Things I Didn't Learn in School: Medical Necessity

Periodically, I will be posting on elements of practice that are important to functioning as a clinician, but weren't covered in my graduate school training. The first of these is: Medical Necessity.

For those lucky few who do not work with third party payors (i.e., health insurance companies), medical necessity may be a foreign concept. For anyone who hopes to receive third party payment, it's a vital part of case documentation. Basically, insurers will only pay for treatment that is deemed medically necessary. If you get audited and have not adequately documented the medical necessity of your services, the insurance company can refuse payment or require you to give them money back. Not a good thing!

So, what criteria determine medical necessity?

1. There must be a documented mental disorder - a DSM diagnosis with supporting evidence. For example: "Tim suffers from Major Depressive Disorder, with symptoms including increased sleep and appetite, loss of interest in his usual activities, isolation, loss of motivation, and feelings of hopelessness and worthlessness."
2. The mental disorder must cause significant functional impairment (if you check the DSM, you'll note that all diagnoses actually include "clinically significant" impairment in functioning as a diagnostic criterion). Possible functional impairments include educational, occupational and social functioning, judgment, and self-care or safety. For example: "As a result of these symptoms, Tim's occupational functioning is impaired and he is in danger of losing his job."

But, it's not enough to just document that the person needs treatment, based on the two criteria listed above. You also need to demonstrate that you're providing appropriate treatment:

1. Treatment provided must be consistent with accepted standards for the diagnosis and degree of impairment (e.g., someone with mild occupational impairment doesn't need an intensive outpatient program)
2. There needs to be a treatment plan showing how treatment will address the mental disorder and functional impairments, as well as behaviorally-worded discharge criteria.
3. Progress notes should demonstrate that the treatment plan is being applied. There should be evidence of both progress as a result of treatment (based on what is reasonable for the diagnosis), and continuing impairment to warrant continuing treatment.

Medical necessity can feel like busy work, or one of those annoyingly inconsequential things managers nag about. On the other hand, it can be an important systems of checks and balances to prevent abuse of the healthcare system. How do you see it in your own practice?

Reference: Wiger (2005) The Psychotherapy Documentation Primer (PracticePlanners)