Medical necessity and psychiatric managed care

The concept of medical necessity is a provision of commercial insurance contracts and federal government Medicaid requirements that limits the payment to only those services that are essential for treating a person's sickness, injury, or condition. The concept of medical necessity is one tool used by third-party payers to contain their financial risk in a seemingly nonarbitrary manner. Also, the definitions of medical necessity used by commercial insurers or by the federal government reflect their product's or program's philosophies. Expanding commercial insurance or Medicaid psychiatric coverage would require changing those philosophies. As long as society is faced with a greater demand for health-related service than resources to meet them, such systems of rationing will be used. Even with full parity for psychiatric benefits, mechanisms will be used by payers to limit or control demand, thereby controlling financial risk. The short-term challenge for psychiatric advocates is to secure the most acceptable definitions of medical necessity from third-party payers. The long-term challenge for MH/SA advocates and for all health care advocates, is to develop a system that pays for the greatest number of quality services for the greatest number of people in need, in an affordable manner, regardless of diagnosis.