EDITOR’S NOTE: This is the first of a two-part series on the algorithms of medical necessity.

The rules of medical necessity and medical decision-making (MDM) are sure to trump the complexity of tax law for the foreseeable future. As the government continues to pump auditing contractors with funds to “fish,” the standard algorithm to determine medical necessity has become highly proprietary as providers find themselves under investigation for issues tied to inpatient and outpatient evaluation and management services. As the first of two pieces on this matter, this article will explore the processes of calculating medical necessity, and medical decision-making – and the subjective regulations that factor in.

Most of us who have been in the auditing industry for at least 10 years probably have seen the widely accepted score sheet originally developed by the Marshfield Clinic. The “point system” has morphed into several variations depending on the user, namely a payer, health system or consulting firm.


Likewise, if you ever had to educate a provider about the system, you know it tends to be a good conversation piece to combine the three MDM elements of a) diagnoses or problems to examine, b) data reviewed and c) risk of complications. The major flaw within this system, plain and simple, is that physicians don’t think the same way auditors code for E/M services. Take oncology, for example: consider that a patient is being treated for CLL and is on several chemotherapy regimens, requiring the patient to be seen on a weekly basis. Today the patient is stable, with no complications or side effects. The provider reviews labs and adjusts infusions for the following day. Based on a standard metric for MDM, this would be equivalent to straightforward medical decision-making. The bottom line is that coding rules don’t equate to how physicians view a patient’s complexity. Furthermore, the point system for the first piece of calculating medical decision-making (“problem to examiner,” as listed above) leaves many questions when categorizing a “self-limiting” problem (yielding a point value of 1) over a “new” problem (yielding a point value of 3 or 4). One very important step auditors can take with providers, based on specialty, is recognizing the common diagnoses, which physicians often feel are more simplistic, as compared to those that are more complicated. Take general surgery as a second example: this may be the difference between managing a hand cyst and addressing a new onset of abdominal pain. Examples such as these can make a huge difference in how an auditor reviews a case and can carry over into appealing and fighting post- or pre-payment reviews. Furthermore, it can add ammunition to your compliance policies, as they pertain to matching criteria, more objectively.

In the first part of the article you may have been wondering why the terms “medical necessity” and “medical decision” were used interchangeably. To a large degree, they actually are interchangeable. Medical necessity most often is associated with LMRP Local Medical Review Policies and NCD’s National Coverage Determinations. As CMS confines certain CPT procedure codes, only a limited number of diagnoses are considered payable or “medically necessary” based on policy. Medical necessity also has a huge new role tied to electronic medical records. Take the two pieces of correspondence published by Noridian in May of 2011:

  • “Another trend noted by Part B MR is the MDM does not correlate to the chief complaint. One such example would be (that) the HPI supports a follow-up visit for renal functions tests, hypertension and reflux. The medical management of that patient is then a physical therapy referral for low back pain, with no mention of medical management of the issues that brought the patient to the clinic. The documentation did not support complaints of low back pain.”
  • “Part B MR has also noted that the plan of care simply lists the medical diagnoses of the patient, with no mention of changes to the plan of care if any, or continuation of current treatment regimens. It is difficult to determine the medical necessity of a visit when the documentation lacks important information, or when the documentation does not support medical management of the patient’s chief complaint.”



I like to call this piece “note logic,” illustrating the importance of correlating the medically necessary “reason for visit” to the assessment/plan portion of the note. If the information in the progress doesn’t sync between history and assessment, it becomes very difficult to support the medical necessity of managing a given condition. Electronic health records certainly have become a culprit for “pre-populating” areas from active problem lists to active diagnoses, or even infusing past history into active diagnoses. If the provider is not managing conditions or problems connected to a particular visit, regardless of whether the problem is active or listed as information in the PMH, it should not be in the assessment portion of the note. Ranking in our top five most frequent metric errors with new EHR implementations, this is No. 2. This simple mistake will impact the overall “logic check” of the note and, if using an encoder, it also can cause an upcoding of entire medical decision-making area.

Part II of this series will provide guidance on teaching strategies for auditors and coders wrestling with MDM/medical necessity, offering resources to share with providers to keep their evaluation and management services out of the hands of RAC contractors.

About the Author

Jana B. Gill, MA, CPC, is a product engineer and developer of Regulatory and Reimbursement software suites for Wolters Kluwer. Jana also is the principal of Gill Compliance Solutions, LLC which specializes in physician compliance, developing internal auditing programs, government appeals (RAC/CERT), coding risk assessments, due diligence for physician/hospital integrations and revenue analyses of hospitalist services.

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