Necessity vs. benefits: Know the difference

Be aware of when to fight insurers

Disagreements over whether a specific service is medically necessary and whether it’s a medical benefit under the terms of a particular health plan are often at the root of many of the conflicts over coverage and claim denials between payers and providers. But keep in mind that medical necessity and medical benefits are two entirely different things — something health plans often fail to adequately educate either providers or patients about.

Each payer you deal with probably has its own definition of medical necessity. However, the following characteristics are common to all definitions, according to the American Academy of Family Physicians in Leawood, KS:

• Care should be appropriate.

• Care should resolve a problem or improve the patient’s health, functioning, or well-being.

• Care should be provided in accordance with standards of good medical practice or generally accepted medical practice.

• Care should not be experimental, educational, or investigational.

While physicians define their patients’ needs based on what they perceive as clinical necessity, "from the perspective of the health plan, a patient’s needs are based on medical necessity, which takes into account perceived clinical necessity plus corporate protocols and standards that reflect economic criteria such as relative cost-effectiveness, the availability of less costly alternatives, and the benefit structure of the patient’s health plan," says James Bare, a policy analyst at the AAFP. "Unless the case is submitted to outside review or arbitration, the health plan has the final word on medical necessity."

Is it covered? Is it needed?

This means some services may be covered under the terms of the patient’s contract but might not be considered medically necessary, or they may be medically necessary but not covered. Where payers and providers often tend to come into conflict over reimbursement is when a patient’s plan clearly covers a certain kind of service, but the plan determines it was not needed. The likelihood that a plan will deny a claim is often a function of how the spheres of medical necessity and benefits interact, maintains Bare.

The following matrix, developed by Bare, will help you determine how likely you are to have a claim denied based on the interplay between medical necessity and medical benefits in each situation.

Need equals coverage. The health plan determines there is both clinical need and contractual coverage. Most care falls into this category. The bill is paid.

Need/No coverage. The plan determines there is clinical need for a treatment but no coverage. For example, a patient is a candidate for Viagra, but his employer excludes the drug as a treatment for impotence. The bill isn’t paid.

No need/No coverage. The health plan determines there is neither clinical need nor coverage for a particular treatment. For example, if there is a request for surgery or a corrective device for a child born with a cranial deformity, the plan might argue that the surgery is cosmetic rather than medically necessary because there is "no observable adverse impact" from the deformity. Thus, the service would not be covered, because cosmetic surgery is not a covered benefit under the terms of the family’s contract with the health plan. "Conflict is likely, since the parents will probably perceive the existence of a very real need, even if the treatment is considered by the physician not to be medically necessary," notes Bare.

No need/Coverage. A patient is clearly covered for a proposed service, but the health plan determines there is no need. "Here is where you have the greatest potential for conflict between the plan, physician, and patient," he says. Often, the health plan may simply disagree with the physician’s recommendation or may argue that it conflicts with the health plan’s protocol for the disease or condition in question. This is where clear documentation and a willingness to fight the initial coverage decision can pay off.

Treatment is experimental. Generally, a procedure or technology is no longer considered experimental when it has Food & Drug Administration (FDA) approval or, in the case of a drug, when major drug company has listed it as safe and efficacious for a particular use. However, "these criteria may not be sufficient from the perspective of some health plans," says Bare.

The FDA tests primarily for safety, not effectiveness, he points out. Most FDA reviews are 510(k) reviews, which are meant to assess claims of substantial equivalency with a device marketed before 1976. It is also possible that a manufacturer produces a product that is equivalent to a procedure or technology of no value. In fact, "only 20% of medical interventions in current use have substantial research support," estimates Bare.

Fighting back

More and more states are adding formal procedures to appeal denied coverage and claims. Also, the U.S. Department of Labor has proposed a new set of national standards for governing the time it should take to make and appeal a coverage decision. When a patient wishes to fight a plan’s decision to deny a claim for a service, the patient’s options include:

Litigation. While the Supreme Court has affirmed that health plans cannot be sued for giving doctors financial bonuses to hold down treatment costs (Pegram et al v. Herdrich), health plans can be sued for denials of care. "In general, the courts appear inclined to treat these cases as quality-of-care issues rather than denial-of-benefits issues, thereby permitting many cases that might have otherwise been dismissed to go forward," says Bare.

One increasingly popular legal strategy is to file these cases in state courts under the Racketeer Influenced and Corrupt Organizations Act, which allows for larger damage awards than cases filed under the Employee Retirement Income Security Act of 1974 in federal courts.

A New York appellate court recently ruled that Prudential members can sue the plan in a class-action suit for fraud, breach of contract, and deceptive trade. "The basis of this class-action suit was that, through its marketing tools, Prudential said its doctors would make medical determinations, when, in fact, the determinations were made by nurses using the much-debated clinical guidelines produced by the actuarial firm of Milliman & Robertson," says Bare.

Department of Labor regulations. Just because scientific evidence clearly demonstrates the value of an intervention (i.e., it prevents or lessens the impact of disease more effectively than does the current established standard of care), that does not mean the health plan will agree to pay for the intervention. In such instances, the new regulations from the Department of Labor will require health plans to provide "the specific reason or reasons for rejected claims and reduced benefits," he says. In the case of denials due to the experimental nature of the requested service, the health plan will also be required to "explain the scientific or clinical judgment of the plan" on request.

State mandates. Health plans must comply with legislative mandates to cover certain services. It is estimated that 22% of total benefit dollars are associated with legislative mandates. Federal and state legislative mandates supersede contractual obligations and require the health plan to cover mandated services, even when the issue of whether the services are experimental or mainstream is unresolved.