The Role of Medical Necessity in Claim Approvals and Denials
When health insurance companies deny a claim, one of the most commonly cited reasons is that the requested service or treatment was “not medically necessary.” This phrase, while seemingly straightforward, masks a complex and often opaque evaluation process that insurers use to determine whether a particular treatment should be covered. Unfortunately, insurers sometimes misuse the concept of medical necessity, denying patients the care they need based on flawed reasoning, outdated guidelines, or selective interpretation of the evidence. In many instances, insurance companies decide that a treatment was not medically necessary without reviewing the patient’s case at all. Such actions could potentially rise to the level of insurance bad faith and subject the carrier to punitive damages, among other penalties.
If your health insurance claim or request for services has been denied by your insurer as lacking medical necessity, contact Gianelli & Morris for a case evaluation from an experienced California insurance bad faith attorney.
What Does “Medically Necessary” Mean?
Medical necessity is a contractual term, defined in the insurance policy itself. In general, it refers to health care services or products that a physician would provide to diagnose, prevent, or treat an illness, injury, condition, disease, or its symptoms, and that meet accepted standards of medicine.
However, the insurer—not your doctor—gets to decide whether a service is medically necessary for coverage purposes. This distinction can lead to conflict. A physician may recommend a procedure as essential to a patient’s health, but the insurance company may still deny coverage by concluding it is not “necessary” under their criteria.
How Insurers Determine Medical Necessity
Insurance companies use internal guidelines, claim adjusters, and medical directors to evaluate whether a treatment is medically necessary. In some cases, they also rely on third-party vendors who perform “utilization reviews” to assess coverage decisions.
These decisions are not made in a vacuum. Insurers often base their determinations on:
- Internal policy guidelines
- Published medical literature
- National or state treatment guidelines (e.g., from the CDC, NIH, or specialty boards)
- Cost-benefit analysis, although they rarely admit to it
- Recommendations from in-house medical reviewers, who may have no expertise in the relevant specialty
The problem is that these evaluations are not always objective or fair. Insurers can misinterpret the evidence, apply outdated standards, or substitute financial motives for medical judgment.
Where Insurers Get It Wrong
Insurers often deny claims based on overly rigid or flawed interpretations of medical necessity. Here are some of the ways this happens:
1. Relying on Outdated Medical Literature
Medical knowledge evolves rapidly. New treatments are developed, new studies are published, and standards of care change. Yet some insurers base denials on guidelines or studies that are years out of date. For example, an insurer might deny coverage for a newer, less invasive surgical technique in favor of an older, more established method, even though the newer method has been shown to improve outcomes.
In one case, an insurance company denied coverage for a minimally invasive spinal surgery by claiming there was insufficient evidence of its effectiveness despite multiple peer-reviewed studies supporting it. Their basis? A five-year-old internal guideline that hadn’t been updated to reflect current research.
2. Cherry-Picking from Studies
Insurance companies may cite isolated findings or minor flaws in a study to justify a denial, even if the overwhelming body of evidence supports the treatment. This tactic is known as “cherry-picking,” and it can be especially frustrating when used to refute a physician’s recommendation.
For example, if a treatment is supported by ten clinical studies but one of them raises a question about long-term effectiveness, the insurer may focus exclusively on that one negative study to deny coverage, ignoring the broader consensus in the medical community.
3. Ignoring Clinical Judgment
Insurers routinely disregard a treating physician’s opinion, even though that physician knows the patient’s condition best. Many policies contain language giving “deference” to the insurer’s reviewers, not the patient’s doctor. This creates a fundamental imbalance: your physician might consider a treatment necessary to avoid serious harm, but the insurer may still refuse to cover it.
In one case, an insurer denied chemotherapy for a cancer patient on the grounds that the treatment was not FDA-approved for that specific cancer type, even though the treating oncologist—supported by national cancer treatment guidelines—recommended it based on the patient’s genetic markers. The insurer’s refusal ignored the nuanced realities of individualized medicine.
4. Applying “One-Size-Fits-All” Standards
Insurers often use template guidelines that fail to account for patients with complex or atypical conditions. A policy may require that a patient “fail” on one or more cheaper treatments before approving the one their doctor has prescribed, even if it is clear that the less expensive option would be ineffective or harmful.
These step therapy or “fail first” requirements are often driven by cost rather than patient need. And when they result in delays or denials of appropriate care, they can lead to serious health consequences.
Proving Medical Necessity in an Appeal
When facing a denial based on lack of medical necessity, patients are entitled to appeal. The key to a successful appeal is to build a persuasive case that the treatment in question is both medically appropriate and supported by accepted medical standards.
A strong appeal will typically include:
- A detailed letter from the treating physician explaining why the service is necessary
- Supporting documentation from clinical studies, treatment guidelines, or peer-reviewed medical literature
- Evidence of how the denial deviates from standard practice in the relevant medical specialty
- If available, patient-specific information showing why alternative treatments are not viable
In California, policyholders can also request an independent medical review (IMR) through the Department of Managed Health Care (DMHC) or the California Department of Insurance, depending on the type of plan. These reviews can overturn insurer decisions when the denial is not supported by medical evidence.
When Medical Necessity Denials Cross the Line into Bad Faith
In some cases, a denial based on medical necessity is not just a disagreement; it may be an example of insurance bad faith. Under California law, insurance companies have a duty to act fairly and in good faith when handling claims. If an insurer denies a claim without a reasonable basis, fails to conduct a proper investigation, or intentionally misapplies medical guidelines to save money, the policyholder may have grounds for a bad faith lawsuit.
Damages in a bad faith insurance claim can go beyond the value of the original medical treatment. Policyholders may be entitled to recover consequential damages (such as lost wages, emotional distress, or further medical costs), attorney’s fees, and even punitive damages in extreme cases.
Common Sense vs. Insurance Logic
Sometimes a denial simply defies common sense. A person with debilitating arthritis is denied a joint replacement because the insurer deems it “not medically necessary.” A cancer patient is denied a cutting-edge therapy their oncologist recommends because the treatment is not listed in the insurer’s internal policy manual. These scenarios are unfortunately not rare, and they underscore the human cost of a system that prioritizes bureaucracy and cost control over patient care.
Contact Gianelli & Morris: Standing Up to Wrongful Insurance Denials in California
Medical necessity should reflect real medical need, not an insurance company’s financial bottom line. When insurers misapply the concept to deny valid claims, patients have the right to push back. Whether through an appeal, an independent medical review, or even a lawsuit for insurance bad faith, policyholders can and should challenge decisions that put their health at risk.
If your health insurance claim has been denied on the grounds of medical necessity, and you believe the denial was unfair or unreasonable, contact a knowledgeable insurance law attorney at Gianelli & Morris. We help policyholders throughout California fight back against wrongful denials and bad faith insurance practices. Your health shouldn’t be determined by someone reading from a script. It should be determined by what’s right for you.
