Why “Medical Necessity” Matters in Therapy Documentation

If you’ve ever felt a little uncertain about what “medical necessity” really means in the context of therapy notes, you’re not alone. Even as seasoned clinicians, we don’t always receive formal training on how to translate the rich, nuanced work we do with clients into the kind of language that meets the expectations of insurance companies or auditors.

And yet, establishing medical necessity in our documentation is essential – especially when treatment is being reimbursed by a third party like insurance.

Apart from meeting requirements for insurance reimbursement, it may also be important more generally in that clinicians should, of course, provide treatments that are necessary and appropriate for the client in question. That being said, some treatments may be highly necessary from an existential or emotional vantage point without them being a “medical necessity” – unfortunately, such valuable treatments are not typically reimbursed by third parties at this time.

What Is Medical Necessity?

In short, “medical necessity” refers to the clinical justification for providing treatment. It’s not about whether therapy is helpful or even life-changing (which, of course, it often is)—it’s about whether the treatment is considered appropriate and required from a medical standpoint.

Insurance companies typically define medically necessary services as those that are:

Reasonable and necessary for the diagnosis or treatment of a mental health condition
Evidence-based, consistent with accepted standards of clinical practice
Not primarily for the convenience or preference of the client or provider
Delivered at a level of care that is appropriate for the client’s needs

Translating Care into Documentation

Here’s where things get tricky: you might be doing incredibly effective and important work in session, but unless your notes demonstrate that the treatment is medically necessary, reimbursement may be denied.

In practice, this means our notes should:

Include a clear diagnosis (using DSM-5 or ICD-10 codes)
Describe functional impairments or symptoms that interfere with daily life
Link the goals of treatment directly to the presenting problem or diagnosis
Outline specific, evidence-informed interventions
Show measurable progress or a rationale for continuing treatment

Let’s say you’re working with a client experiencing depression. A note that simply states, “Client reports feeling sad and was offered support and empathy during the session,” won’t really cut it. But if you report, “Client presents with symptoms consistent with Major Depressive Disorder, including impaired concentration and sleep disturbance. CBT techniques were used to challenge cognitive distortions related to self-worth. Client identified a new behavioral activation goal for the upcoming week,”—that’s a note that supports medical necessity. In addition to showing how our work conforms to a medically necessary treatment it is also helpful to mention quite directly that the treatment is necessary. So we might also state, “Based on clinical guidelines and the patient’s specific diagnosis, weekly psychotherapy sessions are clinically necessary to address the patient’s condition effectively”.

Support from Note Designer

Note Designer’s templates and built-in clinical statements help guide you to think about and better articulate the way in which your work is medically necessary. To make things even easier, Note Designer also offers a subset of statements that explicitly articulate medical necessity. These are especially helpful when you’re trying to make sure your documentation meets the expectations of third-party payers without losing clinical accuracy or your own voice. Examples include:

the client’s diagnosis, as per DSM-5/ICD-10 criteria, necessitates psychotherapeutic intervention
the client exhibits significant impairment in daily functioning, particularly in areas of work and interpersonal life, directly attributable to their mental health condition
symptoms presented are of severe intensity and chronicity, warranting treatment to manage and alleviate these symptoms
the choice of psychotherapeutic treatment is backed by evidence-based practices, with extensive research supporting its efficacy for treating the client’s diagnosis according to current practice guidelines
previous treatment attempts have been insufficient or resulted in intolerable side effects, highlighting the necessity of psychotherapy as the next step in treatment

These, and a number of similar statements, are included in all our note templates for easy integration into your documentation—saving you time while ensuring your documentation meets clinical and administrative standards.

Why It Matters (Beyond the Paperwork)

It’s easy to feel like these requirements are just bureaucratic red tape. But solid documentation doesn’t just serve insurance – it protects our clients, our licenses, and our ability to advocate for continued care. It can even strengthen the therapeutic process by keeping us grounded in goals, interventions, and outcomes.

Plus, when we document clearly and consistently, it becomes easier to collaborate with other providers, respond to audits, and, if needed, support clients through appeals for denied services.

Finding the Balance

At Note Designer, we believe documentation should support your clinical work, not take over your day. That’s why we’ve designed tools and templates that help therapists meet documentation standards without losing their voice or spending hours at the keyboard.

Writing for medical necessity doesn’t have to mean using cold, clinical jargon, it just means being clear about what’s going on, why it matters, and how therapy is helping. For those treatments that are highly valuable and necessary, but perhaps not from a strictly medical vantage point, it is equally important to document that as well even though those treatments will likely not be reimbursed by insurance companies.

Final Thoughts

As clinicians, we’re trained to focus on the human experience – on listening deeply, understanding, and helping. But part of our role also includes translating that work into documentation that meets professional and legal standards. Writing with medical necessity in mind helps us more clearly communicate why therapy is needed, how it’s helping, and what the plan is moving forward.

Good documentation supports continuity of care, helps advocate for clients, and protects both the client and the clinician if questions ever arise. When done thoughtfully, it becomes an extension of the care we provide and not a distraction from it.

Patricia C. Baldwin, Ph.D.,

Clinical Psychologist & Co-Founder of Note Designer Inc.