Diagnosis and Documentation Drive Medical Necessity

Properly managing wounds can be tedious as a practitioner, as there are many factors to consider. You’ve likely encountered how a certain treatment that can work for one patient but might not be ideal for another. These situations require that you really lean into your expertise so you can make adjustments to achieve better outcomes. 

However, want to know what else is challenging? Proving to insurers that the wound care treatment you’re providing is necessary. Failing to do so can spell out denials or deductions in reimbursements, potentially impacting whether a clinic keeps its doors open or not. 

Therefore, we will dive into something known as “medical necessity.” We’ll explore what it is, how it affects healthcare professionals, and what you can do to ensure you a better bottom line and quality patient care. 

What Does “Medical Necessity” Mean? 

Also referred to as “medically necessary,” medical necessity is a term often used by public and private health insurers. It’s most simply understood as an explanation of what services and supplies are covered under a plan. However, you’ll find that health insurance plans and other organizations may have their own definition of determining “medical necessity.”  This inconsistency can confuse wound care providers and billing departments. 

We’ll share some examples below to give you an idea of how the definitions differ. 

The American Medical Association Definition 

The American Medical Association (AMA), a professional organization for physicians, defines medical necessity as “health care services or products that…[are provided to a patient] for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms.” 

They further explain that for something to be considered medically necessary, it must: 

• Comply with generally accepted standards of medical practice;
• Should be clinically appropriate as it relates to the duration, site, type, extent, and frequency; and 
• Not exist primarily for the economic benefit of the health insurance plans and purchasers, or the convenience of the healthcare provider, physician, or patient. 

The Medicare Definition

Regarding Medicare, a federal health insurance program for individuals 65 and older, the Social Security Act determines what “medically necessary” entails. In order to receive coverage for a service or item, the following criteria must be met: 

• Included in at least one benefit category in Section 1861 of the Social Security Act
• Cannot be specifically excluded from the Act 
• Must be “reasonable and necessary” for the following:
  • The diagnosis and treatment of the injury or illness, or,
  • To improve the functioning of a malformed body part.

There are also Medicare coverage pathways, which are the various ways Medicare decides whether to cover specific supplies or services. We’ll dive into those more later. 

The Medicaid Definition

Medicaid, one of the joint state and federal programs that provides health coverage to individuals based on a number of qualifying factors, doesn’t have a federal statute defining “medical necessity.” Instead, each state establishes its own parameters. However, a state’s Medicaid program must still comply with federal regulations and shouldn’t be more constrictive than federal rulings. 

The National Academy for State Health Policy (NASHP) conducted a 50-state scan to discern how each one defined medical necessity. Generally, the majority of states defined medically necessary services as those that qualify as: 

• Improving health
• Lessening the effects of a condition 
• Preventing a condition
• Restoring health 

Private Health Insurance 

Private insurers without Medicare-approved plans (e.g., Medicare Advantage) can define on their own what “medically necessary” means to them, although some are still subject to state regulation. By and large, though, the premise of medical necessity for private insurers is consistent with other health insurance programs. They, too, expect that services and supplies are being implemented to reduce or prevent illness, or to aid in patients regaining their functional capacity. 

Private payers have much more flexibility when setting determinations, which could lead to greater coverage restrictions. For example, a KFF survey found that individuals with private insurance were more likely to have their claims denied than those with public insurance. 

Another study even noted that Medicare Advantage insurers have been shown to challenge physician claims more than traditional  Medicare. Therefore, if physicians face these challenges even with Medicare Advantage plans, imagine what wound care providers might encounter with employer-sponsored or marketplace plans. 

The Connection Between Documentation and Medical Necessity 

A wound care specialist’s job doesn’t just stop at providing healthcare services—it also involves clinical documentation. They’re expected to record every aspect of wound care clearly and meticulously, from the assessment to the care management plan. This approach allows not only for provider collaboration and proper continuity of care, but it also supports the legal and financial aspects of medical treatment. 

As previously mentioned, payers set the medical necessity guidelines. However, how do you prove that the services you offered were medically necessary? Well, it all comes down to proper documentation. 

The Revenue Cycle Management Process 

Medical necessity and revenue cycle management (RCM) are closely interconnected. The RCM process is done to manage financial operations related to billing and revenue collection for performed medical services. Documentation is crucial to this process, as the information must establish that the treatment was medically necessary based on medical guidelines, clinical best practices, the patient’s current condition, and more. 

Failure to justify and provide evidence explaining why a treatment was performed could lead to billing issues and claim denials. In short, it’s a recipe for an ineffective RCM system that could result in loss of revenue, and even worse, practice closure. 

With this in mind, organizational leaders must teach clinicians how to properly document in a manner that helps them avoid the scenarios mentioned above. It should be taught that clinicians should complete clinical documentation describing the encounter whenever wound care occurs.  In their documentation, they should include clinical terms connected to the proper primary and secondary billing codes required for those claims. 

How Do You Determine Which Wound Care Services Are Covered? 

At this point, you likely understand what medically necessary means and how it can affect the billing process. You might not understand yet how exactly providers should know what healthcare services and supplies are covered.

According to one study, although medical necessity guidelines tend to be payer-specific, they usually follow the regulations published by the Centers for Medicare & Medicaid Services (CMS), National Coverage Determination, and Local Coverage Determination. Therefore, wound care departments should also look to those rules, along with guidelines from: 

• A fiscal intermediary
• Health insurance companies 
• Medicare Administrative Contractors (MACs)
• The Joint Commission 
• The American Medical Association

They each help define the criteria to establish whether or not a service or procedure is necessary and medically reasonable. 

Understanding the Medicare Coverage Pathways

Earlier, we mentioned that there are Medicare coverage pathways. Given that Medicare is the largest payer for healthcare services in the United States, it’s crucial for wound care professionals to have some familiarity with what these pathways are. 

There are three Medicare coverage pathways.

National Coverage Determinations

Created by CMS, National Coverage Determinations (NCDs) are national policies dictate whether a specific medical item or service is covered by Medicare nationwide. Determinations are made based on evidence-based processes and must be adhered to by MACs. 

Local Coverage Determinations

Local Coverage Determinations (LCDs) are policies that MACs create to establish which supplies and services are covered within a Medicare jurisdiction. The rules may differ across regions. Keep in mind that LCDs cannot contradict National Coverage Determinations. They’re only available to simplify an NCD or address common coverage problems. For instance, if a service or item isn’t mentioned in an NCD or Medicare manual, or if an NCD doesn’t outright limit or exclude a circumstance or indication, it’s at the discretion of the MAC based on an LCD.

Transitional Coverage for Emerging Technologies

Launched in 2024, Transitional Coverage for Emerging Technologies is a new pathway ensures Medicare beneficiaries get timely access to eligible Breakthrough Devices that are market authorized by the Food and Drug Administration (FDA). 

A Closer Look at NCDs for Wound Care Services

The best way to understand how medical necessity rules work is to look at an actual example of this usage. The CMS website has a Medicare Coverage Determinations Manual that wound care leaders can refer to for guidance. 

In Chapter 1, Part 4, of the document, there is a “wound treatment” section. The services listed under this section include: 

• Electrical Stimulation (ES) and Electromagnetic Therapy (ET) for the Treatment of Wounds
• Noncontact Normothermic Wound Therapy (NNWT)
• Blood-Derived Products for Chronic Non-Healing Wounds
• Treatment of Decubitus Ulcers
• Porcine Skin and Gradient Pressure Dressings
• Infrared Therapy Devices

We’ll now look at what NCDs say about ES and ET for the treatment of wounds, to give you an idea of what to expect. 

Electrical Stimulation and Electromagnetic Therapy

Based on the current iteration of the document, Medicare states that they’ll only cover one electrical stimulation therapy or one covered ET intervention for the treatment of wounds. 

In reviewing their nationally covered indications, they explain the following: 

• ES or ET will only be covered for chronic Stage III or Stage IV pressure ulcers, arterial ulcers, diabetic ulcers, and venous stasis ulcers
  • Chronic ulcers are defined as those that haven’t healed within 30 days of occurrence
• ES or ET will be covered only after appropriate standard wound therapy has been attempted for at least 30 days, and there are no measurable signs of improved healing
  • The 30-day period begins while the wound is acute
  • Standard wound therapy involves:
    •  Optimizing nutritional status
    • Debridement to remove devitalized tissue
    • Cleaning a wound bed of granulation tissue with appropriate moist dressings
    • If applicable, implementing treatment to resolve an infection
  • Depending on the type of wound, standard wound care should also include several elements
    • Pressure ulcers: Frequent repositioning of a patient (e.g., every two hours)
    • Diabetic ulcers: Off-loading of pressure and good glucose control
    • Arterial ulcers: Establishing adequate circulation for the wound 
    • Venous ulcers: Use of a compression system
• Either therapy must be discontinued when the wound has a 100% epithelialized wound bed
• Only a physician, physical therapist, or non-physician practitioner can perform the therapies
  • If the wound worsens, the practitioner administering the ES or ET must contact the treating physician
  • The treating physician must evaluate a wound treated at least monthly

The document also goes on to explain that coverage will not be provided if: 

• ES or ET is an initial treatment modality
• Measurable signs of healing have not been shown within any 30-day period of treatment
• There’s an unsupervised use of ES or ET 

As you can see, there are certain caveats in the guidelines that, if not followed, could result in a claim denial. This further illustrates how crucial it is for wound care specialists to provide defensible documentation that covers all the bases. 

Debridement: A Wound Care Example for the LCD Pathway

Interestingly, a common service like debridement doesn’t have an NCD. As a result, wound care departments have to refer to LCDs and other resources for direction. CMS provides guidance on indications, limitations, and medical necessity on their Debridement Services webpage. 

Information, like the following, could prove helpful to wound care professionals when documenting: 

• CMS suggests that the debridement service isn’t medically necessary if there’s no fibrotic, devitalized, necrotic, or other tissue or foreign matter that would hinder wound healing
• If the debridement area is greater than 10%, only practitioners licensed to perform surgery above the ankle can do so
• They acknowledge that the number of debridement services may vary, but the documentation should justify the sessions
  • The CMS guidelines also remark that debridement services will be covered if all significant relevant comorbid conditions that could interfere with optimal wound healing are addressed

Addressing The Burden of Documentation 

Even when the guidelines for medical necessity are available, it’s admittedly not always clear how to prove medical necessity. Not to mention, these rules are subject to change, making it challenging for clinicians and departments to adjust. On top of all that, medical documentation is time-consuming, with one study showing that U.S. physicians spend almost two hours daily completing documentation outside office hours. Regardless of these issues, documentation has to happen, but it doesn’t have to be as time-consuming as overwhelming. 

It’s vital that wound care departments identify ways to maximize their clinicians’ time. Failing to do so can lead to burnout, reduced patient-provider interactions, and poor health outcomes. Technological tools, such as robust electronic medical records (EMRs), can streamline the documentation process, stay abreast of changing regulations, and apply the appropriate codes for optimized reimbursements. 

Understanding Medical Necessity Can Boost Bottom Lines

Fiscally successful wound care departments often have better documentation processes, which can be achieved by ensuring clinicians have a complete understanding of the rules and regulations surrounding medical necessity. Ultimately, payers want to see that the documented treatment matches the standard of care for the established diagnosis. Plus, when clinicians document with that in mind, wound care departments could benefit from better quality of care, efficient claims processing, and maximum reimbursements.