Healthcare industry benchmarking surveys have reported that denial rates for dermatology practices average 14%, which is significantly higher than the 5% – 8% benchmark for medical practices. Following our recent presentation at the Dermatology Manager’s Association Annual Conference surrounding payer denials, one issue continues to stand above the rest: medical necessity. Many denials and payment issues are controllable and preventable, but payer denials for medical necessity based only on the coding patterns (e.g. procedure code and denial code pairs that would have been paid in past years) are increasingly denied because they might lack documentation.
Documentation does not cause denials, but the medical record will likely determine whether an appeal is successful. If a claim is denied and coding is later corrected and paid, that denial is likely preventable. The successfully corrected claim suggests that the payer would have paid it correctly the first time if submitted properly. These should be tracked as process failures, not just routine denials.
However, as scrutiny from CMS, commercial payers, the Medicare Administrative Contractors (MACs), Unified Program Integrity Contractors (UPICs) and Recovery Audit Contractor (RAC) auditors intensifies; healthcare organizations are facing increased pressure to ensure that every claim can withstand a denial or an audit. One of the most significant areas of focus remains how providers can defend claims when payers allege services fail to meet the “reasonable and necessary” standard, and why precise, timely documentation remains the strongest line of defense.
Successful appeals rely on accurate, timely documentation created at the point of care. Payers stress that records must demonstrate medical necessity, showing that services address a medical condition, not cosmetic preferences, routine care, or screening without clinical justification. Use clinical evidence to support necessity, avoid relying solely on statements like “clinically indicated” or “medically necessary” without factual details, as these may not withstand audits or denial reviews.
Below are essential documentation elements dermatology practices should consistently capture.
Key Elements to Support Medical Necessity in Dermatology
Patient History
Document onset, duration, progression, prior occurrences, severity, symptoms (e.g., pain, bleeding, pruritus, ulceration), impact on daily activities, prior treatment attempts, and relevant risk factors (e.g., UV exposure, immunosuppression, personal/family history of skin cancer) and co-morbidities that impact the condition or treatment options (e.g., diabetes, peripheral vascular disease).
Physical Examination
Objective descriptive findings are critical, example:
– Lesion size (cm/mm), location, color, borders, asymmetry
– Quality (avulsed, scaly, indurated, ulcerated, verrucous)
– Evidence of infection, inflammation, bleeding, or rapid change
– Body surface area (BSA) involvement when relevant (psoriasis, dermatitis)
Diagnostic Testing / Pathology
Clearly document the clinical rationale for biopsies, cultures, patch testing, or lab work.
Pathology reports must be linked back to the clinical concern and incorporated into the chart.
Failed Conservative Management
For inflammatory or chronic conditions, specify:
– Topical agents tried (drug, strength, frequency, duration)
– Systemic therapies, phototherapies, injections, when applicable
– Document patient response (e.g., ineffective, intolerable, contraindicated)
Procedure-Specific Medical Necessity
Clearly link the reason for the procedure to the specific diagnosis and describe the risks if the condition is left untreated. The medical necessity for intervention should be documented, explaining how the procedure addresses the underlying condition. Document the medical reason for the procedure to show it is not cosmetic, when applicable.
Risk/Benefit and Clinical Judgment
Document patient-specific factors (e.g., comorbidities, anticoagulation, immunosuppression, adherence risks) and why the selected treatment is appropriate over alternatives.
Attestation and Timeliness
Ensure legible signatures, dates, and timely documentation. Late addenda, especially after audits, raise red flags.
Dermatology Services Requiring Elevated Documentation
Skin Biopsies
Document risk of malignancy, changes in lesion characteristics, ABCDE criteria, non-healing wounds, bleeding, or rapid change. Avoid “rule-out” phrasing without providing clinical detail.
Excision of Benign Lesions
Medical necessity must be clear: recurrent bleeding, infection, ulceration, impairment of function, or high-risk location. Pure cosmetic removals are non-covered.
Mohs Micrographic Surgery
- Documentation should include, when appropriate, the tumor type, size, location, aggressive histology, recurrence, ill-defined borders, and why tissue-sparing is clinically indicated over standard excision.
- The physician acted as both the surgeon and pathologist.
- Why Mohs is the best treatment option
- For multistage Mohs, document histology following each stage
Actinic Keratoses Treatment
Document number, distribution, severity, symptoms, and cancerous risk factors.
Systemic Therapies (e.g., Isotretinoin, Biologics)
Diagnosis, severity, BSA, PASI/IGA where applicable, failed prior therapies, baseline labs, monitoring compliance, and risk counseling must be clearly reflected.
Phototherapy
Diagnosis, failed topical/systemic therapy, frequency, duration, response, and ongoing necessity should be documented, with periodic reassessment.
The Key Takeaway
Defending medical necessity in dermatology is not about voluminous documentation, it’s about medical records that clearly and concisely reflect clinical logic, accuracy, and specificity. Documentation should tell the full clinical story to an outside reviewer.
Healthcare organizations should take the time to educate physicians and non-clinical staff on what constitutes compliant documentation. Strong records are not just good medicine; they are the cornerstone of risk mitigation.
