Medical Necessity: Do We Need It?

Abstract

Prologue: For more than thirty years public and private health insurance plans have used the term medical necessity as a placeholder to define the limits of their benefit coverage, despite widespread disagreement about its meaning. Initially, medical necessity was used to ensure that providers were paid for services performed. Now, Linda Bergthold argues, it is used primarily as a tool to control the use of scarce resources. Medical necessity has assumed greater importance, particularly because of the growth in managed care and integrated health systems and the development of expensive new technology and treatments. Because this term is undefined and thus open to interpretation, its use as the basis of coverage decisions can result in costly litigation to resolve disputes among providers, payers, and patients. Several questions must be addressed: What criteria must a treatment, service, or supply meet to be covered by insurance? Who should make these decisions? Finally, how should conflicts be resolved? In this paper, which was presented at an April 1995 symposium on medical necessity sponsored by the National Institute for Health Care Management and the Agency for Health Care Policy and Research in Washington, D.C., Bergthold discusses the historical and current use of medical necessity and the impact of the national health care reform debate on the term. She also suggests ways to clarify the term and presents alternatives to replace it altogether. Bergthold is a vice-president of Lewin-VHI, in Sausalito, California. She works in the firm's public policy and health care organization practices, focusing on state health care reform, benefit design, and strategic planning. Prior to this, she was a principal of William M. Mercer, Inc., in San Francisco. She served on the White House Health Care Reform Task Force as cochair of the working group on benefits coverage. Bergthold holds a doctorate in sociology from the University of California, Santa Cruz. Abstract: The term medical necessity has been mainly a placeholder in insurance plans for over thirty years. More recently, the national health care reform debate and litigation over denials of costly experimental treatments have broken the term out into open discussion about what a necessary service is and who should decide if it is covered. This paper summarizes the history of the term and its evolution from an insurance concept controlled by practicing physicians to a rationing tool used by insurance administrators. How did national reform efforts address this terminology, and how should we define medical necessity in a changing delivery system?

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