Illinois Insurance Facts Medical Necessity Revised May 2007

Whether you submit a claim after treatment or attempt to pre-certify a proposed treatment, insurance companies and HMOs will review that claim or pre-certification request to determine if the services are medically necessary.  If the insurance company or HMO determines the service is not medically necessary, they will deny the claim or pre-certification request.

Almost all insurance companies and HMOs pay claims based upon the concept of medical necessity.  This Fact Sheet explains what medical necessity means and how to appeal adverse decisions by your insurer or HMO.

What Is Medical Necessity?

A sample definition of “Medically Necessary” contained in an insurance policy is:

“Medically Necessary means that a service, supply or medicine is necessary and appropriate and meets the standards of good medical practice in the medical community for the diagnosis or treatment of a covered illness or injury, as determined by the insurance company.”

If you are a member of an HMO, your primary care physician is responsible for deciding if a proposed treatment or service is medically necessary.  However, the HMO may require the primary care physician to obtain approval from its Medical Director.

Examples of hospitalizations and other health care services and supplies that are not considered Medically Necessary include:

Insurance companies and HMOs exclude coverage for treatment that is not medically necessary because they do not want to extend benefits for unnecessary treatment or for care that might be potentially dangerous or harmful to their member.  Decisions as to what care and services are “necessary” are medical determinations based upon the opinion of the attending provider.  The fact that your doctor prescribes a treatment or procedure does not mean the insurance company or HMO will agree that it is medically necessary. 

Most major medical policies and all HMOs require that you pre-authorize elective inpatient hospital stays and major surgical procedures.  Failure to pre-authorize the service can result in a penalty or denial of the claim.  If your policy requires pre-authorization, follow the proper procedure so you know whether or not coverage is available.  If your policy does not require pre-authorization of the service, you will not know if it is covered until the claim is submitted. 

NOTE:  Preauthorization by an insurance company is not a guarantee that benefits will be paid.  All policy provisions, such as preexisting condition waiting periods apply.  Additionally, benefits are only payable if you are eligible for coverage on the date the service is provided. 

How To Appeal A Denial Due To Medical Necessity

If an insurer or HMO denies a pre-authorization request or a claim due to lack of medical necessity, you may appeal the decision. 

For HMOs:  Appeal procedures for HMOs are set forth within the Managed Care Reform and Patient Rights Act.  You or your physician can file an oral or written appeal with the HMO.  The Act requires an HMO to render a decision on an appeal for urgently needed treatment within 24 hours after submission of the appeal.  All other appeals must be handled within 15 business days of receipt of all necessary information.  If the appeal is denied, you are entitled to an external independent review.  You, your physician and the HMO select the independent reviewer jointly.  The decision of the independent reviewer is final.

For insurance companies:  State law grants limited authority to the Division of Insurance over medical necessity determinations by insurance companies.  The Division is not empowered to review medical records and make claim determinations.  The Division can ensure that the company is abiding by utilization procedures as required by law as follows:

• Review must be performed by a registered utilization review entity
• Review must be conducted within required time-frames
• Initial clinical review cannot be denied unless it is reviewed by a health care professional who holds a current license in the same licensure category as the ordering provider as a doctor of medicine or osteopathic medicine
• Initial denial notice is in writing, and includes the principal reasons for denial, a statement that clinical rationale will be provided upon request, and instructions for appeal.
• Availability of a peer to peer conversation between the reviewer and your provider when care is determined not to be medically necessary;
• An appeal to the initial review is conducted within required time-frames
• Appeal reviewer must be conducted by a clinical peer, who is board certified, and is in the same profession and in a similar specialty as typically manages the medical condition
• Appeal reviewer cannot be the individual who made the original denial, nor the subordinate of that individual.

Some insurance companies include additional appeals beyond the utilization review requirements; however, state law does not require an insurance company to grant you an independent external review.

For More Information

Call our Consumer Services Section at (312) 814-2427 or
our Office of Consumer Health Toll Free at (877) 527-9431
or visit us on our website at Division of Insurance

Related Topics:

I Want To File A Complaint
Health Maintenance Organizations
Individual Major Medical Insurance
Frequently Asked Questions - Individual Accident and Health Insurance