chance pile. And you better hope it’s not the card that says you cannot pass GO.

Although the MRI confirmed the patient’s condition, what’s needed, from the payer’s perspective, is supporting documentation that corroborates that now is the right time for this patient to proceed with this surgery. Without that documentation, it’s unlikely the surgery will be preauthorized. Even if you perform the surgery, send a claim, and receive reimbursement, a random or retrospective audit by a payer could result in you having to pay that money back if the payer’s definition of medical necessity was not met. For fiscal year 2017, the Medicare fee-for-service program had $6.3 billion in improper payments due to inappropriate medical necessity, representing 17 percent of all Medicare payments. That is money that Medicare may attempt to reclaim. Additionally, this figure excludes monies private insurers may seek to reclaim due to improper payments for medical necessity.

Here’s how to do things right—and in the correct order—to satisfy a payer’s medical necessity requirements.

Start with payer medical policies

As nefarious and opaque as insurance companies may appear, one area where they are quite clear is in their medical policies, also known as coverage policies. Payers do a pretty good job developing them with input from physicians, nurses, researchers, and other clinicians. The groups comb the medical literature and determine, based on the level of evidence, whether they think there is enough evidence to pay for a procedure.

If the medical policy development group determines a procedure should not be paid for, it’s labeled “experimental and investigational,” which means that if the patient proceeds with surgery, he or she is responsible for payment. Due to conflicting literature, some insurance companies consider hyaluronic acid experimental and investigational; in such cases, if you want to receive payment for this treatment, you must collect from the patient.

If the medical policy development group determines a procedure is a covered benefit, the resulting policy is quite clear about the steps required to justify medical necessity. It includes an array of granular details, such as appropriate International Classification of Diseases, 10th Edition Clinical Modifications (ICD-10) and Current Procedural Terminology (CPT) codes and specifics about conservative treatments that must be tried prior to a procedure.

Per the disk herniation patient example detailed previously, the physician would need to adhere to a medical policy, which typically states that a patient should have a trial of nonoperative care for four to six weeks prior to obtaining insurance company approval. As such prior treatments, documentation is required.

In another example, the policy might state that hip arthroscopy is covered if the patient has radiographically confirmed Tonnis 1 arthritis. However, the same procedure is inappropriate and won’t be paid if the patient is Tonnis 2 or 3—the degeneration is too advanced. Therefore, to support medical necessity, your documentation must discuss Tonnis 1 radiographic findings.

The modern surgeon’s dilemma

What happens if your documentation, studies, and recommendation indicate that the procedure is appropriate for a patient, but the payer’s medical policy requirements say otherwise? That’s the modern surgeon’s dilemma.

Providers have essentially two options for dealing with such payer restrictions:

  1. Bill the procedure anyway, knowing you haven’t met medical necessity, and cross your fingers that you receive payment. If you do get paid, hope that you don’t get audited for a clawback. We don’t advise this option.
  2. Be transparent and collect from the patient. Explain that, although you feel the procedure is the correct course of action, the insurance company won’t pay for it. Calculate for the patient what he or she will owe, and collect it prior to the date of surgery. We do advise this option. As mom always said, honesty is the best policy. In addition, the practice should have the patient sign a waiver. Medicare beneficiaries sign an advanced beneficiary notice (ABN), whereas commercial patients sign waivers.

An ABN, also known as a waiver of liability, is a notice given to a patient by a physician before a service is received if, based on Medicare coverage rules, the doctor has reason to believe Medicare will not pay for the service. This happens when something might be covered if certain criteria are met but is not covered in the particular case. (For more information about when and how to use ABNs, see “Staff Issuing Patients Blank ABN Forms Is Not Acceptable,” AAOS Now, July 2018.)

If you find that some patients have difficulty paying out of pocket, offering a financed payment option such as CareCredit ( or a loan option such as Green Sky ( can help them get the care they need. In order to stay in private practice today, a group must have a full toolbox of sophisticated payment options.

Preparation is vital to getting medical necessity right and receiving payment. We recommend following these three steps.

1. Review medical policies from your top 10 payers for your most common procedures. Most plans include their policies on their websites, and Google is the fastest way to find a specific policy. For example, when we typed in “knee arthroscopy Cigna coverage policy,” the link to the full PDF policy was the first organic search result that appeared, just below Cigna’s paid ad listing.

Here’s an excerpt from the policy for diagnostic arthroscopy of the knee. The bold and italics are Cigna’s. Note the clarity in the guidance.

Diagnostic arthroscopy is considered medically necessary when all of the following criteria have been met:\

  • disabling mechanical knee pain
  • loss of knee function that interferes with the ability to carry out age-appropriate activities of daily living and/or demands of employment for at least six months in duration
  • all of the following:
    • failure of nonsurgical management for at least three months in duration
    • MRI is inconclusive for internal derangement/pathology
    • any one of the following:
    • limited range of motion
    • evidence of joint swelling/effusion
    • joint line tenderness

Diagnostic arthroscopy is considered not medically necessary for any other indication.

2. Create “cheat sheets” for each procedure that lay out payer policy details. Create a binder or online document for each of your common procedures. For each procedure, include the medical necessity and other billing guidelines for each of your top 10 payers. For example, for total hip replacement, Anthem lists the correct CPT codes and supporting ICD-10 codes to use; the documentation required for the patient’s history of conservative treatment; and the amount of physical therapy required, if prescribed. Be sure to list all of the payer’s covered diagnosis codes mapped to the covered CPT codes. Although you are paid on CPT codes, denials are typically driven by ICD-10 codes. Sharpen your diagnosis coding skills, and you will likely see denials decrease.

Assign this project to your billing team. Cheat sheets give you a fast and easy way to check off whether you have all the right criteria for precertification or preauthorization, and, ultimately, coverage and payment.

3.Use the “magic words” from the medical policy when documenting or dictating. Think of the medical or coverage policy as a recipe for payment. Follow the recipe when assembling documentation for preauthorization or precertification and for the claim. Include the exact terminology the plan uses (a.k.a. the magic words) to describe the problem, treatments tried, and the CPT and ICD-10 codes specified in the policy. Avoid electronic health record “note bloat” by dictating your responses to the payer’s medical necessity guidance. For instance:

  • History: State the problem and its duration and the treatment options tried, as well as the result.
  • Plan: Summarize why the patient has failed medical therapy or injections and your discussion with the patient about other available options. Also include your recommendation of why you believe this procedure is now appropriate for the patient.

When documenting medical necessity, don’t pick a card from the Chance pile. Compile payer medical policies and follow them to the letter. Use cheat sheets and magic words in your documentation. Even when a prior authorization or precertification is not required, make sure you have met payers’ medical necessity requirements. Planning and attention to detail will help you pass GO and collect $200 (more, we hope) every time.

Michael Marks, MD, MBA, is an orthopaedic surgeon; consultant with KarenZupko & Associates, Inc. (KZA); and senior medical director at Relievant Systems. He is a past member of the AAOS Coding, Coverage, and Reimbursement Committee.

Karen Zupko is president of KZA, a consulting and education firm that has advised physicians for more than 30 years. The firm has partnered with AAOS to deliver annual coding and reimbursement workshops for more than 25 years.


  1. Centers for Medicare & Medicaid Services: CMS’s 2017 Medicare fee-for-service improper payment rate is below 10 percent for the first time since 2013. Available at: Accessed on October 11, 2018.