Henry T. Ireys, Ph.D.,Elizabeth Wehr, J.D.,

and Robert E. Cooke, M.D.

Defining Medical NecessityStrategies for Promoting Access to Quality Care for Persons with

Developmental Disabilities, Mental Retardation, and Other Special Health Care Needs

A Report Prepared by

Henry T. Ireys, Ph.D., Associate ProfessorDepartment of Population and Family Health Sciences

School of Hygiene and Public HealthThe Johns Hopkins University

Elizabeth Wehr, J.D., Research ScientistCenter for Health Services Research and Policy

The School of Public Health and Health ServicesThe George Washington University Medical Center

and

Robert E. Cooke, M.D., Emeritus ProfessorDepartment of Pediatrics

State University of New York, BuffaloFormer Pediatrician and Chief

Johns Hopkins Hospital

September 1999

Defining Medical NecessityStrategies for Promoting Access to Quality Care for Persons with

Developmental Disabilities, Mental Retardation, and Other Special Health Care Needs

Cite asIreys HT, Wehr E, Cooke RE. 1999. Defining Medical Necessity: Strategies for Promoting Access to Quality Carefor Persons with Developmental Disabilities, Mental Retardation, and Other Special Health Care Needs. Arlington,VA: National Center for Education in Maternal and Child Health.

Defining Medical Necessity: Strategies for Promoting Access to Quality Care for Persons with DevelopmentalDisabilities, Mental Retardation, and Other Special Health Care Needs is not copyrighted. Readers are free toduplicate and use all or part of the information (excluding photographs) contained in this publication.Photograph on p.16 provided courtesy of the Institute for Child Health Policy, Gainesville, FL. In accordancewith accepted publishing standards, the National Center for Education in Maternal and Child Health(NCEMCH) requests acknowledgment, in print, of any information reproduced in another publication.

The mission of the National Center for Education in Maternal and Child Health is to provide national leadership to the maternal and child health community in three key areas—program development, policyanalysis and education, and state-of-the-art knowledge—to improve the health and well-being of the nation’schildren and families. The Center’s multidisciplinary staff work with a broad range of public and private agencies and organizations to develop and improve programs in response to current needs in maternal andchild health, address critical and emergent public policy issues in maternal and child health, and produce andprovide access to a rich variety of policy and programmatic information. Established in 1982 at GeorgetownUniversity, NCEMCH is part of the Georgetown Public Policy Institute. NCEMCH is funded primarily bythe U.S. Department of Health and Human Services through the Health Resources and ServicesAdministration’s Maternal and Child Health Bureau.

ISBN 1-57285-060-4

Published by:National Center for Education in Maternal and Child HealthGeorgetown University2000 15th Street, North, Suite 701Arlington, VA 22201-2617(703) 524-7802(703) 524-9335 faxInternet: info@ncemch.orgWorld Wide Web: www.ncemch.org

Single copies of this publication (L071) and executive summary (L097) are available at no cost from:National Maternal and Child Health Clearinghouse2070 Chain Bridge Road, Suite 450Vienna, VA 22182-2536(703) 356-1964(703) 821-2098 fax

iii

Letter from Eunice Kennedy Shriver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

I. What Is the Problem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Project Context and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Defining the Population and Its Service Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II. Why Are Medical Necessity Determinations Important? . . . . . . . . . . . . . . . . . . . . . . 7The Current Organizational Context of Medical Necessity Determinations . . . . . . . . . . . . . . 8Rationing vs. Medical Necessity Determinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

III. Definitions of Medical Necessity: Key Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131. Incorporating Appropriate Outcomes Within a Developmental Framework . . . . . . . . . . . 132. Defining a Decision-Making Process: What Information Should Be Used?. . . . . . . . . . . . 143. Identifying Who Makes the Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154. Referencing Appropriate Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155. Ensuring Flexibility in Sites for Service Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

IV. A Recommended Approach to Defining Medical Necessity . . . . . . . . . . . . . . . . . . . 17

V. Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Appendix A: Contributors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Steering Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Expert Panel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Other Colleagues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix B: Medical Necessity Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26State Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Appendix C: Analysis of Selected Definitions of Medical Necessity . . . . . . . . . . . . . . . . 31The American Academy of Pediatrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31The National Institute for Health Care Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Department of Human Services, State of New Jersey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

The National Policy Center for Children with Special Health Care Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Table of Contents

MEDICAL NECESSITY

The Joseph P. Kennedy, Jr. Foundation has for many years dedicated its resources to improving thelives of persons with mental retardation and other disabilities. Promoting access to their health careof high quality is one of the Foundation’s most important goals.

Children and adults with mental retardation and other disabilities now are obtaining health servicesthrough managed care organizations. These institutions have the responsibility for identifying andsupporting medically necessary health services. The definition of “medical necessity” serves an extraordinarily important purpose because it establishes the foundation for deciding what serviceseach person will receive.

The Foundation wants to promote definitions of medical necessity that are sufficiently well formu-lated and comprehensive to meet the health needs of persons with mental retardation and other disabilities. As managed care organizations and insurers seek innovative ways to meet the needs of all enrolled groups, model criteria for definitions of medical necessity are absolutely essential.

This report provides an exceptionally strong rationale for a comprehensive approach to definingnecessity, as well as practical language that can apply to diverse purposes.

I am delighted that the Joseph P. Kennedy, Jr. Foundation was able to assist in supporting this work,and I am confident that it will be useful to everyone who is working to promote high quality ofhealth care for persons with mental retardation, other disabilities or special needs.

May 19, 1999Eunice Kennedy Shriver

The content of this report has emerged fromnumerous discussions with colleagues and

the deliberations of an exceptionally dedicatedsteering committee. This committee includedPolly Arango, Julie Beckett, Shelly Gehshan,Ian Hill, and Mary Tierney. The report benefit-ed from comments provided by members of anexpert panel, convened to review an early draftof the report, who urged us to clarify the crite-ria for evaluating medical necessity definitions.The expert panel (see Appendix A) includedlegislators, legislative staff, physicians, familyadvocates, managed care administrators,lawyers, policy analysts, and other professionalsconcerned with persons with developmentaldisabilities and other special health care needs.We imposed upon a large number of friendsand colleagues by asking them to read an earlydraft. Many responded with uncommonthoughtfulness (see Appendix A). ColleenSonosky, Richard Hegner, and members of theAssociation of Maternal and Child HealthPrograms deserve special mention for the manyperceptive comments they gave us. To all ourfriends and colleagues, we owe many thanks forhelping to make this a useful document. Theirknowledge, experience, and careful scrutiny ofearly drafts were instrumental in shaping thereport’s final conclusions and recommenda-tions, but they are absolved of all technicalerrors and misjudgments on our part. Theviews expressed in this report are the authors’and do not necessarily reflect those of anyagency or foundation that supported this effort.

This project was supported by a grant from theJoseph P. Kennedy, Jr. Foundation to the

National Policy Center for Children withSpecial Health Care Needs in the Departmentof Population and Family Health Sciences,School of Hygiene and Public Health, TheJohns Hopkins University. We are especiallygrateful for Eunice Shriver’s conviction thatthis issue deserved sustained and widespreadattention. George Jesien and David Egnor provided a steady stream of encouragementfrom the Kennedy Foundation.

The policy center operates under a cooperativeagreement (24MCP) from the Maternal andChild Health Bureau, Health Resources andServices Administration, U.S. Department ofHealth and Human Services, and is describedon the inside back cover of this report. JanisLambert Connallon, center coordinator, provid-ed thoughtful responses and assistancethroughout this project. Fran Keyser handledmany of the administrative details with herusual thoroughness and good cheer.

v

Acknowledgments

Existing definitions of medical necessity

may lead to the denialof services required by

persons with specialhealth care needs

1

S E C T I O N I

What Is the Problem?

C hildren, youth, and adults with devel-opmental disabilities, mental retarda-tion, serious emotional disorders, or

other special health care needs require continu-ing access to a wide range of health services.Failure to obtain needed services may curtailthe ability of these persons to communicate,attend school, join the work force, and partici-pate actively in community life (Neff andAnderson, 1995). The distinctive needs of thispopulation pose major challenges to the evolv-ing managed health care systems in this coun-try and give urgency to the broad social issueof how to allocate the nation’s health careresources in a fair and just manner (Rushton,1996).

The concept of “medical necessity” has come toplay a central role in determining the extent towhich persons with disabling conditions receiveappropriate services in managed care systems.How this concept is defined and applied opera-tionally will influence the extent to whichneeded services will be accessible to vulnerablepopulations. For example, a sharply limited def-inition of medical necessity may prevent ayoung girl with cerebral palsy from obtaining

the weekly, ongoing physical therapy servicesneeded to keep her walking.

In the current health care environment, theterm “medical necessity” refers to the legalauthority of a managed care organization(MCO), a Medicaid agency, or other purchaserof health care to determine whether a specificservice will be covered in a specific situation.Health insurance policies often define medicalnecessity differently from the way a physicianuses the term in everyday practice (Braslow etal., 1998). Final responsibility for decisions onmedical necessity usually rests with an MCO’smedical director, who may rely on standardprotocols or administrative procedures (e.g.,prior authorization) rather than on patient-specific information. Some decisions may con-flict with a physician’s recommended course ofcare (Rosenbaum et al., 1999).

Our review of studies and reports on medicalnecessity decision-making underscores a pri-mary problem: Existing definitions of medicalnecessity may lead to the denial of servicesrequired by children, youth, and adults withdevelopmental disabilities, mental retardation,

2

genetic disorders, serious mental health prob-lems, or other special health care needs. Mostdefinitions lack critical components that willpromote appropriate care for this population.Even the broad medical necessity criteria ofmany state Medicaid programs may not becarried over into Medicaid managed careplans.

For example, many current definitions of med-ical necessity require evidence that a service willsignificantly improve a person’s health status.However, many children and adults with dis-abilities frequently need health or medical serv-ices that will maintain their functional capacity.Defining as medically necessary only servicesthat improve their health status means thatthey will be denied many services vital to theirday-to-day lives.

The purpose of this brief is to outline a strategyfor defining medical necessity in a fashion thatwill promote high-quality care for children,youth, and adults with developmental disabili-ties, mental retardation, genetic disorders, andother special health care needs. The brief alsoincludes a draft definition that can be incorpo-rated into legislation, regulation, or contractuallanguage. The material in this report can beused to craft a process for defining medicalnecessity that will be administratively feasible,avoid undue risk for key stakeholders, and pro-tect this vulnerable group of children andadults.

Project Context and Background

Published studies and discussions with legalexperts, policymakers, plan administrators,providers, and consumers indicate that definitions of medical necessity are frequently

problematic for children, youth, and adults withdevelopmental disabilities, mental retardation,and other special health care needs. Definitionsused by state Medicaid programs are strongerbecause under federal law covered services thatpromote children’s growth and developmentmust be considered medically necessary, evenwhen services are needed on a long-term basis.But implementation of Medicaid law varieswidely at the state level. Overall, federal andstate statutes, regulations, judicial decisions, andmanaged care contracts have yielded a confus-ing array of medical necessity definitions(Bergthold, 1995; Braslow et al., 1998; Eddy,1996; Hein, 1997; Jacobson et al., 1997;National Institute for Health CareManagement, 1999).

3

This confusion reflects, in part, an underlyingethical problem of deciding how to distributefairly the nation’s health care resources(Buchanan, 1981; Veatch, 1976). On the onehand, the utilitarian or practical side of oursociety suggests that we should allocateresources to achieve the greatest good for thegreatest number of persons. This position leadsto the argument that limited resources are bet-ter spent on ensuring a decent level of medicalcare for everyone, rather than spending a greatdeal on a small group of individuals. On theother hand, our society values respect and fair-ness for the individual, as indicated by suchlaws as the Individuals with DisabilitiesEducation Act and other legislation thatensures that resources are available for personsto develop and sustain their functional capacity.

Health insurers, including MCOs, are caughtin the middle of this debate (Braslow et al.,1998). Our society has delegated to managed

care systems the conflicting tasks of distribut-ing resources in an equitable and efficient man-ner (the greatest good for the greatest number)while also ensuring that individuals are notdenied appropriate health services (respect forthe individual). Moreover, the health careindustry has yet to determine appropriate capi-tation rates that pertain to populations of chil-dren and adults with disabilities (Kronick et al.,1996; Neff and Anderson, 1995). Even themost compelling definition of medical necessitywill not compensate for the current financialincentives that discourage insurers from servingthis population.

In this brief, we seek to provide a foundationfor a decision process that must necessarily bal-ance competing needs. MCOs have an obliga-tion to constrain costs by discouraging thedelivery of ineffectual services. Providers andconsumers will argue that a particular service isneeded to achieve a particular medical or devel-opmental outcome for a particular patient. Nodefinition of medical necessity will avoid alldifficult judgments about appropriate care inindividual situations.

Defining the Population and ItsService Needs

For the purposes of this report, children andadults with disabilities are defined in broadterms to include persons with developmentaldisabilities, mental retardation, genetic disor-ders, serious emotional disorders, ongoingorthopedic disorders, or any of the diversechronic illnesses that affect our population.Specific definitions and operational strategiesfor estimating prevalence have been developedfor both children (Newacheck et al., 1998) andadults ( Jones, 1991).

Managed care systemshave the conflicting task

of achieving the greatest good for the

greatest number whilemaintaining respect for the individual

4

Taken altogether, disabilities affect less than 20percent of the nation’s population. As a result,persons with disabilities will always be a minor-ity of enrollees in most health plans. Having anappropriate definition of medical necessity willhelp ensure their access to services, whichmight otherwise be inappropriately restricted inan effort to serve the needs of most plan mem-bers and to limit overall expenditures.

Because of their diverse health needs, childrenand adults in this population require access toa wide range of services and hence a broadbenefit package. The following are a few examples:

• A child with phenylketonuria (PKU)requires a low phenylalanine diet. Withoutappropriate diet, sufficient dietary educa-tion, and follow-up, the child’s developmen-tal and health status will deteriorateseriously, with corresponding increases inmedical costs.

• Many children and adults with cerebralpalsy will require ongoing physical therapyto prevent health problems that would otherwise require extensive outpatient serv-ices or hospitalization.

• The outcomes of even the most technicallybrilliant surgery for a brain malformationcan be compromised by inadequate postop-erative care at home.

In general, the range of services that may beneeded for good health outcomes for this population may be quite specialized andextends beyond narrowly defined medical services.

Moreover, most chronic conditions are knownto vary broadly in the way they are expressedand experienced. This natural variation in dis-ease expression requires commensurate varia-tion in medical treatments. For example,although persons with cerebral palsy have cer-tain characteristics in common, the functionalseverity and expression of the condition willvary a great deal. As a result, different personswith the same condition will require a some-what different set of services at varying rates of

Natural variation indisease expression

requires commensuratevariation in medical

treatments

5

frequency and duration. This fact leads to theneed for a more individualized package of ben-efits than is appropriate for the general popula-tion. Some organizations (e.g., the FederalInteragency Coordinating Council, 1999) havedeveloped specific lists of services for inclusionin benefit packages that cover persons with disabilities.

Creating a general definition of medical neces-sity that pertains to all members enrolled in ahealth plan but also responds to the needs ofpersons with developmental disabilities, men-tal retardation, or other special health careneeds has been the focus of this report. Thisdecision reflects the recognition that (1) thespecial health care needs of children with thesedisabilities do not disappear as children growinto adulthood, (2) multiple definitions ofmedical necessity for different subgroups cancreate administrative problems, and (3) limit-ing the definition to specific diagnoses couldpreclude coverage of needed care for other,coexisting conditions.

Financial support for research

has been lackingbecause of the

population‘s relatively small size

7

T hree major reasons underscore the needfor a careful process of decision-makingon whether a service is medically

necessary:

(1) Knowledge regarding health care changesover time; new treatments emerge continu-ally, especially for persons with disabilities,genetic disorders, chronic illnesses, seriousmental health disorders, and other specialhealth care needs. Moreover, certain servic-es and their duration may be appropriatefor some persons but not for others,depending on how the condition is actuallyexpressed. As a result, decisions about whatis appropriate for all persons in all situa-tions can never be specified completely in a“rule-book” format.

(2) Children, youth, and adults with disabilities(such as mental retardation, developmentaldisabilities, genetic disorders, chronic ill-nesses, or serious mental health disorders)often encounter physicians and others whoare not familiar with the outcomes of newtreatments. For example, many new inter-ventions for this population are aimed at

problems that have resulted from rare com-binations of chronic conditions or that havenot yielded to conventional therapies.Financial support for developing a founda-tion of relevant research has been lackingfor this population, in part because of itsheterogeneity and its relatively small size.Thus, evidence on outcomes of new treat-ments may be known only to a few special-ists. When no such data exist, standards forbest practice, treatment guidelines, and person-specific evaluations must be usedtogether for decision-making purposes.

(3) Developmental considerations must beintegrated into medical necessity determi-nations. For example, some persons, such asthose who have certain types of cerebralpalsy, need treatments to maintain theirability to function and to prevent the dete-rioration of their health; these treatmentsmay be needed frequently or for extendedperiods, or both. Reasonable limits on thefrequency, duration, or scope of services forchildren or adults in general may be inap-propriate for persons with special needs.Moreover, some services may be needed for

S E C T I O N I I

Why Are Medical NecessityDeterminations Important?

8

habilitative purposes (e.g., promoting over-all functioning), even when full rehabilita-tion or cure is not possible.

The Current OrganizationalContext of Medical NecessityDeterminations

Understanding the context in which organiza-tions determine medical necessity can illumi-nate why comprehensive definitions of medicalnecessity are important for persons with devel-opmental disabilities, mental retardation, andother special health care needs. Figure 1 illus-trates where medical necessity determinationstypically occur in an insurer’s decision-makingprocess and how that process determineswhether and to what extent a person mayreceive services:

• Insurers apply medical necessity criteriaafter they have determined whether or not aservice is included in a benefit package. Forexample, if speech therapy is not a coveredbenefit in the insurance policy for a particu-lar child, then (from the insurer’s point ofview) decisions about the medical necessityof speech therapy will be irrelevant.Distinguishing what is a covered service fora particular person is separate from decidingwhether or not the covered service is med-ically necessary in a particular situation.

• After insurers determine that a service is tobe covered, they may impose limitations onthe amount, duration, and scope of thatservice. For example, speech therapy maybe a covered benefit, but a person’s policymay specify that speech therapy can beprovided only for certain conditions, for alimited period, or until certain milestonesare reached. These milestones may be

functional (e.g., the acquisition of near-normal speech) or financial (e.g., theexpenditure of a specified number of dol-lars). The point here is that determiningwhether a service is medically necessary isseparate from determining how and howlong the service will be provided.

• Insurers must decide whether or not thetreatment or service is experimental. Thedefinition of experimental, which is itselfthe subject of much controversy (Braslow etal., 1998; Newcomer, 1990; NationalInstitute for Health Care Management,1999), is not addressed in this paper. It isimportant to note that medical necessitydeterminations are separate from decisionsabout whether a service, item, or procedureis experimental.

This illustration of how decisions are madewithin an organization also indicates that several procedural components are importantbeyond an adequate definition of medicalnecessity:

• The types of covered services in a healthplan must be broad enough to respond tothe breadth of needs of persons with devel-opmental disabilities, mental retardation,and other special health care needs.

• Financing must be adequate to support thedelivery of these services.

• Appropriate service providers must be available.

• The organization and coordination of serv-ices must assist the person and his or herfamily in actually obtaining care.

In addition, insurers must be required to com-municate their decisions about services and the

9

Recommendations/requests for service(from physicians, other providers, or family)

Is the service a covered benefit for the patient? NOYES

YESNO

YES

NO

Service delivered with limitationsService delivered with no limitations

Patient/familyaccepts denial

Appeal/grievanceprocedures

Compromisereached

Servicedenied

Courts, insurancecommissioner,

Medicaid agency

YES

NO

Are there explicit limitations on the amount,duration, and/or scope of treatment?

Is this an experimental treatment?

Does the service meet medically necessary criteria?

Figure 1. Medical Necessity Determinations:Their Place in Many Current Service Systems

10

rationale for denials to the individual and heror his family. Although communicating thisinformation is not technically part of the deter-mination process itself, this issue requires attention in the consumer rights portion of legislation, contracts, or regulations (Sofaer,1995). For example, insurers should promptlynotify the individual or family and the relevantproviders. The notice should include informa-tion on how decisions could be appealed andwhether or not the service will be providedduring the appeal process.

Rationing vs. Medical NecessityDeterminations

Another purpose for clearly defining medicalnecessity is to distinguish it from rationing. Bydefinition, rationing means “to distribute equi-tably.” It implies the withholding of treatmenton the basis of both cost and outcome. For

example, surgical intervention on an infantwith widespread congenital malformations maybe withheld because of treatment costs and thelikelihood of poor outcomes. Rationing is adeliberate, if uncomfortable, decision to protectresources for the group as a whole at theexpense of the individual.

Decisions about rationing must balance indi-vidual and group needs in light of expectedcosts. The key question is, Should this inter-vention be forgone to protect resources forother purposes? In contrast, decisions aboutmedical necessity should be based on a person’smedical, health, and family situation, and noton cost. Here, the key question is, Does thisperson need this intervention to maintain orpromote health?

The process of rationing should be kept dis-tinct from medical necessity. However, this isoften not the case in “real-world” settings ofinsurance programs, where issues of cost oftenenter into medical necessity decision-making(Bergthold, 1995; Jacobson et al., 1997;National Institute for Health CareManagement, 1999). The extent and nature ofthe role of cost constraints in determiningmedical necessity is poorly understood.

Definitions of medicalnecessity should not be

used in the service of rationing

11

However, the mixing of these two issues con-tributes to much of the current concern aboutmedical necessity determinations.

Considerations of cost should be carefullyweighed in deciding which services to coverand to what extent. Resources for society as awhole must be balanced against the needs ofsmall populations. However, linking theseissues to definitions of medical necessity dis-guises society’s difficulties in making the hardchoices that rationing demands. Definitions ofmedical necessity should not be used in theservice of rationing.

The first step in decision-making

must be a review ofwhat is known

about the person, the condition, and the person’s family

13

M any approaches to defining medicalnecessity are now available andMedicaid contracts illustrate the enor-

mous range in current definitions (see AppendixB). To what extent does each definition promotehigh-quality care for persons with developmen-tal disabilities, mental retardation, chronic ill-nesses, and other special health care needs? Inconsidering this question, the following five criteria were examined and are discussed below:

(1) The definition should incorporate appropri-ate outcomes within a developmentalframework.

(2) The definition should explicitly address theinformation needed in the decision-makingprocess.

(3) The definition should identify who will par-ticipate in the decision-making process.

(4) The definition should refer to specific standards.

(5) The definition should support flexibility inthe sites of service delivery.

1. Incorporating AppropriateOutcomes Within a DevelopmentalFramework

Any approach to defining medical necessity hasto consider whether the service in question willpromote positive outcomes. Positive outcomescan include the following:

• Anticipating future health problems

• Reducing disease progression or the rate offunctional deterioration

• Preventing or ameliorating the effects of acondition or illness

• Assisting in maintaining or facilitatingfunctional capacity

• Promoting physical, intellectual, and psy-chological development

The service also must be appropriate to the ageand health status of the individual. For chil-dren, this criterion rests on the critical need forpediatric standards in all health insurance con-tracts, an issue that has been discussed else-where (Berman, 1997; Wehr and Jameson,1994). A lifespan developmental approach can

S E C T I O N I I I

Definitions of MedicalNecessity: Key Criteria

14

also be usefully applied to adults ( Janicki andSelzer, 1991).

2. Defining a Decision-MakingProcess: What Information ShouldBe Used?

In instances where outcomes of a treatmentare generally known and the pertinentresearch foundation is strong, standard proto-cols are appropriate and should be used forefficiency. In instances where a person has arare or particularly complex condition, ques-tions about treatment effects may arise andresearch data may be sparse. Standard proto-cols should not be substituted for carefullyreasoned judgments based on discussions withthe individual, family members, and physiciansor other clinicians with demonstrated experi-ence. The same disability or chronic illnessmay take different pathways for different indi-viduals. As a result, individually tailored treat-ment strategies are often required. The firstgoal in the decision-making process must be acomprehensive review of what is known aboutthe person, the condition, and the person’s family.

Two levels of knowledge are generally requiredto meet this goal:

(1) General information about the conditionand the population. This includes

• Normal variation in disease expressionwithin populations of children, youth,and adults with specific conditions

• Research on new treatment proceduresand outcomes for populations with rareconditions

• Potential problems with coordinatingcare of persons with conditions thatrequire complex sequences of medical,ancillary, and follow-up services

(2) Specific information about the individual.

Because of the complexity and low preva-lence of many chronic disabling conditions,information from a wide range of resourcesis needed to ensure that decisions will bemade in light of how a particular person’ssituation differs from the typical. For exam-ple, many children and young adults withdisabilities have had multiple developmentaland medical evaluations from diverse agen-cies and institutions, including educationaland social service agencies, early interven-tion programs, and multidisciplinary teamssupported by Title V monies. School evalu-ations pertaining to the development ofindividualized educational plans usuallycontain important information about func-tional limitations and educational goals; insome states, services included in these plansare linked specifically to medical necessitydeterminations (Center for Health PolicyResearch, 1998). In many instances, personswith developmental disabilities or mentalretardation have been evaluated at specialtyclinics because of coexisting medical prob-lems. Moreover, parents and family mem-bers, as well as the individuals themselves,will have opinions about which services areneeded, including inexpensive accommoda-tions that can prevent the need for morecostly treatments.

15

3. Identifying Who Makes theDecision

Medical directors of MCOs usually have thefinal responsibility for making decisions aboutmedical necessity. As a result, they also havethe obligation to ensure that the knowledgethey possess or obtain is sufficient to accom-plish this task effectively. To develop thisknowledge, most medical directors, who typi-cally have backgrounds in family practice,internal medicine, or pediatrics, will need toconsult with subspecialty providers, familymembers, the person’s own primary care physi-cian, and, where needed and available, multi-disciplinary centers ( Jacobson et al., 1997;Quinn, 1997). Integrating expert judgmentand a consumer perspective is especiallyimportant for persons with conditions that areoutside the scope of problems seen in the gen-eral population and that will require significantinvolvement of family members (Arno et al.,1999).

4. Referencing AppropriateStandards

Underlying most medical necessity determina-tions is the question of which standards will beused to judge whether a service is effective orappropriate. It is useful to have strong scientificevidence documenting that a particular treat-ment has a particular outcome in a particulargroup; in these situations, medical necessitydeterminations are easy. For many medicaltreatments, however, a strong scientific base isunavailable—even for widely used interven-tions. In these instances, practice guidelines andconsensus statements from expert panels areused as the standard.

Consequently, professional guidelines and stan-dards should be used as the standard referencein determining medical necessity for personswith developmental disabilities, mental retarda-tion, and special health care needs. Some specific guidelines are available through theAmerican Academy of Pediatrics and othermedical organizations, disease-focused subspe-cialty organizations, consumer groups, andother pertinent organizations. These guidelinescan be used as a starting point in the determi-nation process.

5. Ensuring Flexibility in Sites forService Provision

For many persons with developmental disabili-ties, chronic illnesses, and serious emotionaldisorders, many medical and health-relatedtreatments may be best provided in the homeand in other community settings, such asschools. For example, a teen with mental retar-dation and cerebral palsy in a family in whichboth parents work may need to have physicaltherapy provided in either the school, the after-school program, the home, or some combina-tion of these settings, depending on thecircumstances of the family and community.Medical necessity determinations must accountfor this reality and should specifically acknowl-edge that effective and appropriate services canbe delivered in many different sites, assumingthat reasonable safeguards, monitoring, and follow-up services are available, and that familycapacity and circumstances are acknowledgeddirectly in the decision-making process.

These specificationscan serve as a

starting point for drafting legislative orcontractual language

17

F or the purposes of this report, specifica-tions for defining medical necessity weredeveloped by the steering committee with

much guidance from the expert panel and othercolleagues. The specifications were designed tomeet the five criteria outlined in Section IIIand to promote a high quality of care for per-sons with developmental disabilities, mentalretardation, serious emotional disorders, andother special health care needs.

The specifications are described in the follow-ing section; they meet the five criteria outlinedin Section III by

• Incorporating references to developmentaloutcomes (Paragraphs 1 and 3)

• Defining explicitly what information shouldbe included (Paragraph 2)

• Defining who should be involved in thedecision (Paragraph 4)

• Referencing appropriate standards(Paragraph 3)

• Addressing flexibility in sites for serviceprovision (Paragraph 5)

This approach is likely to serve as a startingpoint for actually drafting medical necessitydefinitions to fit into differing legislative, regu-latory, or contractual structures. Ensuring inclu-sion of critical concepts is more important thanspecific wording.

These specifications were developed afterreviewing reports on medical necessity and ana-lyzing current definitions in light of the criteriaoutlined in Section III. Current definitions varywidely. At one end of the spectrum, some defi-nitions clearly recognized that certain medicalor health services might be necessary to pre-serve a person’s functional capacity. At theother end of the spectrum, definitions narrowlydefined services as interventions for “illness andinjury” or as interventions that would improvean enrollee’s health status. All of the existingdefinitions failed to meet at least one of the cri-teria. Appendix C includes examples of theanalysis. As the review was completed, theargument for developing a new, comprehensiveapproach was strengthened.

In developing specifications, we reviewed defi-nitions of medical necessity that were included

S E C T I O N I V

A Recommended Approach toDefining Medical Necessity

18

in a variety of state Medicaid programs, such asmanaged care contracts, and in other sources(see Appendix B). These definitions cover mostof the pertinent elements; many of these ele-ments were incorporated into the recommend-ed approach. We did not systematically reviewmanaged care contracts in the private sectorbecause those contracts are proprietary infor-mation and their contents are not generallyavailable.

19

Specifications for Defining Medical Necessity

1. A covered service or item is medically necessary if it will do, or is reasonably expected todo, one or more of the following:

• Arrive at a correct medical diagnosis1

• Prevent the onset of an illness, condition, injury, or disability (in the individual or incovered relatives, as appropriate)2

• Reduce, correct, or ameliorate the physical, mental, developmental, or behavioraleffects of an illness, condition, injury, or disability

• Assist the individual to achieve or maintain sufficient functional capacity to performage-appropriate or developmentally appropriate daily activities

2. The MCO or insurer must determine medical necessity on the basis of health informationprovided by the following persons: the individual (as appropriate to his or her age andcommunicative abilities), the individual’s family, the primary care physician, and consult-ants with appropriate specialty training, as well as other providers, programs, multidisci-plinary teams, educational institutions, or agencies that have evaluated the individual.

3. The determination of medical necessity must be made on an individual basis and mustconsider

• The functional capacity of the person and those capacities that are appropriate forpersons of the same age or developmental level

• Available research findings, health care practice guidelines, and standards issued byprofessionally recognized organizations or government agencies

4. Final determinations will be made by a physician in concert with the following persons:the individual’s primary care physician; a consultant with experience appropriate to theindividual’s age, disability, or chronic condition; and the individual and/or family.

5. Medically necessary services must be delivered in a setting (e.g., an individual’s home,school, child care center, workplace, or community-based agency) that is appropriate tothe specific health needs of the individual.

1Unspecified or undiagnosed conditions are common in this population; hence, additional or special diagnostic procedures ortests are frequently needed to reach a diagnosis that will assist in determining an appropriate care plan.2Knowledge about the role of genetics in chronic disease and disability is growing rapidly. For example, diagnosis of fragile Xsyndrome in a child requires pedigree analysis and laboratory studies not only to permit accurate diagnoses, but also to ensurethat genetic counseling is provided to help individuals and families make informed choices on reproductive issues.

Research is needed on treatment effects,

costs associated withdifferent definitions,

and team approachesto medical necessity

determinations

21

A comprehensive approach to determi-nations of medical necessity for per-sons with developmental disabilities,

mental retardation, and other special healthcare needs will have management and fiscalimplications. Depending on how it is imple-mented, a comprehensive approach mayrequire the following:

• Procedures for determining the scope ofmedical and related information that will beneeded to determine whether a service ismedically necessary; installation of data-tracking methods that will assist in thiseffort

• Procedures for determining when standardprotocols can be used and when they arenot appropriate

• Assurance that medical necessity determi-nations will address whether the service inquestion will help accomplish the person’soverall health and functional goals andwhether evidence is available on the inter-vention’s treatment effects

• Assurance that medical necessity determi-nations for this vulnerable population of

children and adults will be made and monitored routinely by appropriate personnel

• Demonstrations that comprehensive struc-tural procedures are in place to ensure thatservices needed by a vulnerable populationare available and that consumer andprovider perspectives are incorporated in aconsistent, organized manner

• An ongoing quality assessment process thatis separate from an appeal or grievanceprocess

In the final analysis, purchasers and plans willhave to consider whether the costs of imple-menting a comprehensive process of determin-ing medical necessity for vulnerable populationsis worth the cost of not doing so (Glassman etal., 1997). In the latter instance, these costsmay include (1) increased medical expendituresif denial of services ultimately increases apatient’s morbidity and subsequent use of cov-ered services; (2) the administrative burden offrequent appeals; and (3) the financial costs ofcourt settlements of cases in which medicalnecessity determinations were not made on the

S E C T I O N V

Implications

22

basis of comprehensive information (Hall andAnderson, 1992; Sage, 1995).

Currently, little information is available toassess the varying costs of different definitionsof medical necessity, to measure “necessity”(Kahan et al., 1994), or even to understandhow cost considerations influence medicalnecessity determinations. A carefully conceptu-alized program of research is needed that willdirectly address these issues as they affect chil-dren, youth, and adults with developmentaldisabilities, mental retardation, serious emo-tional disorders, chronic illnesses, and otherspecial health care needs. In particular, researchis needed on treatment effects pertaining tothis population, on how medical necessitydecisions are actually made in different typesof financing systems, and on the implicationsof a team approach in medical necessity determinations.

The role of scientific evidence in shaping thefinancing and delivery of health care will con-tinue to grow. Unfortunately, recent efforts todefine new policies on medical necessity andthe breadth of benefits fail to address specificissues about vulnerable populations. Theresearch community (both investigators andfunding sources) must focus attention on thesepopulations in order to develop the knowledgebase needed for reasoned equity in the alloca-tion of our nation’s health resources.

Finally, it is no secret that U.S. health care sys-tems are changing rapidly. Issues pertaining tomedical necessity are likely to shift substantiallyas MCOs develop new products with differingbenefit packages, service coordination models,co-payment structures, and strategies for man-aging provider networks. Families, physicians,other health care providers, and legislative staffwill need to monitor these changes closely toensure that children and adults with disabilities,mental retardation, and chronic illnesses receivethe services they need. ■

23

Agency for Health Care Policy and Research. 1995.Medical Necessity—Proceedings from a Symposium onPolicy Issues, Implementation Challenges, and ToughChoices. Washington, DC: Agency for Health CarePolicy and Research.

American Medical Association. Principles of ManagedCare. In American Medical Association [Web site].Cited May 1998; available at http://www.ama-assn.org.

Arno PS, Levine C, Memmott MM. 1999. The econom-ic value of informal caregiving. Health Affairs18(2):182–188.

Bergthold L. 1995. Medical necessity: Do we need it?Health Affairs 14(4):180–190.

Berman S. 1997. A pediatric perspective on medicalnecessity. Archives of Pediatric and Adolescent Medicine151:858–859.

Braslow N, Shatin D, McCarthy D, Newcomer L. 1998.Role of technology assessment in health benefits cov-erage for medical devices. American Journal ofManaged Care 4:SP139–SP150.

Buchanan A. 1981. Justice: A philosophical review. InShelp E, ed., Justice and Health Care. Dordrecht,Holland: D. Reidel Publishing Co.

Center for Health Policy Research. 1998. MedicaidPediatric Purchasing Specifications. Washington, DC:School of Public Health and Health Services, GeorgeWashington University Medical Center.

Eddy DM. 1996. Benefit language criteria that willimprove quality while reducing costs. Journal of theAmerican Medical Association 275(8):650–657.

Federal Interagency Coordinating Council. 1999. APolicy Statement: Recommended Package of MinimumHealth Care Benefits for Newborns, Infants, andChildren, Birth Through 8 Years of Age. Washington,DC: Federal Interagency Coordinating Council.

Fox HB, Graham RR, McManus MA. 1998. States’CHIP Policies and Children with Special Health Care

Needs. Washington, DC: The Maternal and ChildPolicy Research Center.

Glassman PA, Model KE, Kahan JP, Jacobson PD,Peabody JW. 1997. The role of medical necessity andcost-effectiveness in making medical decisions.Annals of Internal Medicine 126(2):152–156.

Hall MA, Anderson GF. 1992. Health insurers’ assess-ment of medical necessity. University of PennsylvaniaLaw Review 140(5):1637–1712.

Hein K. 1997. Medical necessity: making sense out ofnonsense. Journal of the American Board of FamilyPractitioners 10(3):222–226.

Jacobson PD, Asch S, Glassman PA, Model KE,Hernandez JB. 1997. Defining and implementingmedical necessity in Washington State and Oregon.Inquiry 34:143–154.

Janicki M, Seltzer M. 1991. Aging and DevelopmentalDisabilities: Challenges for the 1990s. Washington DC:American Association on Mental Retardation.

Jones NL. 1991. Essential requirements for the Act:Short history and overview. In West J, ed., TheAmericans with Disabilities Act: From Policy to Practice.New York, NY: Millbank Memorial Fund.

Kahan JP, Bernstein SJ, Leape LL, Hilborne LH, ParkRE, Parker L, Kamberg CJ, Brook RH. 1994.Measuring the necessity of medical procedures.Medical Care 32(4):357–365.

Koyanagi C, Giliberti M, Burnim I, Bevilacqua J. 1997.Defining “Medically Necessary” Services to ProtectChildren. Washington, DC: Bazelon Center forMental Health Law.

Koyanagi C, Burnim I, Bevilacqua J, Allen M. 1997.Defining “Medically Necessary” Services to Protect PlanMembers. Washington, DC: Bazelon Center forMental Health Law.

Kronick R, Dreyfus T, Lee L, Zhou Z. 1996. Diagnosticrisk adjustment for Medicaid: The Disability

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Payment System. Health Care Financing Review17:7–33.

Moran DW. 1997. Federal regulation of managed care:An impulse in search of a theory. Health Affairs16(6):7–21.

National Institute for Health Care Management. 1999.Making Coverage Decisions about EmergingTechnologies—Proceedings from a Symposium, February11, 1999. Washington, DC: National Institute forHealth Care Management Research and EducationalFoundation.

Newacheck P, Strickland B, Shonkoff J, Perrin J,McPherson M, McManus M, Lauver C, Fox H,Arango P. 1998. An epidemiologic profile of childrenwith special health care needs. Pediatrics 102:117–123.

Neff J, Anderson G. 1995. Protecting children withchronic illness in a competitive marketplace. Journalof the American Medical Association 275:1866–1869.

Newcomer LN. 1990. Sounding Board: Defining experi-mental therapy: A third-party payer’s dilemma.Journal of the American Medical Association323(24):1702–1704.

Pader E. 1997. ‘Medical necessity’ is in the eye of thebeholder. Medical Tribune 38(19).

Quinn CE. 1997. How an HMO doctor determines“medical necessity.” Medical Economics 74(4):198,201–202.

Rosenbaum S, Frankford D, Moore B, Borzi P. 1999.Who should determine when health care is medicallynecessary? New England Journal of Medicine340(3):229–233.

Rosenbaum S, Frankford D, Moore B, Borzi P. 1998.Negotiating the New Health System: A NationwideStudy of Medicaid Managed Care Contracts (2nd ed.).Washington, DC: George Washington UniversityMedical Center.

Rosenbaum S, Teitelbaum J. 1998. Coverage Decision-Making in Medicaid Managed Care: Key Issues inDeveloping Managed Care Contracts (Issue Brief #1 inManaged Behavioral Health Care Issue Brief Series).Washington, DC: George Washington UniversityMedical Center.

Rushton C. 1996. Ethics and the child with a chroniccondition. In Jackson P, Vessey J, eds., Primary Careof the Child with a Chronic Condition. St. Louis, MO:Mosby-Year Book.

Sage W. 1995. Courts, coverage, and managed care: Dowe really want an adversarial health care system? InAgency for Health Care Policy and Research,Medical Necessity—Proceedings from a Symposium onPolicy Issues, Implementation Challenges, and ToughChoices. Washington, DC: Agency for Health CarePolicy and Research.

Sofaer S. 1995. Medical necessity: A consumer perspec-tive. In Agency for Health Care Policy and Research,Medical Necessity—Proceedings from a Symposium onPolicy Issues, Implementation Challenges, and ToughChoices. Washington, DC: Agency for Health CarePolicy and Research.

State of New Jersey, Department of Human Services,Division of Medical Assistance and Health Services.March 1998. New Jersey Care 2000: HMO Request forInformation Released for Public Comment. Trenton, NJ:State of New Jersey Department of Human Services.

VanLandeghem K, Sonosky CA, Kagan J. 1998.Maternal and Child Health Practice: An Analysis ofSelect Provisions in Medicaid Managed Care Contracts.Washington DC: Association of Maternal and ChildHealth Programs.

Veatch R. 1976. What is a “just” health care delivery? InVeatch R, Branson R, eds., Ethics and Health Policy(Chapter 8). Cambridge, MA: Ballinger PublishingCo.

Wehr E, Jameson EJ. 1994. Beyond benefits: The impor-tance of a pediatric standard in private insurance con-tracts to ensuring health care access for children. TheFuture of Children 4(3):115–133.

Zimmerman B, Eisen N, Schwalberg R, Gabor V, Hill I.1996. Critical Issues in Designing Contracts forManaged Care Organizations Serving Children withSpecial Health Care Needs. Washington, DC: HealthSystems Research, Inc.

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A P P E N D I X A

Steering Committee

Polly ArangoJulie BeckettRobert CookeShelly GehshanIan HillHenry IreysMary TierneyElizabeth Wehr

Expert Panel

Linda AttarianStephen BermanSusan BurkeGarnette ColemanKaren EdwardsHarriette B. FoxMarilyn GoldwaterCatherine A. HessPaula Colodny HollingerJanice HutchinsonVivian JacksonRene JenkinsLawrence C. KleinmanBarbara LardyMerle McPhersonMindy MorrellSheila J. MoseeRichard P. NelsonMelvin NeufeldEd NeuschlerFred Palmer

David ParellaJohn ReissAlina SalganicoffMaxwell SchleiferVern SmithColleen SonoskyBonnie StricklandNadine ThomasPeter van Dyck

Other Colleagues

Rebecca AdelmannLauren AgoratusTreeby BrownGil BuchananCharles CarterKaren DoranAntoinette EatonMaxine HayesAl HealyRichard HegnerDouglas McCarthyWalter OrchinkoAndrew PenzinerEileen PetersonMichael PiskaiClifford SellsElizabeth ShenkmanKaren VanLandeghemConnie WellsNora WellsJosie Woll

Contributors

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M ost of the following definitions comefrom state Medicaid managed care con-

tracts and can be found in Negotiating the NewHealth System: A Nationwide Study of MedicaidManaged Care Contracts (Rosenbaum et al.,1998).

State Definitions

Arizona: Medically necessary services are thosecovered services provided by a physician orother licensed practitioner of the healing artswithin the scope of their practice under statelaw to (a) prevent death, treat/cure disease, andameliorate disabilities or other adverse healthconditions, and/or (b) prolong life.

Colorado: Medically Necessary shall mean anyhealth care service required to preserve theCovered Person’s health and which, as deter-mined by the Contractor’s designated medicalrepresentative or Medical Director, is

• Consistent with accepted standards for theprevention of disease and disability and fortreatment of symptoms

• Appropriate with regard to standards ofgood medical practice

• Not solely for the convenience of theCovered Person, his or her Physician(s),Hospital, or other providers

• The most appropriate supply or level ofservice which can be safely provided to theCovered Person

When specifically applied to an inpatient, itfurther means that the covered person’s medicalsymptoms or condition requires that the diag-nosis or treatment cannot be safely provided tothe Covered Person in any other setting, i.e.,home, outpatient, Nursing Facility.

Georgia: Those services which are reasonableand necessary in establishing a diagnosis andproviding palliative, curative, or restorativetreatment for physical and/or mental healthconditions in accordance with the standards ofmedical practice generally accepted at the timethe services are rendered. The services provid-ed, as well as the type of provider and setting,must be appropriate to the specific medicalneeds of the Member.

Kansas: Those services and medical supplieswhich are required for prevention, diagnosis, ortreatment for sickness or injury which are

• Consistent with the symptoms of a medicalcondition or treatment of a medical condition

• Appropriate with regard to standards ofgood medical practice and generally recog-nized by the medical scientific communityas effective

A P P E N D I X B

Medical Necessity Definitions

27

• Not solely for the convenience of an HMOmember or provider of the service or med-ical supplies

• The most effective of the alternative levelsof service or medical supplies which cansafely be provided

Minnesota: Pursuant to Minnesota Rules, Part9505.0175, Subpart 25, “medically necessary” or“medical necessity” means a health service thatis consistent with the enrollee’s diagnosis orcondition and

• Is recognized as the prevailing standard orcurrent practice by the provider’s peergroup; and

• Is rendered in response to a life threateningcondition or pain; or to treat an injury, ill-ness, or infection; or to treat a conditionthat could result in physical or mental dis-ability; or to care for the mother and childthrough the maternity period; or to achievea level of physical or mental function con-sistent with prevailing community standardsfor diagnosis or condition; or

• Is a preventive health service defined underMinnesota Rules, Part 9505.0355.

Montana: A service which is reasonably calcu-lated to prevent, diagnose, correct, cure, allevi-ate, or prevent the worsening of conditions in apatient which endanger life, cause suffering orpain, result in illness or infirmity, threaten tocause or aggravate a handicap, or cause physicaldeformity or malfunction. A service or item ismedically necessary only if there is no otherequally effective, more conservative, or substan-tially less costly course of treatment medicallyappropriate for the recipient requesting theservice or, when appropriate, no treatment at

all. Experimental services or service generallyregarded by the medical profession as unaccept-able treatment are not medically necessary.

Nebraska: The term “medical necessity” and“medically necessary” with reference to a cov-ered service means health care services and sup-plies which are medically appropriate to meetthe basic health needs of the client; rendered inthe most cost effective manner and type of set-ting appropriate for the delivery of the coveredservices; consistent in type, frequency, andduration of treatment with scientifically basedguidelines of national medical research orhealth care organizations or government agen-cies; consistent with the diagnosis of the condi-tion; required for reasons other than theconvenience of the client or of his or her physi-cian; no more intrusive or restrictive than nec-essary to provide a proposed balance of safety,effectiveness, and efficiency; of demonstratedvalue; and a no more intensive level of servicethan can be safely provided. The fact that thephysician has performed or prescribed a proce-dure or treatment or the fact that it may be theonly treatment for a particular injury, sickness,or mental illness does not mean that it is med-ically necessary.

New Jersey: Services or supplies necessary toprevent, diagnose, correct, prevent the worsen-ing of, alleviate, ameliorate, or cure a physicalor mental illness or condition; to maintainhealth; to prevent the onset of an illness, condi-tion, or disability; to prevent or treat a condi-tion that endangers life or causes suffering orpain or results in illness or infirmity; to preventthe deterioration of a condition; to promote thedevelopment or maintenance of maximal func-tioning capacity in performing daily activities,taking into account both the functional

28

capacity of the individual and those functionalcapacities that are appropriate for individuals ofthe same age; to prevent or treat a conditionthat threatens to cause or aggravate a handicapor cause physical deformity or malfunction, andthere is no other equally effective, more conser-vative, or substantially less costly course oftreatment available or suitable for the enrollee.

The service provided, as well as the type ofprovider and setting, must be reflective of thelevel of services that can be safely provided,must be consistent with the diagnosis of thecondition and appropriate to the specific med-ical needs of the enrollee and not solely for theconvenience of the enrollee or provider of serv-ice and in accordance with standards of goodmedical practice and generally recognized bythe medical scientific community as effective.Course of treatment may include mere observa-tion or, where appropriate, no treatment at all.Experimental services or service generallyregarded by the medical profession as unaccept-able treatment are not medically necessary forthe purposes of this contract.

In the case of pediatric enrollees, the definitionshall apply with the additional criteria that theservices, including those found to be needed bya child as a result of a comprehensive screeningvisit or an inter-periodic encounter whether ornot they are ordinarily covered services for allother Medicaid enrollees, are appropriate forthe age and health status of the individual andthat the service will aid the overall physical andmental growth and development of the individ-ual and the service will assist in achieving ormaintaining functional capacity.

Oregon: “Medically Necessary Services andItems” are defined in the Department’s General

Rules as those services and items that arerequired for diagnosis or treatment of illness, orinjury, and which, in the judgment of theMedical Assistance Program, are

• Consistent with the diagnosis and treat-ment of the patient’s condition, and

• Appropriate with regard to standards ofgood medical practice, and

• Not primarily for the convenience of thepatient or a provider of services and sup-plies, and

• The least costly of the alternative suppliesor levels of service which can be safely pro-vided to the patient, and

• Will significantly improve the basic healthstatus of the client.

The fact that a licensed practitioner or otherprofessional or provider prescribes, orders, orrecommends, or approves a service or item doesnot, in itself, make the service or item medical-ly necessary.

Pennsylvania: Determination of medicalnecessity for covered care and services, whethermade on a prior authorization, concurrent, orpost-utilization basis, shall be in writing, becompensable under medical assistance, and bebased on the following standards. The planshall base its determination on medical infor-mation provided by the individual’s family andthe primary care practitioner, as well as anyother providers, programs or agencies that haveevaluated the individual. Medical necessitydeterminations must be made by qualified andtrained providers. Satisfaction of any one of thefollowing standards will result in authorizationof the service:

29

• The service or benefit will, or is reasonablyexpected to, prevent the onset of an illness,condition, or disability.

• The service or benefit will, or is reasonablyexpected to, reduce or ameliorate the physi-cal, mental, or developmental effects of ill-ness, condition, injury, or disability.

• The service or benefit will assist the indi-vidual to achieve or maintain maximumfunctional capacity in performing dailyactivities, taking into account both thefunctional capacity of the individual andthose functional capacities that are appro-priate for individuals of the same age.

Tennessee: “Medically Necessary” shall meanservices or supplies provided by an institution,physician, or other provider that are required toidentify or treat a TennCare enrollee’s illness orinjury and which are

• Consistent with the symptoms or diagnosisand treatment of the enrollee’s condition,disease, ailment or injury; and

• Appropriate with regard to standards ofgood medical practice; and

• Not solely for the convenience of anenrollee, physician, institution or otherprovider; and

• The most appropriate supply or level ofservices which can safely be provided to theenrollee. When applied to the care of aninpatient, it further means that services forthe enrollee’s medical symptom or conditionrequire that the services cannot be safelyprovided to the enrollee as an outpatient.

Texas: Medically necessary services shall bedefined as services which are reasonable andnecessary to prevent illness or medical condi-tions and provide early screening, interventionand treatments for conditions that cause suffer-ing or pain, cause physical deformity or limita-tions in function, threaten to cause or worsen ahandicap, cause illness or infirmity of a mem-ber, or endanger life; provided at appropriatefacilities (which may include the beneficiary’shome) and at the appropriate level of care forthe treatment of a member’s medical condi-tions; consistent with the health care practiceguidelines and standards that are issued by pro-fessionally recognized health care organizationsor governmental agencies; consistent with thediagnoses of the conditions; and no more intru-sive or restrictive than necessary to provide aproposed balance of safety, effectiveness, andefficiency.

Virginia: Only supplies, equipment, and appli-ances that are considered medically necessaryare covered. All of the following must be metto be considered medically necessary. The sup-plies and equipment or appliances must be

• A reasonable and necessary part of therecipient’s treatment plan;

• Consistent with the symptoms, diagnosis, ormedical condition of the illness or injuryunder treatment;

• Not furnished for the convenience of therecipient, the family, the attending practi-tioner, or other practitioner or supplier;and

• Necessary and consistent with generallyaccepted professional medical standards(i.e., not experimental or investigational).

30

Washington: Medically necessary services areservices which are reasonably calculated toprevent, diagnose, correct, cure, alleviate, orprevent the worsening of conditions thatendanger life, cause suffering or pain, result inillness or infirmity, threaten to cause or aggra-vate a handicap or cause physical deformity ormalfunction, and there is no other equallyeffective, more conservative or substantiallyless costly course of treatment available orsuitable for the member requesting the service.For the purpose of this contract, “course oftreatment” may include mere observation or,where appropriate, no treatment at all.Medically necessary services shall include, butnot be limited to, diagnostic, therapeutic, andpreventive services which are generally andcustomarily provided in the service area, andperformed, prescribed, or directed by the PCPand approved by the Contractor’s MedicalDirector, except where expressly limited orexcluded by this contract.

Other Definitions

The Institute of Medicine: Medical necessity isthe need for a specific medical service based onclinical expectations that the health benefits ofthe service will outweigh the health risks.

The American Academy of Pediatrics: The fol-lowing criteria should be used to decide med-ical necessity and approval of services: Is theservice appropriate for the age and health statusof the individual; will the service prevent orameliorate the effects of a condition, illness,injury, or disorder; will the service aid the over-all physical and mental growth and develop-ment of the individual; and will the serviceassist in achieving or maintaining functionalcapacity? (Berman, 1997).

Medicaid’s Early and Periodic Screening,Diagnostic and Treatment (EPSDT): Underthe Medicaid EPSDT benefit, childrenenrolled in Medicaid are entitled to compre-hensive health assessments at regular intervalsand any follow up diagnostic and treatmentservices that are “necessary to correct or amelio-rate defects and physical and mental illnessesand conditions” (42 U.S.C. 1396d). In addition,covered services must be sufficient to “reason-ably achieve” the broadly preventive purpose ofEPSDT, which has been interpreted to includeearly and continuing health care interventionsto prevent or mitigate primary or secondarydisability (42 CFR 440.230) (See alsoZimmerman et al., 1996).

Commercial Insurers: A typical benefits con-tract may define a medically necessary serviceas a service that is (1) necessary to meet thebasic health needs of the covered person;(2) rendered in the most cost-efficient mannerand type of setting appropriate for the deliveryof the health service; (3) consistent in type,frequency, and duration of treatment with sci-entifically based guidelines of national medical,research, or healthcare coverage organizationsor governmental agencies; (4) consistent withthe diagnosis of the condition; (5) required forreasons other than the convenience of the covered person or his or her physician; and (6) demonstrated through prevailing peer-reviewed medical literature to be safe andeffective for treating or diagnosing the condi-tion or sickness for which the use of the serv-ice is proposed (Braslow et al., 1998, p.SP142–SP143).

31

W ith much assistance from the steeringcommittee, the authors of this report

analyzed a series of definitions of medicalnecessity in light of the criteria described inSection III. Three examples are presentedbriefly for the purposes of illustrating this exer-cise. Additional information on this process canbe obtained from the authors.

The American Academy of Pediatrics

The American Academy of Pediatrics hasdeveloped an approach to defining medicalnecessity by stipulating that decisions must reston answers to the following questions (Berman,1997):

• Is the service appropriate for the age andhealth status of the individual?

• Will the service prevent or ameliorate theeffects of a condition, illness, injury, or dis-order?

• Will the service aid the overall physical andmental growth and development of theindividual?

• Will the service assist in achieving or main-taining functional capacity?

These questions reflect an outcomes-basedapproach to defining medical necessity in the

context of a developmental framework. Theyalso emphasize the importance of consideringthe service in light of the needs of the individ-ual patient. Both attributes are especially criti-cal to the individual provider in the context of aprovider-patient relationship. This approach,however, does not address explicitly what infor-mation will be used to answer these questions,or who will be involved in the discussion thatleads to the final determination. It also doesnot explicitly mention the issue of where serv-ices may be delivered.

The National Institute for HealthCare Management

In 1994, the National Institute for Health CareManagement sponsored an effort, led by Dr.David Eddy, to establish model medical neces-sity language (Agency for Health Care PolicyResearch, 1995; Eddy, 1996; National Institutefor Health Care Management, 1995). Thisapproach is consistent with the rationalist tra-dition that emphasizes the use of scientific evi-dence in decision-making. Health plans wouldbe expected to cover interventions if the inter-ventions met the following criteria:

• The intervention must be used for a med-ical condition.

A P P E N D I X C

Analysis of Selected Definitionsof Medical Necessity

32

• There is sufficient evidence to draw conclu-sions about the intervention’s effects onhealth outcomes.

• The evidence demonstrates that the inter-vention can be expected to produce itsintended effects on health outcomes.

• The intervention’s beneficial effects onhealth outcomes outweigh its expectedharmful effects.

• The health intervention is the most cost-effective method available to address themedical condition.

Additional material that describes thisapproach notes also that “When applied toindividual cases, these criteria should be inter-preted with references to the specific circum-stances of each case.”

Admirable in its appeal for basing decisions onevidence related to intervention outcomes, thisapproach is fairly explicit in identifying whatstandards should be used in deciding limits oncoverage. Nonetheless, it ignores several impor-tant criteria outlined in Section III. First, itdoes not address developmental considerations.Second, it does not explicitly acknowledge therole of information provided by physicians,evaluation teams, the family, or the individual.Third, it does not address the need for flexibili-ty in where services can be provided.

A final concern about this definition involvesthe basic level of research on treatment inter-ventions for persons with developmental dis-abilities and other special needs, includingchildren with these conditions. In part becauseof its small size and medical heterogeneity, thispopulation has not received the level of

research attention accorded to populations withmore common conditions (e.g., adults with dia-betes, cancer, or cardiac problems). Thus,NIHCM’s approach may inadvertently penalizechildren, youth, and adults with developmentaldisabilities, mental retardation, and other spe-cial needs because of its assumption that perti-nent evidence is or will be available, when infact it may not be.

Department of Human Services,State of New Jersey

In its March 1998 materials on New JerseyCare 2000, the Division of Medical Assistanceand Health Service of New Jersey’s Depart-ment of Human Services defined medicallynecessary services as services or supplies neces-sary to

• Prevent, diagnose, correct, prevent the wors-ening of, alleviate, ameliorate, or cure aphysical or mental illness or condition

• Maintain health

• Prevent the onset of an illness, condition, ordisability

• Prevent or treat a condition that endangerslife or causes suffering or pain or results inillness or infirmity

• Prevent the deterioration of a condition

• Promote the development or maintenanceof maximal functioning capacity in per-forming daily activities, taking into accountboth the functional capacity of the individ-ual and those functional capacities that areappropriate for individuals of the same age

• Prevent or treat a condition that threatensto cause or aggravate a handicap or cause

33

physical deformity or malfunction and thereis no other equally effective, more conserva-tive or substantially less costly course oftreatment available or suitable for the enrollee

The material also notes: “Services provided, aswell as the type of provider and setting, mustbe reflective of the level of services that can besafely provided, must be consistent with thediagnosis of the condition and appropriate tothe specific medical needs of the enrollee andnot solely for the convenience of the enrollee orprovider of service and in accordance with stan-dards of good medical practice and generallyrecognized by the medical scientific communityas effective. Course of treatment may includemere observation or where appropriate, notreatment at all” (State of New Jersey, 1998).

In our view this definition (similar to manydefinitions found in state Medicaid regulationsor contracts) covers most of the critical issuesoutlined in Section III. It is particularlydetailed in specifying outcomes for the inter-vention. However, it does not mention issues ofdevelopment, nor does it specify the type andsource of information that would be includedin reaching a decision on medical necessity.

The National Policy Center for Children withSpecial Health Care Needs aims to promote

comprehensive, family-centered systems of care forchildren with special health care needs and theirfamilies. To accomplish this mission, the Center:

• Gathers and disseminates information that assistsfamilies, managed care organizations, state healthdepartments, and policymakers to collaborate onimproving systems of care for these children andtheir families

• Conducts policy research related to cost andfinancing of services for children with specialhealth care needs

• Develops methods for evaluating integrated systems of care at the community level

• Provides support and information to family advocacy efforts

• Provides monitoring and system-design tools tomanaged care organizations and state agenciesconcerned with this population

The Center is committed to producing informationthat is relevant to the operational needs of managedcare organizations and state agencies; practical andeasily used by professionals, families, and programadministrators; comprehensive, in its ability to diag-nose complex problems, frame alternative strategicsolutions, and consider their strengths and weak-nesses; and responsive to the concerns of multipleaudiences, including federal and state officials,managed care organizations, and families.

The Center is a collaboration among:

• Department of Population and Family Health SciencesJohns Hopkins School of Hygiene and Public HealthBaltimore, MD

• Health Systems Research, Inc.Washington, DC

• Family VoicesAlgodones, NM

A Center Advisory Board and issue-focused workgroups support and extend the activities of theCenter. The Center has been established through acooperative agreement (24MCP) with the Maternaland Child Health Bureau, Health Resources andServices Administration, U.S. Department ofHealth and Human Services.

For more information about Center activities, con-tact any of the following:

Department of Population and Family HealthSciences

School of Hygiene and Public HealthThe Johns Hopkins University624 N. BroadwayBaltimore, MD 21205(410) 614-5553www.jhsph.edu/centers/cshcn

Dr. Henry T. Ireys Ms. Holly Grasonhireys@jhsph.edu hgrason@jhsph.edu

Dr. Cynthia Minkovitz Ms. Janis Lambert Connalloncminkovi@jhsph.edu jlambert@jhsph.edu

Dr. Gerard F. Andersonganderso@jhsph.edu

Health Systems Research, Inc.1200 18th St., N.W., Suite 700Washington, DC 20036(202) 828-5100

Ms. Judith Gallagher Ms. Renee Schwalbergjgallagher@hsrnet.com rschwalberg@hsrnet.com

Ms. Beth Zimmermanbzimmerman@hsrnet.com

Family VoicesP.O. Box 769Algodones, NM 87001(505) 867-2368

Ms. Polly Arango Ms. Julie Beckettkidshealth@familyvoices.org kidshealth@familyvoices.org

Ms. Dara HoweFamVoicTN@aol.com

THE NATIONAL POLICY CENTER FOR

CHILDREN WITH SPECIAL HEALTH

CARE NEEDS

ISBN 1-57285-060-4