Documentation of medical necessity

“Medical necessity” is a vague standard, subject to broad interpretation based on clinical practice and judgment. Yet it's a crucial one to try to understand, as it determines whether Medicare, Medicaid and other health care payers will reimburse your hospital. Lack of medical necessity may also result in non-payment to physicians. Essentially, medical necessity means an illness must be severe enough, and the required services intense enough, that care can only be given safely and effectively in the hospital.

To provide some objective guidance, industry-standard guidelines have been developed over the past 30 years based on medical literature and professional practice guidelines. The most recognized and frequently used are the InterQual and Milliman criteria, which have been validated by research and decades of clinical use.

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Photo by Thinkstock.

These guidelines are intended to be used as screening tools, so clinical judgment with supporting documentation of medical necessity should take precedence. Care provided to a patient must also be consistent with the need for inpatient admission. Governmental and commercial auditors are likely to challenge admissions when these inpatient criteria are not satisfied, and sometimes when they are. If a patient needs inpatient treatment that is not substantiated by these criteria, a physician needs to explain why clearly in the medical record.

Case managers can assist physicians with applying medical necessity criteria and documentation, but they are not always available for support. Fortunately, just a little knowledge of certain medical necessity expectations can guide physicians in marginal cases where the need for inpatient care is unclear.

Some clinical findings and expected management for inpatient medical necessity in the most common problematic conditions are discussed below. Keep in mind that these criteria are based on clinically appropriate professional recommendations but do not constitute clinical practice standards of care or replace physician judgment and expertise.


Pneumonia is best confirmed by chest X-ray or chest computed tomography (CT). If not identified by imaging, pneumonia may still be diagnosed on clinical grounds as long as a specific reference is made to the clinical basis and the absence of radiographic findings is noted. If the patient does not receive a full course of antibiotics as indicated, the diagnosis of pneumonia will not be supported.

Deciding whether a patient with pneumonia needs to be admitted to the hospital, sent home for a trial of outpatient management, or observed for 24 hours may be challenging. The decision typically is based on many subjective and objective circumstances, such as age, functional status, social support, pre-existing conditions, vital signs, oxygenation and X-ray findings, among others.

(The distinction among community-acquired pneumonia [CAP], health care-associated pneumonia [HCAP] and aspiration pneumonia is also crucial for effective management decisions. See the May 2011 Coding Corner column for a discussion of these types of pneumonia.)

Fortunately, there are several objective professional standards for making the decision about inpatient admission. The most authoritative is the Table (PSI), which has been validated by research and extensive, successful clinical application since 1997. A PSI calculator is available online.

Age is the most important determinant of pneumonia mortality risk. While a man's age is used as a direct value in his PSI risk score, age minus 10 is used for women, since they tend to be healthier than men at the same age. Other criteria, such as comorbidities and physical exam and lab findings, are scored equally for men and women.

A PSI score greater than 90 is associated with a dramatic increase in mortality and is an irrefutable indication for inpatient admission, endorsed by the U.S. Department of Health and Human Services. It also confirms the need for inpatient care with intravenous antibiotics. Outpatient management is recommended for a score of less than 50. If the score is between 50 and 90, observation care may be appropriate if clinical judgment warrants it.

While unrelated to the PSI for community-acquired pneumonia, professional practice guidelines recommend inpatient admission for all patients with HCAP or suspected aspiration pneumonia so that intravenous broad-spectrum antibiotic therapy can be administered. This therapy provides coverage for gram-negative organisms (including Pseudomonas) and/or Staphylococcus (including methicillin-resistant Staphylococcus aureus) in the case of HCAP, and anaerobic coverage when aspiration is likely.

The InterQual and Milliman criteria offer additional advice to support inpatient admission for pneumonia, including failure of effective outpatient treatment at 24 to 48 hours, respiratory rate greater than 30 breaths per minute, involvement of two or more lobes, and pulse oximetry on room air of less than 89%. Management of inpatients is typically expected to include intravenous antibiotics, continuous or periodic pulse oximetry, supplemental oxygen if saturation is less than 92%, supportive respiratory modalities and therapy if needed, maintenance of hydration, and cultures of blood and sputum. Sepsis is common in patients with pneumonia and is also a clear indication for inpatient care if specifically diagnosed and documented (see the January 2011 Coding Corner column for more).

Abnormal cardiac rhythm

Admissions for abnormal cardiac rhythm, both tachyarrhythmia and bradycardia, are quite common. However, Medicare and other payers insist that many of these patients can be observed for 24 hours to have rate control achieved and myocardial infarction ruled out if necessary and can then be sent home for further outpatient management.

Some simple clinical guidelines may help in making a reasonable decision about whether to admit a patient. If these criteria are not met, it's probably best to assign the patient to observation status so a more informed decision can be made over the next 24 hours.

For tachyarrhythmia, the criteria are as follows:

  • atrial fibrillation or flutter, or paroxysmal supraventricular tachycardia (PSVT) greater than 120 beats per minute (bpm) unresponsive to effective treatment in the emergency department (with or without intravenous medication);
  • atrial fibrillation or flutter, or PSVT less than 120 bpm if intravenous medication is required while hospitalized or
  • paroxysmal ventricular (or “wide-complex”) tachycardia.

For bradycardia, the criteria are third-degree block, or bradycardia less than 60 bpm if any of the following are present:

  • systolic blood pressure < 90 mm Hg, or
  • syncope, or
  • second-degree block (Mobitz Type II), or
  • documented pause >3 seconds or
  • junctional escape due to digitalis toxicity.


Inpatient medical necessity is defined by a severity of illness and intensity of services that can only be provided safely and effectively to an inpatient. Industry-standard medical necessity guidelines provide screening criteria for inpatient care, but physician judgment and decision making take precedence if consistent with accepted professional practice guidelines. Clinically validated decision tools, like the PSI, are the most authoritative resources available to physicians for deciding inpatient versus outpatient management.

When the case for inpatient medical necessity is weak, it may be prudent to use observation care before finalizing an admission decision, especially if advice from case management will be available.