Decreasing Variation in Medical Necessity Decision Making

Medical Necessity was not a problematic issue when remote third party payers rarely challenged physicians' decisions and reimbursed physicians for whatever procedures they chose to order and perform. Over the past several decades, the term medical necessity has served as an innocuous placeholder, enabling insurance plans and physicians to make judgments about coverage that were usually unchallenged. The fact that individual physicians practiced differently and that some practice variation may be inappropriate was revealed by the path breaking work of John Wennberg, MD and colleagues at Dartmouth Medical School. Awareness of these differences, combined with rising costs, drew attention to the way decisions were being made. Until recently, neither consumers nor their physicians were fully aware of the power of the term medical necessity to deny care. The idiosyncratic way that coverage decisions are made in health care organizations has led to variation that creates inequity for consumers, greater cause for appeal of denials, and more litigation.

The California HealthCare Foundation funded research at Stanford University's Center for Health Policy to help clarify the coverage decision making process and to identify variation in the way medical necessity is defined and used in making coverage decisions in California. This information was intended to help promote greater clarity and consistency in decision making and to reduce conflict and litigation.