What you need to know about medical necessity in mental health

What is medical necessity?

“Medical necessity” describes the criteria that insurance companies use to determine whether a service will be covered by its member’s health benefits. If an insurance company deems a service “medically necessary,” explains Tague, it means it agrees that the service is clinically appropriate and needed based on diagnosis and documentation provided.

Medical necessity isn’t the only criteria that determines whether a service will be covered: Factors like coding (CPT), timeliness, and other applicable network rules may interfere with success of the claim and reimbursement.

How does medical necessity apply to mental health?

It’s easy to see how medical necessity would help determine if a patient’s surgery should be covered by their health insurance plan: A physician might have lab test results or imaging scans to justify that the surgery is the best path towards alleviating symptoms.

But medical necessity in mental health can sometimes be challenging to justify to insurers.

When medical necessity is required for a specific billing code or frequency of sessions, it’s your responsibility as a provider to use your clinical expertise to explain, through your notes, that the treatment you’re providing to the client is the best way to treat their diagnosed condition. While this responsibility may sound intimidating, the most important thing is to do your best work to properly treat your clients and then document that work with as much detail as possible in your notes.

The 2 main criteria for medical necessity

For most private insurers, medically necessary mental health care needs to meet both of the following criteria:

1. The service effectively treats the client’s condition.

The service, notated by the CPT code used, has been reasonably calculated to effectively treat the condition (indicated by DSM-5/ICD-10 diagnosis) in the client that:

Endangers life
Causes suffering or pain
Results in an illness or infirmity
Threatens to cause or aggravate a handicap
Or causes physical deformity or malfunction

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 should be covered in a clinically compliant treatment plan.

2. This is the best course of treatment.

In order to deem the service medically necessary, there must be no equally effective, more conservative, or substantially less costly course of treatment available or suitable. This helps protect the patient from being subject to invasive and expensive interventions they may not need.

Ultimately, you should trust your clinical judgment of your client and their needs. Ensuring you’ve charted an appropriate diagnosis — adjusting it over time as needed — and providing an evidence-based treatment plan can go a long way in helping prove medical necessity to payers.

How to demonstrate medical necessity in therapy notes

1. List the primary diagnosis for the service.

For E/M services, prescribing providers should 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 Z codes) that affect the overall management of the client’s care.

Make sure these diagnoses are appropriate based on the length of time that symptoms are present. (For example, Adjustment Disorder symptoms are expected for 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.

If you’ve recently begun seeing a client and don’t have enough information to make an official diagnosis, or if you want to rule out another mental health condition that takes longer to assess, you still need to determine and assign a provisional diagnosis in order to bill insurance.

“Use your best judgment with the information you have now, and don’t hesitate to adjust the diagnosis later when you have more information,” says Tague.

4. Be specific in describing the symptoms to support the diagnosis.

Your documentation should demonstrate 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.

Again, diagnosis with specific presenting symptoms is key in demonstrating medical necessity, but a client’s diagnosis can change over time, explains Tague.

For consistency’s sake, a provisional diagnosis will ideally have overlapping symptoms: For example, if you recently began seeing someone with low mood and decreased energy, you may initially diagnose them with adjustment disorder. If their symptoms persist over time, they may meet criteria for a diagnosis of major depressive disorder.

Medical necessity documentation examples

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

You’ll want to fill in the blanks with symptoms or problems relevant to your client. Keep in mind that the intent in these statements can be communicated in a number of different ways throughout the progress note.

Symptoms of [ ] persist and client continues to meet the criteria for outpatient behavioral health treatment.
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.
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.
Current treatment plan and service interventions are needed for symptom management and prevention of deterioration to a higher level of care.
Client meets this level of service and care due to considerable [ ] symptoms.
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.
In order to alleviate/reduce [ ] symptoms and improve functioning, it is necessary for the client to remain engaged in current level of care/services.
Client continues to endorse symptoms of [diagnosis]; [symptom], [symptom], [symptom] and risks the need of inpatient or ED care without current interventions and services.
Client at risk of inpatient treatment or ED admission due to possibility of decompensation without the current level of care.

Compliance and documentation