[I apologize in advance for this lengthy post. For those who are only casually interested in this topic, I recommend skipping ahead to the fourth paragraph on the second page, where I give a actual examples of insurance coverage policies for a lower back MRI, sex change surgery, and helmet therapy for babies with asymmetric heads.]
Summary: Many insurance claims are denied as being “not medically necessary” and the patient is thus forced to pay for this service out of pocket, or forgo it entirely. I describe how an insurer defines medically necessary. Fortunately, the the Affordable Care Act newly mandates an appeals process. Historically, half of all denied claims get reversed on appeal. I describe the basic reason for most denials, and describe the appeal process, in hope that surprises can be avoided and help you maximize the chances of reimbursement for appropriate services.
If you have ever had a health insurance claim denied (whether your own claim, or if you are physician, a patient’s claim), it’s likely you found the reason for the denial to be unclear. There are many reasons a claim can be denied, either in advance (in the case of a denial of a pre-authorization) or after the service has been provided. Sometimes the denial is administrative, such as when a piece of information is not communicated properly from a provider to the insurer. But many claims are denied when the service is not deemed to be appropriate, in that the service is considered not to be “medically necessary” or that the service is “experimental or investigational”. In some states, up to 24 percent of claims are initially denied (see this easy to read GAO report for good information on insurance denials). Yes, it’s true, insurers are allowed to decide (with limits) what is medically necessary. Or more specifically, insurers are not obligated to pay for any and all treatments simply because an MD recommends it.
But what does it mean to be “medically necessary” and who gets to define it? In short, the insurance company gets to define it initially, and that definition is listed in the insurance plan and policy documents. Although (based on a series of state and federal lawsuits) a more-or-less uniform definition has been established. As you will see below, however, there is significant room for interpretation in determining what is medically necessary, and by extension, what is reimbursable by an insurance company.
As a physician, I routinely make decisions about diagnostic and treatment options for my patients without being fully certain that such treatments are covered by their insurance. It is simply not possible for me and/or my patients to know with certainty what is covered. There are many reasons for this. Most relevant is the fact that most physicians accept many dozens of insurance types, and cannot be expected to know all the coverage policies of each plan.
Insurance companies, including public insurance such as Medicare and Medicaid, all have various policies which must be followed in order for a test or procedure to be considered eligible for reimbursement. I am acutely aware that if I suggest a service which is not covered by insurance, the patient may be liable for the cost. Each insurance contract typically has language such as (paraphrase) “simply because your physician determines a test or treatment is necessary does not necessarily mean we will cover the costs of that service”. In addition, there is language in my employer’s contract with the patient that neither I (nor my employer) is financially liable for any test or treatment we order which is not covered by their insurance. Thus, the patient is always potentially on the hook for accepting or agreeing to any treatment suggested by their physician. This is a huge responsibility, which I do not take lightly. That said, I’m certain I will (or probably already have) suggest a service which will be denied and for which my patient will bear the full cost. [Full disclosure, I had to use google to make sure I used the right “bear” in this case]
There is one particularly unfortunate situation I feel obligated to warn about. It’s that a “pre-authorized” procedure does NOT automatically mean that an insurance company has agreed to pay for it. This is stated somewhere in the fine print of each insurance policy contract. There are times when pre-authorization is required in order to even be eligible for payment. Also, pre-authorization can be initiated by the patient or provider in advance of a service to ensure it will be covered. But such a pre-authorization does NOT obligate an insurance company to pay for the service, if upon later review it is found to not be medically necessary. So even though I can tell you that you that the insurance company has “pre-authorized” your video EEG admission, or your brain MRI, or your genetic testing, it does not mean that I can say with certainty that they will indeed pay for it. I know of more than one case in which the cost of a very expensive test, initially “pre-authorized” and even reimbursed by the insurance company, was later denied and a payment owed BACK to the insurance company by the patient. I do not know how such situations are treated by the new appeals process mandated by the Affordable Care Act (which I describe later). But I assume this type of situation lies outside of medical law, and falls instead under contract law (to the extent that such things are separate). Have I mentioned that I am not a lawyer?
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