What is Medically Necessary in Terms of Physician Medi-Cal Billing?
Medically Necessary is a billing term that physicians must understand if they are to bill for Medi-Cal covered services. Treatment that is important to a patient and medically justified may not be medically necessary for billing purposes. Conditions that warrant medical treatment may not be medically necessary for billing purposes. To know if a condition that is treated can be billed a doctor must consult the Legal Definition which is found in (W&I Code § 14059.5.
For individuals 21 years of age or older, a service is "medically necessary" when it is reasonable and necessary to:
- Protect life;
- Prevent significant illness or significant disability; or
- Alleviate severe pain.
For Individuals Under 21 (EPSDT Standard) The standard is significantly broader for children and young adults under the Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) mandate. For this group, "medically necessary" includes services necessary to:
- Correct or ameliorate defects and physical and mental illnesses and conditions discovered by the screening services.
Key Distinction: For adults, the service must often address a current severe threat or pain. For children, the service is covered if it simply improves a condition or prevents it from getting worse. 2. The Four Pillars of Necessity Beyond the statutory definition, DHCS and CMS (federal Medicaid) generally look for four criteria to validate a claim:
- Clinical Effectiveness: The service must be generally accepted by the professional medical community as effective for the condition being treated.
- Not for Convenience: The service cannot be provided solely for the convenience of the patient, the family, or the physician.
- Least Restrictive/Cost-Effective: If two treatments are equally effective, Medi-Cal will only pay for the one that is the least costly or least restrictive.
- Proper Setting: The service must be provided in the most appropriate setting (e.g., outpatient vs. inpatient) required by the patient's medical condition.
- How This Impacts Billing and Audits When a doctor is suspended or audited, "medical necessity" is often the battlefield. DHCS auditors frequently challenge billing based on the following:
- Insufficient Documentation: If the patient's chart doesn't explicitly describe the "severe pain" or the "threat to life/limb," the auditor will deem the service not medically necessary, even if the doctor performed it in good faith.
- Off-Label Use: Using a drug or procedure for a purpose not approved by the FDA or compendia often triggers a "not medically necessary" denial.
- Frequency of Service: If a doctor provides daily therapy when clinical guidelines suggest weekly is sufficient, the "excess" visits are flagged as unnecessary.
| Feature | Adult Standards (Ages 21+) | Pediatric Standards (Under 21) |
| Primary Statutory Goal | Address an immediate, significant threat. | Correct or "ameliorate" (improve) a condition. |
| Criteria for Coverage | Must be reasonable and necessary to protect life, prevent significant illness/disability, or alleviate severe pain. | Must be necessary to correct or improve physical/mental illnesses or conditions found during screening. |
| Preventative Care | Limited; generally must relate to a current diagnosis or high-risk category. | Broadly covered; includes services that prevent a condition from worsening or help a child reach developmental milestones. |
| Maintenance Care | Often denied if the patient has "plateaued" and is no longer showing significant improvement. | Covered; maintenance services are necessary if they prevent the "regression" of a child's condition. |
| Burden of Proof | Must document the severity and the risk of "significant" harm if untreated. | Must document the potential for improvement or the necessity of maintaining current function. |
| Clinical Standard | Must be the least restrictive and most cost-effective setting/treatment. | Must meet the federal EPSDT mandate, which often overrides state-level cost-containment restrictions. |
Physicians may be audited, sued by Medi-Cal or third party administrators and even charged criminally under Penal Code section 550 and federal fraud statutes - if they consistently bill for important medical treatment that is simply not medically necessary for billing purposes. If you suspect that you are vulnerable to an audit or worse, contact the medical law firm of Daniel Horowitz at (925) 283-1863.
