Medical necessity and defined coverage benefits in the Oregon Health Plan

The policy debate in Oregon has primarily focused on the Prioritized List of Services. However, little information is available on how defined coverage benefits and managed care affect the role of medical necessity in determining care for Medicaid patients. This issue is important because medical necessity determinations are currently used by many states to limit extraneous health care costs but require resource-intensive oversight, are open to wide variance, and frequently prompt litigation challenging interpretations of what is necessary and what is not. The qualitative study described here addressed whether medical necessity remains a salient and useful concept in the Oregon Health Plan. Our results indicate that defined coverage benefits, as described by the funded portion of the Prioritized List of Services, supplant medical necessity determinations for coverage, while managed care incentives limit the need for medical necessity determinations at the provider level. Clinical choices are, for the most part, guided by providers' judgment within the financial constraints of capitation and by targeted use management techniques. The combination of capitated care and Oregon's defined coverage benefits package has marginalized the use of medical necessity, albeit with consequences for state oversight of Medicaid services.