Treating physicians typically make assessments of patients' medical needs and prescribe a course of treatment. In many cases, state Medicaid agencies engage review teams or organizations to examine whether eligibility requirements have been satisfied, assess whether requested services are medically necessary and determine the amount of services that should be provided to recipients, also based on medical necessity.

In a recent case, the Georgia Medicaid Agency's contractor reduced the number of hours of nursing care a recipient received based upon its determination of medical necessity. Moore v. Reese, 11th Cir., No. 10-10148, April 7, 2011. Not surprisingly, the recipient appealed the determination. The district court concluded that the state must provide all of the services the recipient's treating physician deems medically necessary based upon provisions of the Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program which require states provide to Medicaid-eligible children "[s]uch other necessary health care, diagnostic services, treatment, and other measures . . . to correct or ameliorate defects and physical and mental illnesses and conditions discovered by the screening services, whether or not such services are covered under the state plan."

In the first appeal of the case, the Eleventh Circuit reversed the district court and held that the treating physician's word on medical necessity was not dispositive. The Eleventh Circuit's first decision, however, did not address how conflicting opinions about medical necessity between a treating physician and the state's medical expert were to be resolved.

On remand, the state argued to the district court that the state is the final arbiter of medical necessity and has the authority and discretion to determine medical necessity, as well as to determine the amount, scope and duration of services provided by Medicaid. Nevertheless, the district court held that the state could review a treating physician's determination of medically necessary services only for fraud or abuse of the Medicaid system and whether the services are within the reasonable standards of medical care. The state appealed to the Eleventh Circuit again.

In the second appeal, the Eleventh Circuit held, consistent with prior decisions, that a state may adopt a definition of medical necessity that places limits on a physician's discretion and may establish standards for individual physicians to use in determining what services are appropriate in a particular case. In particular, the court held that a state may review treating physician medical necessity determinations and make its own reasonable determination of medical necessity, so long as the state's limitations do not discriminate on the basis of "diagnosis, type of illness, or condition" and the services provided are sufficient in amount and duration to reasonably achieve their purpose. However, the state's determination must be reasonable and is subject to judicial review.