Medical necessity rules everything around E/M

Most of us don’t know how to define medical necessity or how to apply it on the job, especially when it comes to E/M services.

For instance, did you know that ticking every E/M box and scoring the service as Level 5 means nothing without medical necessity? The key components of history, exam and medical decision-making play a key role in determining the level of service, but you have no grounds for payment with medical necessity. Even if you have chosen the correct level of service per the documentation but medical necessity doesn’t warrant the level of work performed, you must reduce the level of the service. Medical necessity takes precedence every time.

That doesn’t mean, however, that you can raise the level of service based on medical necessity. In other words, the level of service depends on either the level of medical necessity or the level determined by the key components, whichever is lowest.

The Centers for Medicare & Medicaid Services (CMS) defines medical necessity as “the reasonable and necessary service for the diagnosis or treatment of illness or injury to improve the functioning of a malformed body member.” As you can imagine, trying to apply that nebulous definition creates some confusion and controversy. It also deserves significant attention, as medical necessity is the overarching criterion for payment and because medical necessity errors are twice as common as coding errors.

Common sense dictates that physicians should make medical necessity decisions, but payers can overrule physicians on medical necessity. They have the money and they are making the rules.

That might not be so hard to swallow if payers provided concrete means of how to apply sometimes vague definitions. A tool would be helpful, not that any tool can ever replace a physician in medical necessity determinations on E/M codes.

Despite the dearth of guidance on this issue, however, the following tool developed by the National Alliance of Medical Auditing Specialists (NAMAS) is relatively straightforward, user friendly and helps curtail confusion.

Medical necessity tool

E/M codes for acute problems

• Level 1: Patient presents with an acute problem.
• Level 2: Problem is minimal in nature and it’s questionable if the patient even needed to be seen.
• Level 3: Problem is acute and uncomplicated in presentation.
• Level 4: Problem is acute with complicating factors contributing to the complexity of caring for the patient.
• Level 5: Acute problem poses threat to life or bodily function.

E/M codes for chronic problems 

• Level 1: Patient presents with a chronic problem.
• Level 2: Problem is minimal in nature and it’s questionable if the patient even needed to be seen.
• Level 3: Problem is chronic but stable and not exacerbated.
• Level 4: Problem is chronic and exacerbated OR patient presents for management of two chronic problems.
• Level 5: Chronic problem is severely exacerbated and poses threat to life or bodily function.

 
Below is an example of how to use the tool with an abridged medical record:

The physician billed this service as a 99214. Although all the key components (not provided here) did indicate a Level 4 service, it was downgraded to Level 2 due to lack of medical necessity. The patient had already passed the stone, so it is questionable whether the patient even needed to be seen.

As you can see, medical necessity drives the amount of time and other resources expended. These resources then drive reimbursement.

In the words of CMS, “it is not appropriate to bill a higher level of evaluation and management service when medical necessity warrants a lower level of service.”