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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.


  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 [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]