Medical necessity


“Medical necessity” is a term that often includes a set of criteria that insurance companies use to determine whether or not they are going to pay for a billed service. If an insurance company deems a service “medically necessary” it means they agree that the service is clinically appropriate and needed based on diagnosis and documentation provided. However, a service meeting clinical criteria does not guarantee that the service will be covered. Other factors like coding (CPT), timeliness, and other applicable network rules may interfere with success of the claim and reimbursement.


Two main criteria for medical necessity

  1. The service (notated by CPT code used) is reasonably calculated to effectively treat the condition (indicated by DSM-5 Diagnosis/ICD-10) in the client that -
    • Endanger life
    • Cause suffering or pain
    • Result in an illness or infirmity
    • Threaten to cause or aggravate a handicap
    • Or cause physical deformity or malfunction
  2. AND that there is no equally effective, more conservative, or substantially less costly course of treatment available or suitable.
In other words, the treatment interventions must help the client get better, or at the very least, prevent a worsening of the client’s condition.

Generally, medical necessity is informed by ICD-10 diagnosis, impairments as a result of the diagnosis, and what interventions are being provided to alleviate symptoms and improve functioning. Essentially, these steps are covered in a clinically compliant treatment plan.


Steps to demonstrate medical necessity

  1. List the primary diagnosis for the service
    • For E/M services, distinguish between acute and chronic conditions, when appropriate.
  2. Assign the mental health diagnosis code to the highest level of specificity
    • Identify secondary diagnoses or social determinants of health (i.e., use of Z codes) that affect the overall management of the client’s care.
    • Is appropriate based on the length of time that symptoms are present (i.e. Adjustment Disorder is a maximum of 6 months after a stressful event)
  3. Be mindful when using a “rule-out” statement (a suspected but not confirmed diagnosis)
    • Document the link between diagnoses listed in the assessment and the information in the plan section of the visit
  4. Be specific in describing the symptoms to support the diagnosis
    • Demonstrate in documentation the need for the length or level of the CPT code. Documentation in the client’s chart must be consistent with and support the reason the services were provided.


Template statements

Below are some example statements that can be used to communicate medical necessity. 

  • Note: The same intent in these statements can be communicated in a number of ways throughout the progress note.
  1. Symptoms of _________________ persist and client continues to meet the criteria for outpatient behavioral health treatment.
  2. Symptoms of ________________ and continued dysfunction in ___________________ continue to negatively and significantly impact the client’s life and functioning. Ongoing mental health treatment at this level is required to mitigate these symptoms and help client achieve desired goals for therapy.
  3. Client's symptoms and _________________ difficulties may impair quality of life, be a contributing factor to other potential health issues, and threaten the need for more intensive services.
  4. Current treatment plan and service interventions are needed for symptom management and prevention of deterioration to a higher level of care.
  5. Client meets this level of service and care due to considerable ______________ symptoms.
  6. Current level of treatment is necessary as the client continues to meet diagnostic criteria and identifies symptoms that impair functioning. Without continued care at this level the client may deteriorate, be unable to maintain improvements or continue to make gains.
  7. In order to alleviate/reduce ___________ symptoms and improve functioning, it is necessary for client to remain engaged in current level of care/services.
  8. Client continues to endorse symptoms of (Diagnosis); symptom, symptom, symptom and risks the need of inpatient or ED care without current interventions and services.
  9. Client at risk of inpatient treatment or ED admission due to possibility of decompensation without the current level of care.



This document is intended for educational purposes only. It is designed to facilitate compliance with payer requirements and applicable law, but please note that the applicable laws and requirements vary from payer to payer and state to state. Please check with your legal counsel or state licensing board for specific requirements.

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