Thoughts on The Medical Necessity Review Process

An initial assessment of the literature and some questions

Abstract: The decision on whether medical procedures are medically necessary or unnecessary is having a large impact on the practice of medicine. Insurance companies now frequently use computer programs to flag certain procedures to facilitate higher profits. The medical necessity review process appears to often create financial uncertainty for households and impede access to better health outcomes. This review evaluates the impacts of the growing use of medical necessity decisions on health care in the United States. The review discusses growing use of artificial intelligence to deny claims and the impact of claim denials in three areas – breast reconstruction surgery, back and spine surgery, and new drugs.

I am a financial economist, and this arcane subject is a bit outside of my lane. Interested readers with additional information that could be added to this paper should contact me through LinkedIn.

Introduction: Typically, the major concerns of a person choosing an insurance plan or the major concerns of a policymaker attempting to improve insurance outcomes are the cost of premiums, the level of out-of-pocket costs, and possibly the size and quality of the health care network. More recently, a new consideration has emerged -- the extent to which an insurance plan will find that a procedure or treatment is medically unnecessary.

The Wall Street journal recently reported insurance companies denied 850 million claims based on their view that the procedure was not medically necessary.

No one benefits when a health care provider performs an unnecessary possibly risky procedure and there must be some mechanism to prevent such events. However, the medical review process appears to have become a lever used by the health insurance industry to increase profits, a lever that prevents better outcomes and new health care innovations.

A recent article by ProPublica revealed that there is very little information about the extent to which individual insurance companies collect information about denial of claims. A second ProPublica article analyzes the health care denial decision for a patient with a chronic inflammatory bowel disease in need of a particular drug.

Increasingly, insurance claim denials are being made in mass by computer programs prior to a thorough review of the medical file. ProPublica also discusses how Cigna is using a computer program to identify claims that should be denied without reading or analyzing the claim. CBS news reports on litigation between United Health Care and two deceased patients who were denied service because their claims were denied by an artificial intelligence program.

This JAMA article documents the growth of problems and the growth of conflict stemming from the increased use of artificial intelligence to deny large number of claims without rigorous review of case files.

A quick review of some recent literature documents the impact of the medical necessity decision in four areas -- breast reconstruction surgery, back and spine surgery, and miscellaneous pharmaceuticals.

Claim Denials in Four Areas of Medicine:

Breast reconstruction surgery:

The Women’s Health and Cancer Rights Act of 1998 guarantees coverage to reconstructive surgery for women who have undergone a mastectomy. However, United Health Care aggressively uses a medical necessity claims process to deny service for these restorative surgeries. A recent incident where a surgery was interrupted by a phone call from the insurance company seeking details on whether the claim was medically necessary was highly publicized. Go here for a discussion of litigation on breast reconstruction surgery.

Back and Spine Surgery:

Outcomes from back and spine surgery are often not great and a credible medical review of whether a surgery is necessary or desirable is often highly useful. However, there are now credible allegations that the medical review process is being used to deny access to new technologies and procedures that would improve outcome for back surgeries.

The Coflex device is a clip attached to the spine that can reduce the need for fusion surgeries. Many insurance firms including Anthem, do not approve payments for the Coflex device, even though 26 studies, reviewed here, have determined that the Coflex device will improve surgical outcomes. The issue of whether insurance companies should deny claims for the Coflex device is now under litigation.

Denials of claims for access to new drugs:

Insurance companies can and have denied claims for new more expensive drugs even when the treatment improves outcomes. One such outcome involves access to PCSK9 inhibitors, which can reduce LDL cholesterol more than traditional statins.

Note, the previously mentioned ProPublica article examining the denial of claims for an expensive drug that treats chronic inflammatory disease.

(Note to Readers: Has insurance company policy towards PCSK9 changed since 2019 date of above article? What other new drugs are denied to patients by insurance companies? I will add additional examples here and make modifications to the paper once more information becomes available.)

Prothesis devices:

Believe it or not insurance companies often deny claims for prosthetics, including instances where a person has lost a leg due to cancer. How is a leg for someone who lost a leg not medically necessary?

Concluding thoughts: There is no disputing the fact that medically unnecessary procedures (which do exist, see here) are costly to taxpayers and insurance companies and can pose substantial risks to patients. The American Medical Association has reached the conclusion that costs associated with the prior authorization process exceed benefits. It is time to figure out how to prevent use of medically unnecessary procedures without interrupting appropriate treatments.

Authors Note: Regular readers of this blog know that I am very knowledgeable about tax and economic implications of health care, student debt, and retirement. I have become increasingly aware of the importance of the medical necessity determination process (a really arcane and complex issue a bit outside of my lane) because I am reaching the age where I or others in my cohort need certain treatments or procedures.

Additional information about this topic shared by readers will be added to an expanded paper. Readers who want to participate in this effort should contact me through LinkedIn.

Other articles at this blog include:

ACA 2.0: Four reforms that could expand and improve health insurance markets.

Question and Answers on IDR and SAVE loans: Provides guidance to student borrowers looking for their best loan option and policymakers seeking to improve the repayment process.

Converting Traditional Retirement Assets to Roth Assets Early in Retirement: Makes the case that newly retired individuals should convert traditional assets to Roth assets prior to retirement. Procedure can only profitably be done if retiree owns liquid assets outside of her retirement account.

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