Medical Necessity
Medical necessity is the payer determination that a service, procedure, or supply is appropriate and consistent with the patient's diagnosis, required for treatment of the condition, not experimental, and delivered in the appropriate clinical setting.
What is Medical Necessity?
For Medicare, medical necessity is governed by Local Coverage Determinations (LCDs) issued by Medicare Administrative Contractors (MACs) and National Coverage Determinations (NCDs) issued by CMS. LCDs specify which ICD-10-CM diagnosis codes support coverage for a given CPT procedure code. An incorrect or vague diagnosis code — such as a symptom code when the definitive diagnosis is known — is one of the most common causes of medical necessity denials (denial reason code CO-50). The Advance Beneficiary Notice of Noncoverage (ABN) must be provided to Medicare beneficiaries before rendering a service that is expected to be denied for medical necessity; without a completed ABN, the provider cannot bill the patient if Medicare denies. Medicare Advantage plans and commercial payers have increasingly extended prior authorization requirements to gatekeep medical necessity, with 35 million+ annual prior auth requests to MA plans alone. Medical necessity is a top focus area for OIG and RAC (Recovery Audit Contractor) audits.
Why It Matters for Healthcare Analytics
Medical necessity denial rates vary significantly by CPT code, diagnosis, and payer. Tracking CO-50 denial patterns by procedure and by ordering provider identifies systemic documentation deficiencies — not random billing errors. LCD compliance rates (the percentage of claims where the submitted diagnosis matches LCD coverage criteria) are an actionable leading indicator of denial risk before claims are submitted.
How Vizier Tracks Medical Necessity
Upload your claims and denial data, then ask "Which CPT codes have the highest CO-50 denial rate by payer this quarter?" — Vizier identifies medical necessity denial patterns by procedure and diagnosis combination, enabling targeted documentation improvement without manual claim-by-claim review.