What is Prior Authorization in Health Insurance? Understanding the Process and Its Importance

Prior authorization describes a process providers must follow to request approval for certain medications and treatments to be covered by a patient’s insurance plan.

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The insurance prior authorization process must be completed before care is delivered. Otherwise, it’s unlikely the insurer will provide reimbursement for anything related to that episode of care.

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While prior authorization has been an integral part of the U.S. healthcare system for some time—it is not without its critics.

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The American Medical Association describes prior authorization as a “time-wasting, care-delaying, insurance company cost-control process.” And, both Federal and State Governments have implemented new regulations in recent years to make the process more transparent, streamlined, and uniform.

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However, despite these changes, prior authorization isn’t going anywhere.

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Most stakeholders in the healthcare system agree that some checks and balances are required to prevent costs from blowing out due to overutilization. Plus, insurance prior authorization provides an important safeguard to ensure patients are receiving evidence-based care and the most cost-effective treatment in their situation. 

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Therefore, the priority for healthcare providers is to understand how to perform prior authorization in the most efficient way possible. 

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This will not only cut down on the administrative resources involved in the process. It can also improve the quality of care, by cutting down on pre-approval delays and getting patients the care they need faster.

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In this article, we’ll cover everything you need to know about insurance prior authorization. Plus, we will provide real-world examples of how partnering with a business process outsourcing (BPO) provider, like Pharmbills, can help streamline the entire process.

Why is Prior Authorization in Health Insurance Necessary?

To get a balanced understanding of what is insurance prior authorization, it’s necessary to explore this aspect of the health insurance system from several different angles.

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Some people argue that prior authorization is only designed to protect the needs of insurers. But, as with most aspects of healthcare, prior authorization impacts providers, payers, and patients. 

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To get a holistic view of the topic, let's take a further look at what is prior authorization insurance and why is it necessary.

Managing the Costs of Care

Firstly, insurance prior authorization serves as an important way to manage healthcare costs.

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When a healthcare provider submits a health insurance prior authorization form, the payer assesses the proposed treatment to determine that it is appropriate for the patient’s circumstances.

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The initial step is to ensure there is a medical necessity for the treatment being proposed (whether that be medication, surgery, or something else). Then, the insurer examines whether the treatment follows standard evidence-based guidelines.

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This process helps to prevent overutilization of medical services. Plus, it avoids the unnecessary use of unproven (and often more expensive) methods of treatment. 

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The insurer obviously benefits from being able to control their costs. However, patients also often end up financially better off due to reduced co-pays and out-of-pocket costs.

Improving Quality and Safety of Treatment

The factors mentioned above don’t just limit the cost of healthcare and insurance coverage, they can also improve the quality and safety of treatment.

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Ensuring medical necessity is important because medical treatment always involves balancing the risks of treatment with the potential harm of the condition. If treatment is provided where it is not warranted—or a more aggressive therapy prescribed when something conservative would be appropriate—the patient may be exposed to unnecessary medical risk. 

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Prior authorization insurance processes can also encourage higher quality of care through improved collaboration.

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A real-world example of this would be when a patient sees a primary care physician (PCP) for an issue that may warrant a specialist review (eg. from a psychiatrist or endocrinologist), but the PCP wants to initiate treatment without the review. In this case, the prior authorization approval process may require the specialist review before starting treatment, to ensure the patient receives proper advice for their complex medical issue.

Prevention of Fraud

Unfortunately, healthcare fraud does happen. 

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In 2022, the United States Sentencing Commission had 64,142 cases of healthcare fraud reported to them. Of those investigated, the average loss involved was $1,297,560.

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Prior authorization insurance claim processes don’t eliminate healthcare fraud. But, the added checks and balances undoubtedly slow down and help identify the small number of bad characters involved in fraudulent activities.

The Prior Authorization in Health Insurance Process

No matter the type of service being considered, the insurance prior authorization process includes 3 main steps (with a fourth if we count the possibility for appeals).

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Let’s take a look at each step in more detail.

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1. Initial Request Submission - After conducting an assessment, a medical provider may recommend further investigations or a course of treatment to a patient. This might involve things like a CT scan, medication, surgery, or rehabilitation.
   
   The provider documents the proposed course of action on the relevant health insurance prior authorization form (may be electronic or paper). This includes details about the treatment or service recommended, along with the clinical reasonings as to why it is required.
   
   In some cases, the insurer may agree to provide coverage for interim treatment while reviewing the submission. Also, there are standard treatments that are automatically covered by insurers and don’t require pre-approval (although this varies by insurer).

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2. Review by Insurance Company - When the insurer receives the form, they assess the proposal according to internal guidelines. 
   
   These include current information on evidence-based guidelines for the condition being treated. They will also consider the patient’s individual circumstances, to ensure there is no duplication of services (eg., a repeat CT scan when one was recently done) or contraindication with existing treatment (such as medication prescribed by another provider).
   
   The review process can take several weeks. The insurer may also ask for additional information to make a final decision. For this reason, many providers start the prior authorization process at the point of intake.

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3. Approval or Denial - Once the insurer has fully assessed the prior authorization form, the provider and patient will be advised whether reimbursement for the proposed treatment has been approved or denied.
   
   If it is approved, the provider can go ahead and start delivering treatment, comfortable in the knowledge that care will be reimbursed. 
   
   If the request is denied, a reason will be given by the insurer for the lack of approval.

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4. Appeal (if required) - If the provider feels a prior authorization denial was unjustified, there are mechanisms to submit an appeal.
   
   The appeals process involves giving a detailed explanation about why it is felt the denial was unjustified. This might include submitting things like additional information from medical records, letters of recommendation from treating physician(s), and more detailed information on the clinical rationale for the proposed treatment.
   
   It is important that an insurance prior authorization appeal specifically addresses the reason given for the denial. For example, if reimbursement for a medication was denied based on there being an equally effective lower-cost alternative, the physician should explain exactly why their higher-cost recommendation is more appropriate in the circumstances.

Health Insurance Prior Authorization Forms

A lack of standardization is one of the most common complaints about prior authorization.

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Each insurer has their own health insurance prior authorization form. Plus, the process (such as supporting evidence, timelines, etc) that providers must follow can differ.

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To make matters even more complicated, the same insurers can have different forms for specific treatments, medications, and services.

Forms for Private Insurers

Because each private insurer uses a different form, there is no way to provide a definitive guide about everything that might be included.

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As a general guide, expect to need a specific form for the treatment being proposed (for example, a form for medications may be different than that for surgery). 

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Once you have the right form, the following is some of the information that is usually required:

1. Patient demographics (name, date of birth, address, etc)
2. Medical history (especially pre-existing diagnoses and treatment history)
3. Current proposed treatment plan (including accurate medical codes)
4. Clinical rationale for treatment plan (including supporting evidence)
5. Urgency of request

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Please remember, the only way to know for sure what will be required is to view the exact form from the insurer. So be sure to follow the instructions provided.

Medicare Prior Authorization Forms

For the most part, prior authorization for Medicare Advantage (publicly funded private plans) plans have similar processes to private insurers.

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Each plan will have different requirements. And especially when seeing an out-of-network specialist, prior authorization insurance will usually be required.

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Historically, Medicare and Medicaid coverage has not required prior authorization. This is because services available under these programs are already limited and clearly defined.

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However, some specific service types do require pre-approval for Medicare, such as:

• Durable medical equipment, prosthetics, orthotics, medical supplies, and power mobility devices
• Certain hospital outpatient department services
• Repetitive non-emergent ambulance transport
• Certain choices regarding home health and rehabilitation facility services

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To access these services, the provider must submit a specific Medicare health insurance prior authorization form. 

Common Services Requiring Prior Authorization

For patients receiving what might be considered standard care and treatment from an in-network provider, prior authorization may not be required. 

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In these cases, standard medical billing processes usually give sufficient information for the insurer to provide reimbursement.

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However, for any out-of-network treatment, non-standard care, or higher-cost procedures, prior authorization approval will be required.

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Below is an overview of common treatments and services that usually require prior authorization insurance approval.

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Challenges and Issues with Prior Authorization in Health Insurance

While it does fulfill an important role in the healthcare system, there are several problems both providers and patients complain about when it comes to insurance prior authorization.

Long Approval Times

Depending on the situation, a health insurance prior authorization form may take days to weeks to be processed. In cases where further information is requested, the wait can even be over a month.

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These long approval times are frustrating for providers and patients alike, as they can cause significant patient care delays.

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Approval delays can’t be avoided altogether. But there are a few things you can do to minimize or avoid them:

1. Always use the latest version of the official form from the insurer (may be paper or electronic)
2. Include a detailed clinical rationale for your recommendation, including why other treatment options are not suitable
3. Be sure to attach any relevant supporting evidence, such as letters from other specialists, medical imaging reports, and relevant medical history
4. Follow up regularly after submitting the request

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By following these rules, you will greatly reduce the chance of patient care delays while waiting for prior authorization approval.

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Administrative Burden

A 2022 survey by the American Medical Association found that on average, physicians and their staff spend an average of 14 hours on prior authorization each week! 

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Not only can this administrative burden take away from valuable clinical time. It also reduces the earning potential of physicians by taking away from billable time and excessive spending on administrative support.

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One solution many providers are now turning to is the use of staff augmentation models with business process outsourcing (BPO) companies. This enables healthcare providers to utilize highly skilled offshore staff to assist with the administrative side of insurance prior authorization. 

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Because BPO staff are significantly cheaper than local talent, physicians can win back valuable clinical time while also reducing administrative spend. In addition, BPO services can assist with medical billing and coding, providing an even greater opportunity to reduce administrative burden and enhance the revenue cycle.

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To find out how you can get started with Pharmbills healthcare BPO services, please contact us today.

Inconsistent Approval Rules

A common complaint from healthcare providers is the lack of consistency in prior authorization. 

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For example, what might be approved for one patient may result in a prior authorization insurance denial for another patient with a similar history—even with the same insurer. Furthermore, a treatment plan that would be approved by one insurer might be denied by another.

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To give you an idea of the scale of the problem, a KFF analysis found that in 2021, more than 2 million prior authorization requests to Medicare Advantage insurers were denied. Of those, 11% were appealed, with 82% of appeals being fully or partially overturned.

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This supports the argument that in many cases, the reasoning given for prior authorization denials is often arbitrary

Difficult Appeals Process

Despite the statistics above about the potential success rate of insurance prior authorization appeals—the process can be very difficult.

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In most cases, after already spending a significant amount of time on the initial submission, the clinician and patient must gather additional medical evidence (often at the patient’s expense) to support the appeal. 

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The clinician must then use this evidence to restate and expand on their clinical reasoning, making a compelling argument for why the denial should be overturned.

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Furthermore, the appeals process is not instant. This can result in even further patient care delays for people who may be in urgent need of treatment.

Tips for Navigating Prior Authorization

The most effective strategies will vary according to each situation. However, this list of tips can help both providers and patients navigate the prior authorization insurance process.

Tips for Providers

1. Leverage Technology. High-quality electronic health records can streamline and automate many of the tasks related to prior authorization
2. Utilize Support. Whether it’s on-site administrative support staff or external BPO services, utilizing support staff can reduce the amount of clinical time lost on prior authorization 
3. Standardize Documentation. Creating standardized ways to capture common information for health insurance prior authorization forms can prevent going back through medical records to track down information
4. Follow Up Regularly. Giving a reminder call or email to check on the progress of submissions ensures none get mistakenly lost or delayed
5. Appeal Inappropriate Denials. The success rate of appeals is quite high. So, if you believe a prior authorization denial was inappropriate, it is always worth appealing 

Tips for Patients

1. Learn About Your Coverage. Providers often have dozens of insurers they need to deal with, meaning they can’t always remember all the important details. You can speed up the process by going into an appointment already being familiar with how your insurer operates
2. Be An Active Participant. Healthcare is always more effective when you are actively engaged in the process. Assist your provider in developing a compelling argument for why you need the treatment requested
3. Document Everything. If you keep a record of everything that happens, it will be much faster and easier to appeal if your request is denied
4. Keep an Open Mind. Sometimes, a prior authorization denial occurs because the treatment proposed wasn’t ideal. Try to consider this before concluding that the insurer just denied your request to save money

Impact of Prior Authorization on Healthcare Costs

While cost isn’t the only consideration, insurance prior authorization can be an effective way to minimize healthcare costs for everyone.

Balancing Cost with Effectiveness

A good principle to follow in healthcare is ensuring a reasonable balance between the cost of a treatment with its potential effectiveness.

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In many cases, a high-cost treatment that offers only moderate efficacy in a small number of cases may be difficult to justify for an insurer. 

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On the flip side, if a treatment is very expensive (such as surgery), but is likely to reduce or eliminate future spending for a particular condition, this may be a suitable course of action.

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Prior authorization ensures that a proper cost-benefit analysis has been conducted before medical treatment commences.

Avoiding Overutilization and Improper Care

Overutilization and improper care result in negative outcomes for everyone. 

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When treatment is utilized more often than necessary, the overall healthcare spend goes up. Insurance premiums become more expensive. Patients have excessive out-of-pocket costs. And patients get exposed to unnecessary treatment risks. 

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Improper care—whether accidental or because a physician lacks up-to-date knowledge on evidence-based treatment—places patients at risk of adverse outcomes and/or receiving ineffective care. 

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Overall, insurance prior authorization places important checks and balances in place to keep patients safe and ensure healthcare spending is sustainable.

Future of Prior Authorization in Health Insurance

Prior authorization has been under the spotlight in recent years, with physician groups, advocacy organizations, and government agencies pushing for change in the sector.

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In our opinion, the 3 big areas of change in the future will be regulation, technology, and the development of a unified approach.

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Increased Regulation - The federal government just issued a final regulation that applies across all insurance programs CMS oversees. These regulations are designed to make the process faster, more uniform, and more transparent. Several states have also implemented new regulations in recent years for similar purposes. We expect to see the trend of increased government regulation in insurance prior authorization to continue.

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Technology and AI - Administrative burden in health insurance management can’t be avoided completely—but it can be reduced with the thoughtful use of technology. As with medical billing, we are already seeing some smart EHRs integrate with electronic prior authorization processes. AI could further streamline this process, by automating several of the administrative steps involved in prior authorization insurance.

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A Unified Approach - The “end goal” with prior authorization would be to have a uniform approach across all insurers. This would mean providers and patients could have more certainty about the processes involved. It would also promote equity and transparency, as common rules could be enacted that all stakeholders would be aware of.

Conclusion

Insurance prior authorization is an integral part of the health system.

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Enabling insurers to review certain proposals for treatment before care is delivered helps to control healthcare costs and improve the quality of care patients receive.

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However, many providers find the administrative burden of insurance prior authorization to be excessive. Plus, delays in approvals or denials can stop patients from getting the care they need in a timely manner.

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Prior authorization might be evolving, but it won’t be going away anytime soon. Therefore, the focus for providers should be on finding ways to make the process more efficient and streamlined to minimize the loss of clinical time.

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While technology can assist with this process, the best outcomes are generally achieved by employing additional administrative staff for physicians to delegate to. By far, the most effective model for delegating insurance prior authorization is business process outsourcing (BPO). 

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BPO services enable healthcare providers to hand over the majority of prior authorization tasks to a highly skilled offshore staff member, who is available at a fraction of the cost of local talent.

To find out how the Pharmbills prior authorization services can help liberate more clinical time in your organization, contact us today about getting started.