Tips on “Reasonable and Customary” Charges and “Medically Necessary” in Medical Insurance

What are “Reasonable and Customary” Charges?

In medical insurance, “Reasonable and Customary” charges refer to the principle by which insurance companies assess and compensate the expenses incurred for medical services based on market standards and industry practices. This principle aims to ensure that compensation amounts are within a reasonable range, preventing excessive inflation of medical costs and protecting the interests of all policyholders.

Evaluation Criteria

When evaluating “Reasonable and Customary” charges, insurance companies make reference to the following data:

• Private Hospital and Medical Institution Fees: Including costs for various surgeries and treatments.
• Surgeon Fees: Based on the surgeon’s professional experience and the complexity of the surgery.
• Claims Data: Historical claims records and data analysis.
• Hospital Authority’s Private Medical Services Fees (Including fees for similar surgeries): used as a reference standard.

Importance

The principle of “Reasonable and Customary” charges is significant for both insurance companies and policyholders:

• Control Medical Inflation: Prevents continuous rise in medical costs, which leads to increased premiums.
• Fair Compensation: Ensures all policyholders receive fair compensation, avoiding misuse of insurance resources.
• Protect Social Resources: Maintains reasonable allocation of medical resources, ensuring more people can afford medical expenses.

What is “Medically Necessary”?

When evaluating medical insurance claims, insurance companies carefully review medical records and reports to determine whether hospitalization or treatment is medically necessary. This process includes but is not limited to the following aspects:

• Vital Signs: Insurance companies check if the patient’s vital signs, such as blood pressure and heart rate, are stable during hospitalization. If the vital signs are stable, hospitalization may be deemed unnecessary.
• Medical Evidence: Clear medical evidence is required to show the urgency and necessity of hospitalization or treatment, such as unstable cardiac conditions or significant cardiovascular risks.
• Treatment Options: Consider whether there are alternative non-confinement options, such as outpatient treatment. If certain tests or treatments can be safely conducted on an outpatient basis, hospitalization may be considered unnecessary.

Understanding “Medically Necessary” in Policy Terms

The term “Medically Necessary” in policy terms does not solely depend on whether hospitalization is recommended by a physician. Generally, insurance companies consider the following factors to determine if hospitalization meets the “Medically Necessary” criteria:

• Urgency Nature of Hospitalization: Is the medical condition urgent or critical?
• Hospitalization for Medically Necessary Treatment or Surgery: Is hospitalization solely for examination of symptoms or signs of illness without treatment?
• Outpatient Treatment Feasibility: Generally, if hospitalization is purely for diagnosis or testing without medical urgency, it may be deemed not medically necessary.

If medical services are provided solely for the convenience or comfort of the insured, his/her family members, caregivers, or attending physician, they may not meet the “Medically Necessary” requirements.

Case analysis

Case of “Reasonable and Customary” charges (FWD Real Claims Case)

Tracy insured herself with medical insurance and recently filed a claim for a wart removal surgery to the insurance company. Her total medical expenses amounted to HKD60,000. When processing Tracy’s claim, the insurance company first referred to the standard fees for similar surgeries in the market. According to data from private hospitals and medical institutions, the “Reasonable and Customary” fee for similar surgeries is approximately HKD19,000. Additionally, the insurance company referred to the Hospital Authority’s private medical service fees to confirm that this amount was within a reasonable range. Considering Tracy’s doctor was a general practitioner and the complexity of the surgery, the insurance company approved a claims amount of HKD19,000.

Case of “Medically Necessary” (Case from the Insurance Complaints Bureau*)

Mr. Lam sought medical consultation for persistent chest pain, upper abdominal pain and abdominal pain for one to two weeks and was scheduled for hospitalization at a private hospital to receive esophagogastroduodenoscopy and colonoscopy two weeks later. The final diagnosis was gastric erosion and colonic diverticulum. The insurance company deemed Mr. Lam’s hospitalization was medically unnecessary and paid him HKD17,600 as benefits in accordance with the “Day Procedure Endoscopy Coverage”

Mr. Lam stated that he had a history of coronary heart disease and had previously undergone percutaneous coronary intervention. For safety reasons, he chose to be hospitalized for the endoscopy. His attending physician also agreed, considering Mr. Lam’s vascular risk and unstable low blood pressure, that hospitalization aligned with his best interest and safety.

Complaint Committee’s Decision

After reviewing the relevant medical records and reports, the Complaint Committee found that Mr. Lam’s vital signs remained stable throughout the hospitalization, with blood pressure readings within normal range. There was no documentation indicating unstable cardiac conditions or significant cardiovascular risks. Given the lack of medical evidence showing the urgency and necessity of hospitalization for the tests or treatments and considering the procedures could be safely conducted on an outpatient basis, the Complaint Committee agreed that Mr. Lam’s hospitalization was not medically necessary. The Committee supported the insurance company’s decision to pay the benefits in accordance with the “Day Procedure Endoscopy Coverage”

Conclusion

Insurance companies evaluate claims based on the principles of “Reasonable and Customary” and “Medically Necessary” to protect social resources and the interests of all policyholders. These principles help control medical inflation, ensure fair and reasonable compensation, and ultimately protect the rights of all policyholders.

Tips for Policyholders:

• Request cost estimates from medical services providers and compare them with the Hospital Authority’s private medical services fee schedule.
• Apply for pre-approval from the insurance company to budget for reimbursable treatment costs.
• Use network doctors provided by the insurance company whenever possible.

Note:

*Source - Insurance Complaints Bureau: https://www.icb.org.hk/files/ar_2023_24.pdf