Medical necessity
Standard for determining appropriateness of a service.
How the laws define this
Regulators consistently treat medical necessity as a clinical standard or determination used to evaluate whether healthcare services, items, or supplies are justified for a patient's condition. The main divergence lies in the specific criteria set by each authority. Arizona HB 2175 — Healthcare AI Insurance Claim Denial Restrictions and the Act from the State of Alabama frame medical necessity around whether services are appropriate and required for clinical circumstances. In contrast, the Medicare Program; Contract Year 2024 Policy and Technical Changes rule and Making improvements to transparency and accountability in the prior authorization determination process define it as items, services, or supplies that are reasonable and necessary for diagnosing or treating illness or injury, or improving a malformed body member's functioning. Furthermore, Arizona HB 2175 requires a licensed Arizona medical director to review denials, while Medicare rules focus on requiring Medicare Advantage plans to base coverage decisions on it.
Synthesised from the 4 statutory definitions below. Each one is quoted in full, with its source.
How jurisdictions differ
What is distinctive in each definition, binding law in force first.
| Jurisdiction | Instrument | Status | What is distinctive |
|---|---|---|---|
| Arizona, United States | Arizona HB 2175 — Healthcare AI Insurance Claim Denial Restrictions | In Force | Requires a licensed Arizona medical director to review and sign written denials based on medical necessity determinations. |
| Washington, United States | Making improvements to transparency and accountability in the prior authorization determination process. | In Force | Limits medical necessity to services or supplies that are reasonable and necessary for diagnosis, treatment, or improving a malformed body member. |
| United States | Medicare Program; Contract Year 2024 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly | In Force | Explicitly applies to Medicare Advantage plans, which must base coverage decisions on medical necessity. |
| Alabama, United States | An Act, Relating to health insurance; to impose limitations on the use of artificial intelligence by health benefit plan providers in making determinations of coverage under health benefit plans; and to authorize the Department of Insurance of the State of Alabama to investigate and impose disciplinary action for violations. | Awaiting Entry | Frames medical necessity as a determination that a healthcare service is appropriate and required for the enrollee's specific clinical circumstances. |
What it triggers
- In Arizona, denials based on medical necessity require review and signature by a licensed Arizona medical director.source
- Under Washington SB 5395, health carriers are prohibited from using AI as the sole basis for denying prior authorization involving medical necessity.
- Under CMS regulations, Medicare Advantage plans must base coverage decisions on medical necessity.source
Definitions (4)
The clinical standard used to determine whether healthcare services are appropriate and required for a patient's condition; denials based on medical necessity trigger the requirement that a licensed Arizona medical director review and sign the written denial.
Healthcare services or supplies that are determined to be reasonable and necessary for the diagnosis or treatment of an illness or injury, or to improve the functioning of a malformed body member.
Medical necessity refers to healthcare services or items that are reasonable and necessary for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member. CMS regulations require MA plans to base coverage decisions on medical necessity.
The determination that a health care service is appropriate and required for the enrollee's clinical circumstances.
Not to be confused with
Prior authorization is the insurer approval process required before certain services are covered, while medical necessity is the clinical standard justifying that coverage.
Written denial is the documented refusal of a claim including explanation and physician signature, whereas medical necessity is the standard triggering such denials in Arizona.
Medical director is the Arizona-licensed physician who reviews and signs medical necessity denials, distinct from the necessity standard itself.
Questions and answers
What happens if an insurer denies a claim based on medical necessity in Arizona?
Denials based on medical necessity trigger the requirement that a licensed Arizona medical director review and sign the written denial.
Can AI be used alone to deny claims involving medical necessity?
Arizona HB 2175 and Washington SB 5395 prohibit health insurers from using AI as the sole basis for medical necessity or prior authorization denials.
How does Medicare define medical necessity for coverage?
Medical necessity refers to healthcare services or items reasonable and necessary for diagnosis, treatment of illness or injury, or improving a malformed body member, and MA plans must base coverage on it.
Related Terms
Prior authorization
Insurer approval required before certain services are covered....
Written denial
Documented denial including explanation and physician signature....
Medical director
Arizona-licensed physician who reviews and signs denials....
Minimum Necessary
Limiting PHI access to what is needed for the purpose....
clinical safety
Systematic management of risks that could cause patient harm....