Reasonable and Necessary vs Claim-Related Medications

Insurers determine what they are liable to fund — not what doctors are allowed to prescribe. The two-test framework that governs medication decisions in workers compensation and CTP claims.

Published 11 May 2026

Overview: The Two-Test Framework

There is a quiet misconception that runs through workers compensation and CTP claims every day: the idea that insurers decide what medications an injured person can take. They don't. The legislation is clear on this. Insurers decide what they are liable to fund — not what the treating doctor is allowed to prescribe. Those are two very different things, and understanding the boundary is essential for anyone managing a claim.

Before an insurer can pay for a medication under a workers compensation or CTP claim, two distinct questions need to be answered. They are related, but they are not the same — and they are frequently mashed together in ways that produce poor decisions.

Stage 1: The Claim-Related Test

The first question is a causation question. Is the medication being used to treat the compensable injury, or is it being used to treat something else — a pre-existing condition, a comorbidity, an unrelated illness? If a worker injured their lumbar spine at work and is taking a statin for cholesterol, the statin is not claim-related. The insurer has no liability to fund it, regardless of how reasonable or necessary it is as a treatment. The medication is excellent. It is simply not their bill to pay.

What makes a medication claim-related

• It is prescribed to treat, manage, or mitigate the compensable injury or its direct consequences
• There is a documented clinical link between the medication and the injury
• It addresses symptoms, complications, or functional impairment flowing from the injury
• It is part of an evidence-based treatment pathway for the accepted condition

What disqualifies a medication from the claim

• It treats a pre-existing or unrelated condition with no causal link to the injury
• It addresses a comorbidity that exists independently of the compensable injury
• It is prescribed for a condition that has not been accepted as part of the claim
• The clinical reasoning links the prescription to something other than the compensable injury

Stage 2: The Reasonably Necessary Test

Only once a medication is established as claim-related does the second test apply. Under section 60 of the Workers Compensation Act 1987 (NSW), and equivalent provisions in other jurisdictions, the insurer is liable for medical and related treatment that is "reasonably necessary" as a result of the injury. The Personal Injury Commission applies the long-standing test from Rose v Health Commission (NSW) (1986) 2 NSWCCR 32 when this question is in dispute.

SIRA's guidance is specific, and it is worth quoting back to anyone who treats this test as a high bar. According to the Workers Compensation Guidelines:

What the test actually requires

Three principles fall out of the SIRA guidance and the Rose case law:

1. The test is individualised. The injured worker in front of you is not a textbook case. Reasonableness is assessed on the facts of this claimant, not on what a generic worker with a similar injury might require.
2. The bar is "reasonable," not "essential." Treatment does not have to be the only available option to qualify for funding.
3. Alternatives do not automatically defeat a request. The existence of a cheaper or equally effective alternative does not, on its own, make the prescribed treatment unreasonable.

The Rose v Health Commission factors

The factors that flow into the assessment include:

• The appropriateness of the treatment for the injury
• The availability and suitability of alternative treatments
• The cost of the treatment relative to its benefit
• The actual or potential effectiveness of the treatment
• The acceptance by medical experts of the treatment as being appropriate and likely to be effective

None of these factors require the insurer to second-guess the prescribing doctor's clinical judgment. They require the insurer to assess whether what is being prescribed clears the statutory standard. That is a different exercise.

Where Insurer Authority Ends

This is the part that gets missed most often. The legislation gives insurers the power to determine funding liability. It does not give them the power to direct treatment.

If a treating doctor prescribes a medication and the insurer decides it is not reasonably necessary, the worker can still take it. The doctor can still prescribe it. The pharmacist can still dispense it. What the insurer has decided is that the scheme will not pay for it. The worker either pays themselves, or the dispute goes to the Personal Injury Commission for determination.

This matters because of how some declinature letters are written. Phrases like "you should stop taking this medication" or "the insurer requires the prescription to be changed" cross a line the legislation does not permit. The insurer can say "we will not fund this." It cannot say "you cannot have this." The treating doctor's clinical autonomy is preserved by law, and any attempt to override it is both legally wrong and a fast track to a section 60 dispute.

Stage 3: Applying the Framework in Practice

The fastest, lowest-friction claims are the ones where the case manager understands both tests and applies them in the right order: first claim-related, then reasonably necessary. Conflating them produces poor decisions and avoidable disputes.

The cost of the second pathway — in dispute resolution time, legal fees, scheme reputation, and worker outcomes — vastly exceeds the cost of the medication that was being declined in the first place.

Implications for Treating Doctors

The flip side of this is that treating doctors have a role to play in keeping the process clean. A prescription supported by clear clinical reasoning, linked explicitly to the compensable injury, with a documented expected outcome, is one that meets both tests on its face. Insurers are required to engage with what the doctor has actually said. Doctors make it easier to engage when the reasoning is there to engage with.

When an insurer raises a query about a medication, the most useful response is not to push back on the insurer's authority to ask. It is to respond on the substance: here is why this medication is being prescribed for this compensable injury, here is what alternatives have been tried or considered, here is what outcome we are aiming for and over what timeframe. That kind of response collapses the majority of disputes before they start.

Where Independent Pharmacy Review Fits

The two-test framework is exactly the kind of structured, repeatable clinical analysis that benefits from specialist pharmacist input. Distinguishing claim-related from unrelated medications across a polypharmacy list. Mapping prescribed medications to the compensable injury and to evidence-based prescribing guidelines. Flagging where the Rose factors have not been adequately addressed in either the prescribing rationale or the insurer's response.

This is the gap IMM was built to fill: independent pharmacist opinions that engage substantively with both tests, communicate directly with prescribers, and give claims teams a defensible clinical pathway. Recommendations are not just documented in a report. They are acted on by prescribers, because the clinical credibility behind them is built for this specific industry.

The Bottom Line

Insurers fund treatment. Doctors prescribe treatment. The legislation keeps those roles distinct for good reason, and the two tests — claim-related and reasonably necessary — are the tools insurers use to determine what they are on the hook for.

Applied properly, they produce fast, defensible, fair decisions. Applied sloppily, they produce disputes, delays, and damaged relationships. The framework is not complicated. It just requires discipline to apply it consistently and in the right order. In a scheme where every dispute is a multiple of the cost of the underlying medication, that discipline is the single highest-leverage thing a claims operation can build into its workflow.