Medical Necessity Review: History, Innovation, and Missed Opportunity

Psychiatric TimesVol 31 No 6
Volume 31
Issue 6

Psychiatrists experience the impact of managed care perhaps most acutely during the utilization review process, which has become a standard tool for the review of treatment modalities and levels of service in the managed care environment.

[[{"type":"media","view_mode":"media_crop","fid":"25019","attributes":{"alt":"Managed care, psychiatry","class":"media-image media-image-right","id":"media_crop_8541704501287","media_crop_h":"0","media_crop_image_style":"-1","media_crop_instance":"2276","media_crop_rotate":"0","media_crop_scale_h":"0","media_crop_scale_w":"0","media_crop_w":"0","media_crop_x":"0","media_crop_y":"0","style":"float: right; margin: 6px;","title":" ","typeof":"foaf:Image"}}]]Many psychiatrists believe that managed health care is a contemporary innovation. In fact, its rudiments date back to the 19th century, when various homegrown health plans connected to urban benevolent societies and progressive rural groups provided prepaid physician services. The early plans focused on medical, not psychiatric, care and were usually limited to worker groups and their families or the residents of a particular area.1,2 By the early 20th century, although many plans were still associated with employer groups, a widespread need for low-cost health services led to the creation of new plans. While the structure of plans varied, the shared aim was the provision of reasonably priced, quality care for members while maintaining a consistent income for providers.1

Assorted employer and physician economic issues along with obstacles to consumer access of basic health services stimulated a range of private and government enterprises. The foundations of managed health care comprised prepaid group practices and medical service plans. In due course, modernization led to the development of alternatives such as HMOs, independent practice associations, and preferred provider organizations.

Mental health benefits were administered like other specialty care, as part of a complete medical insurance package, until the mid-1980s. However, as HMOs gained importance and began incorporating managed behavioral health care principles, this practice eventually extended into the domain of private health insurance companies and employer benefit plans. It was also around this time that unscrupulous psychiatric hospitals promoted a climate of excessive, unnecessary care, which triggered various scandals.

“This began a period of declining public confidence in behavioral health providers” and an upsurge of behavioral health plans providing what became to be known as the “carve out” of mental health benefits.3 Seemingly, these troubled times were familiar and reminiscent of 1973, when it appeared as if physicians were “providing more services rather than . . . providing appropriate services” and the HMO Act of 1973 was passed because of the government’s concern about unwarranted Medicare expenditures.4 As managed care groups proliferated and evolved, legislation was passed for regulation and oversight, and standards for clinical and business operations were created.

Over the years, newer collections of physician-hospital managed care arrangements were established, including, for example, integrated delivery systems and physician-hospital organizations. In addition, private insurance companies that had previously offered indemnity insurance and focused on claims payment realized they could impact mounting costs by developing their own managed care networks, and several insurance companies, such as Aetna, Prudential, United Healthcare, Cigna, and Anthem, did so.

As part of the extended managed care infrastructure, new external institutions for supervision of medical necessity, appropriateness, and quality of care were formed. With the support of the federal government, the Professional Standards Review Organization was established in the 1970s to review the Medicaid and Medicare programs. Subsequently, other bodies, such as the National Committee for Quality Assurance, began accrediting HMOs along with a growing assortment of managed care programs.1,2

The review process

Psychiatrists experience the impact of managed care perhaps most acutely during the utilization review process, which has become a standard tool for the review of treatment modalities and levels of service in the managed care environment. Although these reviews have caused much anger and angst, the topic has received minimal attention in the literature. The reviews focus on medical necessity, of which there are multiple definitions: legal, federal, and those particular to specific professional organizations. For instance, the AMA definition of medical necessity is:

Health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing, treating, or rehabilitating an illness, injury, disease or its associated symptoms, impairments, or functional limitations in a manner that is: (1) in accordance with generally accepted standards of medical practice; (2) clinically appropriate in terms of type, frequency, extent, site, and duration; and (3) not primarily for the convenience of the patient, physician, or other health care provider.


During the utilization/medical necessity review, the psychiatrist reviewer examines medical information already available to the managed care organization (MCO) and gathers additional information in dialogue with the health care provider. The aim is to evaluate the necessity of a specific level of care (eg, inpatient) or treatment (eg, ECT) and the potential for a clinical response. The reviewer does not direct medical care of the patient. Rather, the reviewer provides consultation on clinical questions or authorizes reimbursement for treatment that is considered to be effective and not overuse of resources. Given that the psychiatrist reviewer frequently has access to comprehensive data and historical information such as the patient’s prior treatment (eg, medications, hospitalizations, adherence) the dialogue between the health care provider and the reviewer can present an opportunity for discussion of potentially unidentified clinical and therapeutic alternatives.

However, as the organization of managed care has evolved, the relationship between attending psychiatrists and medical necessity reviewers has regrettably tended to be adversarial, but it need not be that way. In fact, the purpose of the review is to ensure effective treatment and to maximize the functioning of the patient through services within the benefit plan. Yet, the myth of the crafty, denial-oriented medical necessity reviewer who is refusing to grant something believed to be a right persists and often impedes the review, presenting a barrier to effective, mutual communication.

Psychiatrists have a unique position: they speak with various clinicians; they become familiar with different treatment methods and pharmacological interventions; and they are asked to review a myriad of cases locally and nationally and at many levels of care. Although not necessarily experts in specific treatments, many reviewers become knowledgeable about experimental and cutting-edge treatments, new research, organizational standards, and government mandates.

Furthermore, the psychiatrist reviewer can be a practical resource to the treating clinician by assisting with after-care planning (ie, identifying step-down facilities and available outpatient providers). This consultation can spark new ways of thinking about an illness and new approaches to the treatment of the condition.

Managed care organizations

Commonly, managed behavioral care organizations (MBCOs) seek to hire psychiatrists for a medical director position who have completed residency training in general psychiatry and have at least 5 years of post-residency experience. In addition, some medical directors may have sub-specialty training or advanced education in areas such as child/adolescent psychiatry, addiction psychiatry, geriatric psychiatry, psychopharmacology, and psychotherapy. MBCOs have different processes to address complaints; usually, a senior medical director or chief medical officer will respond to grievances regarding a medical necessity reviewer or the review process.

MCOs must be open and explicit about the standards used to evaluate medical necessity and about the benefits that are available to their members. Consumers desire a diverse array of convenient health care services, but to provide effective and better-quality treatment for patients, MCOs and clinical practices need transparency. For example, MCOs, unbeknownst to most members, credential their network of providers and facilities and review performance and utilization data of hospitals, pharmacies, and inpatient and outpatient services. And, comparative costs to patients charged at different facilities are now also being made available. Therefore, medical necessity review is just one of the many activities that MCOs provide to their members.

The MCO’s psychiatrist evaluates clinical information and verifies that the patient is receiving timely, customized, and cost-effective treatment for health problems within the parameters of his or her contractual benefits. Performance is reviewed and graded to identify areas that need improvement.

The delivery of appropriate, cost-effective treatment is fiscally and ethically healthy for the consumer, the mental health care provider, and our country’s health care system. The psychiatrist medical necessity reviewer has an important role in this process. By working in a collaborative and constructive manner, the mental health care provider and psychiatrist reviewer can serve these aims.

Acknowledgments-The authors wish to acknowledge the helpful comments of Drs Alvin Blank, Robert Cirelli, Michael Cohen, Frederick Green, William Lopez, and Victoria Shampaine on earlier drafts of this article.


Dr Pedowitz is Medical Director and Dr Lustig is Lead Medical Director at Cigna Behavioral Health in Eden Prairie, Minn. They report no conflicts of interest concerning the subject matter of this article.


1. Fox PD, Kongstvedt PR. A history of managed health care and health insurance in the United States. In: Kongstvedt PR, ed. Essentials of Managed Health Care. 6th ed. Burlington, MA: Jones & Bartlett Learning, LLC; 2013:1-18.

2. National Council on Disability. Appendix B: A Brief History of Managed Care. 2013. Accessed May 14, 2014.

3. Kessler KA. History of managed behavioral health care and speculations about its future. Harv Rev Psychiatry. 1998;6:155-159.

4. Kongstvedt PR. Managed Care: What It Is and How It Works. 2nd ed. Burlington, MA: Jones & Bartlett Learning, LLC; 2004.

5. Statement of the American Medical Association to the Institute of Medicine’s Committee on Determination of Essential Health Benefits. January 14, 2011. Accessed May 14, 2014.

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