Medical Necessity: What It Means and Why Insurers Use It to Deny Claims

The Medical Necessity Standard

Medical necessity is the central clinical standard by which insurers evaluate most claims. A treatment is generally considered medically necessary when it meets all of the following criteria:

• It is appropriate for the patient's diagnosis and symptoms
• It is consistent with accepted clinical standards and guidelines
• It is not primarily for the convenience of the patient or provider
• It cannot be safely omitted or replaced by a less intensive intervention
• It is the most cost-effective appropriate intervention available

This standard sounds reasonable — but its application is where disputes arise.

How Insurers Apply the Standard

Insurers employ medical reviewers — often called Utilisation Management physicians or nurse reviewers — who assess claims against the insurer's internal clinical criteria. These criteria are not always published and may be more restrictive than the clinical guidelines used by practising physicians.

An insurer's medical reviewer may apply a criterion that requires, for example, a specific number of GP visits before specialist referral is considered "necessary" — even if the treating physician's clinical judgment justifies immediate specialist input. The reviewer's criterion and the treating physician's recommendation can legitimately differ.

Why "Not Medically Necessary" is Often Wrong

A medical necessity denial is the insurer's reviewer's opinion, not a clinical fact. It can be challenged with:

• A letter from the treating physician directly addressing the reviewer's criteria
• Published clinical guidelines supporting the treatment decision
• Evidence of the clinical risk of not treating
• A request for independent medical review

The treating physician has examined the patient. The insurer's reviewer typically has not. Where the clinical evidence clearly supports the treatment, a well-constructed physician-reviewed appeal is highly effective.