Understanding Medical Necessity in Coding

July 25, 2025

In the world of medical coding and billing, medical necessity is a critical concept that determines whether a healthcare service or procedure is justified and eligible for reimbursement. Simply put, even if a service is coded correctly, it will not be reimbursed unless it meets the standard of being medically necessary.

For medical coders, understanding and applying the concept of medical necessity is essential for ensuring compliance, reducing claim denials, and supporting proper patient care. In this blog, we’ll explore what medical necessity means, how it affects coding, and how to document it properly.

What Is Medical Necessity?

Medical necessity refers to healthcare services or procedures that are:

Appropriate for the diagnosis or treatment of a condition,

Consistent with accepted standards of medical practice,

Clinically appropriate in terms of type, frequency, and duration, and

Not performed primarily for the convenience of the patient or provider.

Insurance payers, including Medicare and Medicaid, use this principle to determine whether they will cover a service. If a service does not meet medical necessity criteria, it may be denied—even if it was provided in good faith.

How Medical Necessity Impacts Coding

Medical coders must align the diagnosis codes (ICD-10-CM) with the procedure or service codes (CPT/HCPCS) to justify the service rendered. The diagnosis code must clearly support the need for the procedure.

For example:

A provider orders a chest X-ray (CPT 71045).

If the diagnosis code is “cough” (R05) or “shortness of breath” (R06.02), the X-ray may be covered.

If the diagnosis is “annual physical” (Z00.00), the payer may deny the claim unless the X-ray is part of a preventive screening.

Common Scenarios of Denial Due to Medical Necessity

Incorrect or vague diagnosis codes that don’t justify the service.

Overuse of screening tests or services not aligned with the patient’s symptoms or history.

Lack of supporting documentation in the medical record to explain why the service was needed.

Denials due to medical necessity are not uncommon, and they can be avoided with attention to detail and proper documentation.

Documentation Is Key

To support medical necessity, providers and coders should ensure:

Clear Clinical Justification: The documentation must explain why the service was needed (e.g., symptoms, abnormal findings).

Detailed Patient History: Include relevant patient conditions, comorbidities, or prior failed treatments.

Consistent Coding: Ensure diagnosis and procedure codes align accurately with the documentation.

Payers may also use Local Coverage Determinations (LCDs) or National Coverage Determinations (NCDs), which provide specific guidance on what conditions justify certain services. Coders should be familiar with these policies for frequently used codes.

Tips to Ensure Medical Necessity Compliance

Review payer guidelines for services with high denial rates.

Stay updated on LCDs and NCDs for your region or specialty.

Work closely with providers to educate them on the documentation required.

Conduct internal audits to catch patterns of denials and correct them.

Conclusion

Understanding and applying the principle of medical necessity is a cornerstone of successful medical coding and billing. Coders must go beyond assigning codes—they must ensure those codes accurately reflect the patient’s clinical condition and the services rendered. Proper documentation, payer policy awareness, and clear communication between providers and coders are key to avoiding denials and ensuring optimal patient care and reimbursement.

Learn : Medical Coding Training Course

Visit Quality Thought Training Institute
Get Direction

Search This Blog

Quality Thought Training Institute