Medical Necessity and Unnecessary Care

Medical Necessity and Unnecessary Care


Paul KeckleyUnnecessary care that’s not evidence-based—usually associated with excess testing, surgical procedures or over-prescribing—accounts for up to 30% of what is spent in healthcare. In recent months, enforcement actions against physicians and hospitals have gained increased attention. But unnecessary care and over-utilization is not a new story or one that’s easy to understand.


Medical necessity means something slightly different in every part of the healthcare industry. Varied definitions and interpretations are used by providers, physicians, courts, pharmacy benefits managers, government insurers, private insurers, and consumers. Perhaps the two most important are from the largest and most influential payer, Medicare, and the industry’s most important clinical authority, the American Medical Association (AMA).

In the Medicare program, “medical necessity” is defined under Title XVIII of the Social Security Act, Section 1862 (a) (1) (a): “Notwithstanding any other provision of this title, no payment may be made under part A or part B for any expenses incurred for items or services which, except for items and services described in a succeeding subparagraph, are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” It is a legal doctrine by which evidence-based clinical standards are used to determine whether a treatment or procedure is reasonable, necessary and/or appropriate.

“It is improper to bill Medicare for services or treatment that is not medically necessary. To knowingly do so is a violation of the False Claims Act… A physician who knowingly bills for services which are not medically necessary can be prosecuted for fraud by the Office of Inspector General (OIG). Violators face penalties of up to $10,000 for each service, an assessment of up to three times the amount billed, and exclusion from federal and state healthcare programs.” – Saul Helman, M.D., Managing Director and Leader, Navigant’s Healthcare and Life Sciences Disputes, Regulatory, Compliance and Investigations practice; 31 U.S. Code § 3729 – False claims (a) (1) (G)

The AMA defines medical necessity as: “Healthcare services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is: (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the economic benefit of the health plans and purchasers or for the convenience of the patient, treating physician, or other healthcare provider.” “Statement of the American Medical Association to the Institute of Medicine’s Committee on Determination of Essential Health Benefits,” American Medical Association, January 14, 2011

So based on these definitions, the application of “medical necessity” leaves lots of room for variation in how doctors and hospitals determine what’s done, and how payers (Medicare, Medicaid, employers, individuals) assess the appropriateness of their activities and costs. Therein is the conundrum about medical necessity and unnecessary care and the need for fresh thinking about the issue.

The basic facts:

Over-utilization and unnecessary care is prevalent and costly: Several reputable studies point to systemic over-utilization costing the U.S. system up to 30% more than what’s necessary (Exhibit A). The U.S. health system is the world’s most expensive, and health costs, per the Congressional Budget Office, will continue to increase at least 2-3% faster than the overall economy for the next decade. The costs associated with unnecessary care (a.k.a. medical necessity) are significant and growing. “The 2014 Long-Term Budget Outlook,” Congressional Budget Office, July 2014.

The government is cracking down on unnecessary care: Hospitals are increasingly being held accountable for the practice patterns of the physicians on their medical staff via the False Claims Act. Enforcement actions against both are on the rise and financial penalties harsh (see Exhibit B for recent cases).

Media attention is sparking public attention to unnecessary care: The Wall Street Journal calls its series, “Secrets of the System.” National broadcast and print news organizations have increased coverage of healthcare including its tendencies around medical necessity and unnecessary care. And social media is a hotbed for anecdotal assessments of “medical necessity”—some supported with objective data, most supported by personal experience, and a few judiciously studied and reported.

So if health costs are a looming problem in U.S. healthcare, and lack of consistency around the delivery of medically-necessary care is a systemic challenge that’s increasingly transparent, why isn’t more done? Most industry insiders offer these reasons:

The body of scientific evidence about what works best is expanding and changes fast. There are 20,000 medical journals. Keeping track of the latest innovations is almost impossible without using a clinical knowledge management software program that captures and filters relevant information useful to making patient diagnostic treatment decisions.
The strength of evidence about what works best and why is often weak. As more information about a patient’s signs, symptoms, risk factors and co-morbidities are factored into a treatment determination, the less likely it is that a clear “medical necessity” directive is found. Ironically, the more information (data) a clinician has about a specific patient, the less likely it is that a “medically necessary service” is dictated through a clinical algorithm or guideline.

Most consumers assume everything recommended is “medically necessary.” The majority of consumers assume that what their physician recommends is evidence-based, and few feel confident to challenge their view. Therefore, consumers want MORE not less in the majority of cases. And social media and media coverage is complicating matters as treatments-de jour become more widely known to consumers searching the latest and best treatments. The burden to stay abreast about traditional and nontraditional methods for diagnosing and treating is daunting, especially if reimbursements are cutting into time spent with patients.

Most providers necessarily err on the side of over-treatment. The majority of physicians and the institutions that credential them to practice tend to over-treat fearing liability exposure or the possibility of an inaccurate diagnosis. It’s precautionary and a business imperative (discounting it can be lucrative at the same time).

The health information technology tools that allow for real-time, accurate matching of a patient’s signs, symptoms, risk factors and co-morbidities to the latest and best evidence don’t exist or are too expensive. The integration of smart medical record systems shared by clinically-integrated networks and with their patients is still aspirational in most communities. These systems are expensive. Clinicians doubt that these systems will pay for themselves in improved efficiency (less paperwork), nor do they trust that payers will pay them more if they make the investment. And most consumers aren’t demanding them to make the investment. Instead, basic access, convenient locations and an assuring experience with doctor are of higher importance.

These views provide a defensible rationale as to why medical necessity and unnecessary care is a systemic challenge in our system, but in coming months, they may be seen more as lame excuses. The spotlight on unnecessary care and medical necessity is likely to shine brighter because:

Unnecessary care contributes significantly to the impressive profitability in many parts of the health system. Crackdowns on self-referrals and false claims routinely originate from the appearance of ill-gotten gain, whether justified or not. While providers complain of lower reimbursement, they are frequently guilty of doing more, whether necessary or not, and in some sectors, that translates to healthy profits and high compensation.
Unnecessary care can be harmful to consumers. There’s growing concern about over-use, especially among Millennials on behalf of their families. Compounding these suspicions, higher co-pays and deductibles, lack of price transparency and inadequate access to definitive clinical trial data (the evidence) is fueling consumer frustration. There’s ample reason to believe consumers are paying attention to unnecessary care because it’s risk they bear directly — physically, emotionally and financially.
The data and sophisticated analytic tools upon which determinations of medical necessity and unnecessary care are increasingly available. Defaults that “my patients are different” and “we don’t have the data” will fall on deaf ears.

What does it mean?

Documentation is key. Accurate clinical documentation across sites and systems of care is table stakes.

Transparency about medical necessity and unnecessary care is assured. Data about the performance of every practitioner, hospital, and health system will be widely accessible. And the evidence supporting coverage and denial decisions by insurers, formulary design by Pharmacy Business Managers (PBMs) and benefits managers, and the justification for narrow networks will be equally available.

Payments and penalties will follow. Payers and enforcement agencies are watching. Enforcement actions and application of penalties will likely increase, and programs like bundled payments and accountable care will be judged by adherence to medical necessity and avoidance of unnecessary care.

Physician leadership is vital. The role and scope of the Chief Clinical Officer in each organization will be more complicated, more clinical-data dependent and in some cases more adversarial with peers.

Medical necessity is not a simple term nor is its application in an organization a straightforward set of operating procedures and business processes. It is not an inside baseball topic. More are watching, and expectations are more targeted and direct.

Responding appropriately requires fresh thinking, urgent attention and ongoing vigilance. That’s the full story about medical necessity and unnecessary care.

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10 Comments on "Medical Necessity and Unnecessary Care"

Healthy Blogger 2.0
Nov 7, 2018

This blog post brings light to the important topic of unnecessary care, and its increasing contribution to health care spending in the United States. With the United States spending twice as much in total health expenditures per capita compared to other developed countries while ranking 37th in the world when it comes to health outcomes, the skyrocketing costs coupled with low-value care has created a grossly unsustainable health care system. As mentioned in this blog post, since it is estimated that $200 billion of annual health spending is wasted on excessive testing and treatment that often times lead to harm, it is imperative that reform efforts designed to control costs address waste reduction while improving quality of care.

When looking into addressing the fundamental problem, it is important to first further unpack the drivers of unnecessary care in the United States. The blog post cites that one driver of overtreatment and unnecessary care is physician fear of liability/litigation, leading to defensive medicine in which clinicians order extra tests and procedures to err on the side of caution and avoid missing a diagnosis. A Johns Hopkins research study published in PLOS One, surveyed 2,106 physicians from the American Medical Association and found that 85% of physicians felt that a major cause of overtreatment was fear of malpractice. While it is clear that this driver of overtreatment is real from the physician perspective, the fear is unfounded given the data regarding malpractice suits. In reality, only 2-3% of patients that are harmed by negligence actually move forward with litigation, and only half of those who do end up receiving compensation. On top of this, the last decade has seen paid claims decline by nearly 50%, and it has been reported that simple interventions such as honest disclosure can further mitigate litigation. So although fear of litigation is driving unnecessary care, a systematic education program for physicians to bring awareness about the unneeded efforts towards defensive medicine coupled with a message outlining the potential harm for overtreatment may considerably decrease unnecessary care.

Medicare is described in this blog post as the largest and most influential payer in the United States and is a specific segment of the health care landscape that is worth further investigating. When looking at the population that Medicare serves, the topic of chronic conditions contributes significantly to health spending and requires multiple points of care. In fact, 84% of health care spending is on people with chronic conditions. The average Medicare beneficiary is likely to live with multiple chronic conditions and is typically being cared for by two primary physicians and five specialists across four different practices. This kind of fragmented and disjointed delivery system combined with financial incentives that reward volume over quality lead to inadequate coordination across settings and providers, which ultimately leads to unnecessary care. Veronica Thomas’s research at AcademyHealth shows that one-fifth of fee-for-service Medicare beneficiaries discharged from the hospital are readmitted within 30 days, and three-quarters of these readmissions (costing 12 billion dollars annually) are in categories of diagnoses that are potentially avoidable.

It seems clear that in the context of Medicare beneficiaries with chronic illnesses, and also the larger landscape of the American health care system, failures in care coordination lead to fragmented health care delivery that ultimately leads to inappropriate testing, treatments, and hospital utilization. Accountable Care Organizations have been further implemented since the passing of the Affordable Care Act, and have had specific goals to promote collaboration and coordination of care to decrease the use of unnecessary services, reduce duplicative care, prevent defensive medicine, and implement high-quality interventions. The early results of ACOs are mixed, with some groups performing better on quality measures but most providers not achieving shared savings targets. There is a small group of ACOs, however, that are outperforming their peers when it comes to reducing costs and improving quality. These organizations are able to provide this level of care by promoting a high-value culture with clinician leaders that prioritize value-care, and also developing systems to identify high-risk patients. Studies show that 5% of patients – sometimes dubbed “super-users” – account for 50% of health-care spending in the U.S. Using this statistic and the successes of high performance ACOs, a systematic approach from a policy perspective would be to identify Medicare beneficiaries that are at the highest risk, and then to align coordinated care structures with these patients to provide a collective, team-based clinical care to reduce unnecessary care, improve quality, and mitigate costs.

Implementing coordinated care models has proven to improve the output of high-value care in health care delivery. The Mayo Clinic is a prime model, a hospital that consistently scores the highest in quality metrics while ranking in the bottom decile when it comes to Medicare expenditures. One significant contributor to this is a hospital culture that fosters a team-based approach in clinical decision-making, which inherently leads to coordinated care, and as a result, low levels of unnecessary care. But in addition to coordinated care approaches, another more direct way to reduce unnecessary care is addressed in the “Choosing Wisely” campaign. This campaign was an initiative that collaborated with over 60 medical specialty societies to identify more than 300 recommendations for tests and treatments that should be categorized as unnecessary and contributors to overuse. The initiative focuses on professional education through participating medical specialty groups to promote and recommend the more prudent use of such treatments/procedures. Rather than relying purely on recommendations to address this level of unnecessary care, a systematic approach from a policy perspective could be to implement financial incentive structures that penalize doctors for using any of the treatments listed in “Choosing Wisely” that are proven to provide little to no value to the patient. This could potentially curb high-volume, low-value care which could then reduce monetary costs while also improving patient outcomes.

The Institute of Medicine suggests that unnecessary services is the largest contributor to waste in the United States health care. As mentioned in this blog post, finding the line between medical necessity and unnecessary care is tricky but especially relevant in our day and age to address the unsustainable growth in healthcare costs. I propose addressing the issue of unnecessary care via a multipronged policy approach to incentivize coordinated, high-value care while mitigating overtreatment. The first step would be an education campaign to inform doctors about the realities of malpractice and litigation in the healthcare context in order to reduce the extent of defensive medicine and subsequent unnecessary care. The second would be to implement best practices from high-performing ACOs and specifically target the high-risk, chronically ill patients under Medicare to improve coordination of care. The final policy approach would be to use financial incentives to discourage the use of procedures deemed “unnecessary” by the Choosing Wisely campaign. I believe that these different methods of addressing unnecessary care would complement those that are mentioned in this blog post, and ultimately lead to a more sustainable system of healthcare delivery.

Feb 1, 2015

Agreed, 30% (likely more) unnecessary care.

Agreed: “The body of scientific evidence about what works best is expanding and changes fast.”….(which makes it near impossible for some bureaucrat or algorithim to make the judgement correctly).

Agreed: “The strength of evidence about what works best and why is often weak.”

Agreed: “The health information technology tools that allow for real-time, accurate matching of a patient’s signs, symptoms, risk factors and co-morbidities to the latest and best evidence don’t exist or are too expensive.”

Agreed: “Clinicians doubt that these systems will pay for themselves in improved efficiency (less paperwork), nor do they trust that payers will pay them more if they make the investment.”

Agreed: “And most consumers aren’t demanding them to make the investment.”

Disagreed: “The data and sophisticated analytic tools upon which determinations of medical necessity and unnecessary care are increasingly available.”….for all the reasons you pointed out in the above quotes.

The essential ingredients for reducing unnecessary care already exist:
1.the engaged patient with a financial incentive to shop for care (usually through a health savings account).
2. a doctor who helps/coaches the patient in looking at all the alternative treatment paths and their benefits and risks.

William Palmer MD
Jan 31, 2015

All in all, I think Allan is correct. Erring on the side of FFS with its documentation is preferable to capitation and bundling. This is why payers insist on seeing the individual charges along with the capitation and bundling invoices. Medicaid and Medicare want to see itemized hospital bills along with DRS and per diems. In fact, is not FFS the default payment for the entire global commercial system? Fooling around with these other systems is financial dilettantism and disguises the sole motive of spending less.

William Palmer MD
Jan 31, 2015

In capitation and somewhat in bundling, risk is shed from the insurer to the provider. The insurer’s whole being is risk management and managing the float. If providers are going to suceed in these efforts we need actuarial services too. And we need re-insurance.

We have these huge billion dollar companies with all these actuaries dumping risk on a few docs in a group practice who they must think are turnips. We have to have the tools to manage capitation risk if this watershed change is imminent.

allan .
Jan 31, 2015

It seems the remark by EtAli.Jr has returned.

I wonder what is happening.

allan .
Jan 31, 2015

What happened to the remark by EtAli.Jr that my last shorter posting was responding to? It suddenly disappeared.

Jan 30, 2015

“Unfortunately more frequently than not there is no paper trail to prove that medically necessary care is being denied. That is a major flaw in the incentives behind capitated systems that has yet to be adequately addressed. It has caused lives to be lost and illnesses left untreated (due to the system rather than the talent of a physician).”

If medically necessary care is denied by a carrier or managed care organization, there is in fact a ‘paper trail’ that is if nothing else created to provide CYA in the case of a bad outcome that results in an audit or possible litigation. The quality of the process that creates such a trail and the resulting content of such paper trails is often mediocre if not unintelligible. That process starts with an appeal by the care provider ordering the treatment or procedure.

However, if an ordering physician does not initiate an appeal for some treatment or procedure they feel is medically necessary, then the documentation for that ‘denial of service or care’ is what they record in the medical record coupled with a minimal amount of information that is retained by the managed care organization with the ‘rationale’ for the denial.

Thus, what an ordering physician places in the chart is even more important though requiring more time than should be expected. One possible solution is to leverage EMR/EHR technology and collect data on such cases within practices to help indicate a correlation between denials and poorer if not bad outcomes (versus non-denied ‘controls’). Such a data driven approach is much harder to argue with when discussions are had with agents of the carrier/MCO and clinical and business leadership of one’s hospital or clinic.

allan .
Jan 30, 2015

The incentive to deny treatment can be held by both the capitated care carrier and the physician. The physician takes the history and creates the record or the lack of record. Without a record, a second party or an autopsy it is pretty difficult to demonstrate that necessary care was denied due to the incentives of a capitated plan.

allan .
Jan 30, 2015

“Therein is the conundrum about medical necessity and unnecessary care and the need for fresh thinking about the issue.”

There are two ways to deal with the issue. 1)FFS 2)Capitation

FFS can cause overuse, but when I checked years ago on the government web site I found that physicians mostly stayed within the law when acting in their capacity as a physician treating patients. They were better than expected.

Thus we are left with the question of marginal care which generally is of marginal benefit to the patient. An observer could say one doctor is doing too much and wasting money while at the same time another observer can say that the doctor is doing too little so the patient suffers from a missed diagnosis or untreated disease. That makes this question of marginal care difficult to manage as we don’t know if too little or too much care is being provided. The statistics with regard to this question favor whatever side of the argument is doing the study so any data with regards to studies performed is highly questionable at best.

Fortunately marginal care almost always leaves a paper trail that can be used by law enforcement to crack down on such care.

Capitation is the alternative to FFS. In this case the desire is to limit the care provided for money is made whether or not that care is necessary. The capitated provider gets X amount of money and whatever remains is his to keep. That is a very strong incentive to deny care even in the best of hands.

Unfortunately more frequently than not there is no paper trail to prove that medically necessary care is being denied. That is a major flaw in the incentives behind capitated systems that has yet to be adequately addressed. It has caused lives to be lost and illnesses left untreated (due to the system rather than the talent of a physician).

When Dr Keckley talks about “Payments and penalties will follow. ” He is talking about economic credentialing. As a whole businesses look towards increasing profits not decreasing them so the business will lean in the direction of not treating when they are lump some and some of that failure to treat will be necessary medical care.

Jan 29, 2015

Your Blog Title says everything, its an awesome creativity.