The Role of Medical Necessity and Cost-Effectiveness in Making Medical Decisions

Published in: Annals of Internal Medicine, v. 126, no. 2, Jan. 15, 1997, p. 152-156

Posted on RAND.org on December 31, 1996

by Peter Glassman, Karyn Model, James P. Kahan, Peter Jacobson, John Peabody

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The term "medical necessity" is used ubiquitously in health care, but its meaning and implementation vary substantially among providers, payers, and patients. This ambiguity has led some to suggest that cost-effectiveness be used as a basis for decision rules. This paper presents an analytical framework that is familiar to clinicians and shows that medical necessity and cost-effectiveness do not provide deterministic rules for clinical decision making. First, 2 x 2 tables are used to show the tradeoff between the sensitivity and specificity of decision rules. Then, the example of asymptomatic abdominal aortic aneurysm is used to show that these tradeoffs can be seen as a continuum of decision rules on a receiver-operating characteristic curve. Society can therefore choose a decision threshold on the basis of medical necessity that optimizes the number of lives saved or any other desired outcome, but the tradeoff between sensitivity and specificity cannot be avoided. Applying cost-effectiveness criteria may change the decision threshold because cost-effectiveness itself involves inherent tradeoffs that create additional ambiguity for clinical decisions. The conclusion is that decision rules based on medical necessity or cost-effectiveness should not be considered deterministic. Rather, decision rules are useful when they make assumptions explicit and specify tradeoffs so that clinicians, patients, and payers can make better decisions.

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