Medical Necessity vs. MDM: Know the Distinction & Assign E/M Levels Correctly

Posted on 23 Jan, 2019 |comments_icon 0|By Elizabeth

Evaluation and management (E/M) services are the bread and butter of most providers’ paychecks. Unfortunately, E/M services are also the most problematic to code, prone to errors related to level of service.

If you’re struggling with a fair share of E/M claim denials, a solid understanding of the distinction between medical decision-making (MDM) and medical necessity — as well as how each factors into your reporting — will go a long way to help you get the upper hand.

How MDM and Medical Necessity Differ

In a nutshell, MDM refers to the complexity involved with an E/M service — specifically, the complexity of establishing a diagnosis and/or management option — whereas medical necessity demonstrates why the physician performed the service.

These two terms, often used interchangeably by physicians and coders, differ in pivotal ways. MDM can help you select the correct E/M code level, but medical necessity will determine if you get reimbursed.

Medical necessity must drive your reporting. Just because a physician completes a comprehensive history and examination, it doesn’t always follow that you should report a level-five code. Medical necessity should dictate the components your provider performs. While it’s a more difficult concept for coders to quantify, medical necessity supersedes MDM when selecting the E/M service level. In fact, medical necessity must warrant the level of MDM complexity.

Caution: Ignoring this requisite could lead to severely miscoding your E/M levels.

Dig into the All-important Definition

Understanding medical necessity is key to supporting your coding.

Why it matters: On the back of the CMS-1500 or the electronic equivalent, your provider is attesting that “I certify the services shown on this form were medically indicated and necessary for the health of the patient.” If your coding doesn’t reflect this, your provider could wind up in trouble with Medicare and other payers.

Official wording: The Social Security Act (Title XVIII of the Social Security Act, Section 1862 [a] [1] [a]) addresses medical necessity, stating: “No payment may be made under Part A or Part B for expenses incurred for items or services which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

In more detailed terms, the American Medical Association defines medical necessity as: “Health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is: (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the economic benefit of the health plans and purchasers or for the convenience of the patient, treating physician, or other health care provider.”

Lastly, and perhaps where you’ll best grasp the relationship between MDM and medical necessity, the Internet-Only Manual, Publication 100-04, Medicare Claims Processing Manual, Chapter 30, Section 6.1 says: “Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT® code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed. Documentation should support the level of service reported.”

Best bet: As directed by the table of risk Medicare publishes in the E/M guidelines, look at the nature of the presenting problem to help you determine whether the presenting problem — and thus, medical necessity — supports the level of service you want to report.

Ramp Up Your Documentation

Justifying high-level E/M codes depend on more than history, examination, and medical decision making. If your provider doesn’t document solid medical necessity for the encounter, you can’t report a high-level code, regardless of how sick the patient is or how complicated the case.

On the other end of the documentation spectrum, EHR systems — which often automatically code encounters without regard to medical necessity — make it easy to document high levels of history and exams resulting in level four and five services when medical necessity supports only level two or three services.

Bottom line: You must backup your claims with thorough and accurate documentation that supports the level of service reported.

To this end, you might want to educate your providers about the role medical necessity and MDM play in your documentation, ensuring that your providers understand that complicated cases don’t always mean high codes.

Even more beneficial, you might consider revising your documentation template to capture greater detail, specifically the clinical indicators showing primary and secondary causes and comorbid conditions. By including comorbid conditions, your documentation will tell a more accurate story of what’s going on with the patient, as well as everything going on in your physician’s thinking when he or she evaluates the patient.

A documentation template with areas to record what’s been done, what’s worked, what hasn’t, etc., will prompt the physician to document in a manner that demonstrates medical necessity and meets the MDM required to select a code.

Consider This Example

When you’re establishing your medical decision-making tally, you’ll typically review everything that the doctor has recorded, observed, and performed.

For example, suppose your physician sees a diabetic patient with a retinal condition. As a new patient, the physician’s going to review labs and history with diabetes to determine the severity of the eye problem and how the patient controls or doesn’t control it. Because the provider must evaluate the diabetic condition, as well as the retinal condition, you might send the patient for outside tests, which will require an additional workup. If the patient then returns for a follow up, and his blood sugar results have declined, the provider must look for alternative treatment options, which would require more MDM than the patient who returns in stable condition.

You’ll also have to review the amount and complexity of data to select the right MDM level. This is driven by the amount of data that has been documented during the visit to treat the patient. If you have labs, radiology, and diagnostic tests that were ordered and reviewed, the provider has more information to consider when diagnosing and treating the patient. This increases the work level in determining the MDM. Note that all of these components were all medically necessary for a diabetic patient with a retinal disorder.

Nail Down Thorough Documentation and the Rest Will Follow

Practices that focus on documenting for the patient’s actual clinical conditions will meet the required initiatives to justify the coding levels they performed and demonstrate medical necessity, thus allowing practices to keep ethical and accurate revenue flowing.

Contributing Editors: Torrey Kim, Leesa A. Israel

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Elizabeth works on an array of projects at TCI, researching and writing about modern reimbursement challenges. Since joining TCI in 2017, she has also covered the nuts and bolts of cybersecurity, compliance with federal laws, and how to tap into the advantages of telehealth services.

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