If a payer rejects a claim for medical necessity, what coding steps would you take?

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What to Do When a Payer Rejects a Claim for Medical Necessity

(For Students in a Medical Coding Course)

In medical coding and billing, one of the more challenging denials is when a payer rejects a claim on the basis of medical necessity—that is, the insurer determines that the services provided (or coded) are not sufficiently justified as necessary under that insurance policy. Understanding how to handle such denials is essential for a coder, both to ensure revenue integrity and patient care.

Some Eye-Opening Statistics

• Across the industry, 5–10% of claims are denied for various reasons. Denials due to medical necessity are a significant slice of that.

• For example, in rehab / physical therapy practices, average claim denial rates run between 6% and 13%, with many denials never reworked or appealed.

• It’s also reported that only about 35% of all denied claims are ever corrected and resubmitted.

• Denial rates have been rising. One survey found that hospital denial rates have increased by more than 20% over the past five years, with average denial rates exceeding 10%.

These stats show both how common medical necessity denials are and how important it is to have strong processes in place.

Steps a Medical Coder Should Take When a Claim Is Denied for Medical Necessity

Here’s a systematic coding‐and‐documentation workflow to follow, which you might practice in your course:

1. Review the Denial Reason & Payer Policy

   • Read the remittance advice / Explanation of Benefits (EOB) or denial notice carefully. Identify the specific code or statement about medical necessity.

   • Look up the payer’s medical necessity policy – insurers typically have published guidelines (e.g. what diagnosis codes, documentation, prior authorization, etc., they accept).

2. Assess the Documentation

   • Match the medical record (physician’s notes, chart, diagnostic tests, imaging, history & physical, etc.) to the diagnosis and procedure codes used.

   • Ensure the clinical rationale is clearly documented: the signs, symptoms, diagnostic findings, and treatment plan that justify the service.

3. Check Coding Accuracy

   • Confirm that you used the correct ICD-10 diagnosis codes, CPT/HCPCS procedure codes, and any required modifiers.

   • Ensure the codes reflect the severity and complexity of the patient’s condition. Under-coding or choosing too generic a diagnosis may lead to denials.

4. Verify Prior Authorization & Eligibility

   • If the payer requires prior authorization for certain services, check that prior auth was obtained, documented, and included in the submission.

   • Verify patient eligibility, coverage, and whether the service is included under the health plan.

5. Gather Supporting Materials

   • If needed, obtain additional documentation: e.g., imaging reports, lab results, specialist consults, timelines.

   • Consider letters of medical necessity from the provider explaining why this service is needed, referencing the payer criteria.

6. Correct & Resubmit / Appeal

   • Once you’ve collected all needed documentation and corrected any coding/documentation errors, submit the corrected claim (if allowed).

   • If the denial is final, prepare an appeal: include a well‐structured appeal letter, with all supporting evidence and referencing specific payer policy criteria.

7. Track & Learn

   • Maintain a denial log: for each denial, record cause, payer, service type, documentation missing, final outcome.

   • Look for patterns: do medical necessity denials often occur for a certain type of procedure, certain provider, certain payer?

8. Prevent Future Denials

   • Use audit tools / internal review so claims are “clean” before submission.

   • Keep up to date on payer policy changes.

   • Practice continuous improvement and feedback loops: when you identify what was missing, feed that back to providers (e.g. doctors), coders, and clerical staff.

How Quality Thought Can Help You in This Process

At Quality Thought, we understand that medical coding is more than just knowing codes—it’s about combining accuracy with thoughtful documentation, knowing payer policies, and being proactive. In our Medical Coding Course, we:

• Teach you how to read and interpret payer medical necessity policies.

• Provide exercises where you match documentation to diagnosis / procedure codes and identify missing or weak documentation.

• Offer real-world denial examples and case studies, so you learn to correct and appeal claims safely.

• Help you build your skills in maintaining denial logs, performing audits, and tracking KPIs.

We believe that mastering these steps is critical—not just for passing exams, but for real coding jobs where denials can have real financial impact.

Conclusion

For students of medical coding, understanding and handling denials for medical necessity is a key skill. You’ll need to combine clinical understanding, documentation rigor, and knowledge of payer rules. With denial rates ranging from 5% up to 10-13% depending on setting, and with many denials never being reworked or appealed, the opportunity cost is large. Through proper steps—reviewing the denial reason, checking documentation, verifying coding and prior authorization, submitting appeals, and learning from patterns—you can significantly reduce denials.

Quality Thought’s Medical Coding Course is designed to give you exactly those tools. Are you ready to develop the skills that enable you to turn denials into recoveries and ensure your coding work stands up to payer scrutiny?

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