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Medical Necessity

Health plans typically reimburse health care providers for services that are medically necessary to treat a sickness or injury. Delivering unnecessary services increases the cost of health services and is a financial risk to the insurer. However, few regulations define the parameters of medical necessity. There is no Federal definition, and only slightly more than one-third of States have any regulatory definition of medical necessity.1 As a result, most insurers have developed definitions of medical necessity for their individual insurance contracts.

Medical necessity definitions typically include five dimensions:

  • Contractual scope: Does the contract provide any coverage for certain procedures and treatments, such as preventive and maintenance treatments that are not necessary to restore a patient to “normal functioning.”
  • Standards of practice: Does the treatment align with professional standards of practice?
  • Patient safety and setting: Will the treatment be delivered in the safest and least intrusive manner?
  • Medical service: Is the treatment considered medical as opposed to social or nonmedical?
  • Cost: Is the treatment cost-effective?

Below are two examples of medical necessity definitions:

“For contractual purposes, an intervention will be covered if it is an otherwise covered category of service, not specifically excluded, and medically necessary. An intervention is medically necessary if, as recommended by the treating physician and determined by the health plan’s medical director or physician desinee, it is (all of the following): A health intervention for the purpose of treating a medical condition; the most appropriate supply or level of service, considering potential benefits and harms to the patient; known to be effective in improving health outcomes. For new interventions, effectiveness is determined by scientific evidence. For existing interventions, effectiveness is determined first by scientific evidence, then by professional standards, then by expert opinion; and cost-effective for this condition compared to alternative interventions, including no intervention.”2

The American Medical Association defines medical necessity as “health care 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 it’s symptoms in a manner that is a) in accordance with generally accepted standard of medical practice; b) clinically appropriate in terms of type, frequency, extent, site, and duration; and c) not primarily for the convenience of the patient, physician, or other health care provider.”3

William E. Ford argues that typical definitions of medical necessity are too limited to adequately serve the needs of those seeking mental health and substance abuse services. For behavioral health, the term ”treatment necessity” or “clinical necessity” provide a more relevant criteria for payment decisions. For a service to be considered a treatment or clinical necessity, it must be: 4

  • For the treatment of mental illness and substance use disorders, or symptoms of these disorders, and impairments in day-to-day functioning related to them, or
  • For the purpose of preventing the need for a more intensive level of mental health and substance abuse care, or
  • For the purpose of preventing relapse of persons with mental illness and substance use disorders, and
  • Consistent with generally accepted clinical practice for mental and substance use disorders, and
  • Efficient, in the sense that a less expensive treatment works as well as a more expensive treatment, and
  • Not for the patient's or provider's convenience.

Notes

  1. Rosenbaum, S., Kamoie, B., Mauery, D. R., & Walitt, B. (2003). Medical Necessity in Private Health Plans: Implications for Behavioral Health Care. DHHS Pub. No. (SMA) 03-3790. Rockville, MD: Center for Mental Health Services, Substance Abuse and Mental Health Services Administration. [back]
  2. Singer, S. J., Bergthold, L. A., Vorhaus, C., & Enthoven, A. (1999). Decreasing Variation in Medical Necessity Decision-making. Palo Alto, CA: Stanford University. [back]
  3. Available at http://www.ama-assn.org/ama1/pub/upload/mm/368/mmcc_4th_suppl_1.pdf. [back]
  4. Ford, W. E. (1998). Economic Grand Rounds: Medical Necessity: It’s impact in Managed Mental Health Care. Psychiatr Serv, 49, 183-184. [back]

Model benefit design

The Department of Health Policy at the George Washington University has developed model purchasing specifications designed to assist state officials in purchasing services from managed care organizations or behavioral health organizations on behalf of adults and children with behavioral health needs who are eligible for Medicaid.

http://www.gwumc.edu/sphhs/departments/healthpolicy/CHPR/newsps/adultbhs/part1.cfm#r104

http://www.gwumc.edu/sphhs/departments/healthpolicy/CHPR/newsps/cbhn/ppp1.cfm#r104

Pay for Performance

Individual purchasers and health plans have increasingly implemented pay for performance systems designed to reward providers for delivering high quality care and to motivate quality improvement.1 Numerous State Medicaid offices have implemented some form of state-level pay for performance, value-based purchasing, or performance contracting contingency in their contracts with health plans.2 The two demonstration projects highlighted below provide support for the positive influence of financial incentives and penalties on improving healthcare quality.

Centers for Medicare and Medicaid Services (CMS)/Premier Hospital Quality Incentive Demonstration Project

In 2003 the Centers for Medicare and Medicaid Services (CMS) and Premier Inc., a nationwide organization of not-for-profit hospitals, began a pay for performance demonstration project involving over 260 hospitals. The demonstration project tracked process and outcome measures in five clinical areas critical to Medicare’s elderly population: heart attack, heart failure, pneumonia, coronary artery bypass graft surgery, and hip and knee replacements. Hospitals demonstrating high quality performance received financial incentives and public recognition while hospitals failing to improve above a pre-defined quality measure threshold by the third year of the project received financial penalties. Specifically, hospitals were scored and ranked by condition, and any hospital in the top 10 percent for a given condition received a 2 percent bonus on its Medicare payments; hospitals in the next decile received a bonus of 1 percent. In the third and final year of the demonstration, hospitals with the worst performance would be financially penalized. Results from 2 years of data indicate significant improvement in the quality of care in all measured clinical areas.3

Delaware Division of Substance Abuse and Mental Health

In 2002 the Delaware Division of Substance Abuse and Mental Health moved to performance-based contracting for all of its outpatient addiction treatment programs. The goal was to improve the accountability and effectiveness of addiction clinical services by providing financial incentives (bonus dollars) and penalties (loss of base dollars) to providers contingent on their ability to attract and engage patients through all phases of outpatient treatment.4 Key performance criteria included:

Capacity utilization – Programs were required to maintain a monthly utilization rate (admission into the outpatient program) of 80% in the first implementation year and 90% thereafter.

Treatment Engagement – Programs could earn an additional 1% for each participation target (defined as engaging admitted patients into adequate levels of participation in clinical activities) with an additional 1% bonus if all targets are met.

Program Completion –Providers earned $100 for each client that completed the program. Successful completion of the program was defined as active participation in treatment for a minimum of 60 days, achievement of the major goals of his/her treatment plan; and submitting a minimum of four consecutive weekly urine samples that were free from illegal drugs and alcohol.

The Delaware demonstration program saw significant and continuing improvements in a number of performance criteria including capacity utilization increasing from 54% in 2001 to 95% in 2006 and an increase in the proportion of patients’ meeting active participation criteria in all four stages of care. The program also demonstrated that performance contracting not require significant training in new clinical or administrative techniques and did not interfere with system adoption of new, evidence-based clinical interventions such as motivational interviewing and cognitive behavioral therapy.

Notes

  1. Rosenthal, M.B., Fernandopulle, R., Ryu Song, H., Landon, B. (2004). Paying for Quality: Providers’ Incentives for Quality Improvement. Health Affairs, 23 (2), 127-141. [back]
  2. McLellan, A.T., Kemp, J., Brooks, A., Carise, D. (2008). Improving Public Addiction Treatment Through Performance Contracting: The Delaware Experiment. Health Policy, 87, 296-308. [back]
  3. CMS/Premier Hospital Quality incentive Demonstration Project: Project Findings from Year 2. [back]
  4. McLellan et al. (2008). [back]