Prior Authorization Scrutinized

February 16, 2023

Summary: Managed care advocates argue that prior authorization saves money and improves quality of care. But the evidence is unclear. Mainly, it’s an irritant for doctors and patients. An anonymous prior auth practitioner describes how it looks from the inside. Bottom line: another money-making scheme in our profit-driven health care system.

LIFE AND DOLLARS: a health care insider’s account of how prior authorization really works.
Health Care Un-Covered, Editor Wendell Potter
Feb 7, 2023
By Anonymous

Requiring patients to get prior authorization from an insurance company for medical procedures and drugs was supposed to lower medical costs. The theory was that it would prevent doctors from charging for unnecessary care.

The process frustrates patients and burdens health-care providers. And, the numbers show, it doesn’t really work.

I worked at one of the largest prior-authorization companies, running a team that supported the non-clinical side of our business. Most of our business was in radiology and cardiology medical-benefit management.

It may surprise people to know that many of the biggest health-insurance companies outsource their prior authorization programs. In fact, it would probably shock most people to understand just how much middle management exists between their doctor’s decisions and their ability to receive care. The commercial health insurance industry is overrun with opportunistic companies who profit off our complicated health care system, adding costs that lead to higher premiums and cost of care.
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While working in the industry, it often seemed to me as if [T[he real value in prior authorizations isn’t in savings from clinically inappropriate procedures, and instead is a function of helping commercial insurers and third parties keep as much money as possible in the health-care system shell game. There is a large layer of middle management and profiteering that exists between the patient, the provider, and the insurance company. I know dozens of people who have made dopey amounts of money by rinsing-and-repeating the process, building small, ancillary companies that nibble on the edge of our high health-care costs. It all just gets baked into the cost of the premiums.

Examining Prior Authorization in Health Insurance
KFF Health Reform
May 20, 2022
By Kaye Pestaina and Karen Pollitz

Long used as a tool to control spending and to promote cost-effective care, prior authorization in health insurance is in the spotlight as advocates and policymakers call for closer scrutiny about its use across all forms of health coverage.

What is Prior Authorization?

Prior authorization (also called “preauthorization” and “precertification”) refers to a requirement by health plans for patients to obtain approval of a health care service or medication before the care is provided. This allows the plan to evaluate whether care is medically necessary and otherwise covered. Standards for this review are often developed by the plans themselves, based on medical guidelines, cost, utilization, and other information.

The process for obtaining prior authorization also varies by insurer but involves submission of administrative and clinical information by the treating physician, and sometimes the patient. In a 2021 American Medical Association Survey, most physicians (88%) characterized administrative burdens from this process as high or extremely high. Doctors also indicated that prior authorization often delays care patients receive and results in negative clinical outcomes.  Another independent 2019 study concluded that research to date has not provided enough evidence to make any conclusions about the health impacts nor the net economic impact of prior authorization generally.

Comment by: Jim Kahn

The insider story is compelling – give it a full read.

I have my own extended patient experience with PA. Multiple rounds of PA for one drug, with two insurers. Poorly documented requests by my ophthalmologist’s office. Denials, then appeals and approvals. Repeat with next insurer. All for a medicine that is clearly indicated, needed, and valuable. Most recently, some PA professional, or some AI program, seems to have decided that this medicine should just be routinely approved. No more PA battles. Phew. Fingers crossed.

Here’s my analysis of the state of prior authorization:

Prior authorization (PA) is supposed to lower medical costs and avoid unproven and dangerous care by confirming medical indications. Indeed, there’s plenty of inappropriate care in medicine, perhaps 20%, according to the National Academy of Medicine. With complete data and lots of time, we could reduce that. But there’s no good evidence that PA works in the real world (see the KFF excerpt above). Sophisticated review is too costly and burdensome, and the needed clinical data aren’t available to reviewers. So, as PA is actually practiced, it’s very hard to distinguish between unjustified services and typing errors or oversights. The process confuses & frustrates patients. It causes delays and may deny valuable care. It hugely burdens providers mentally and financially, and thus is contributes substantially to burnout.

Like so much of the business activity layered onto traditional health insurance activities (think: Pharmacy Benefit Managers), PA is driven by economic considerations. It’s much more a financial game than pursuit of quality care. Its real purpose is to save money. But that’s elusive, because practice is imperfect. Doctors learn to provide the right answers. So, as noted, evidence for overall savings is equivocal. Delay is part of the game – an expensive service is “kicked down the road”, perhaps to the next insurer.

So, if it doesn’t work, and it’s annoying, why does it persist? Ultimately, PA thrives because it creates business sectors. PA reviewers get paid to review, and consultants get paid to advise providers on how to succeed with reviews. It’s an arms race, profitable to all involved. The end result is that ancillary companies nibble at the edge of our costly healthcare, making “dopey amounts of money”, and it all “gets baked into premium costs”, as the PA insider so eloquently wrote. We all pay.

By the way, PA is only part of the story. A bigger issue is denials of submitted claims, which are estimated at 17% in-network for ACA exchange plans, 13% in private managed care, 7% in traditional Medicare, 8% in Medicare Advantage, and 13-21% in Medicaid. This largely reflects complexity of coverage rules and procedures.

Under single payer, quality and cost control would rely on methods other than PA. For starters, we’d have complete data on clinical diagnoses and services, thus much better information to use to identify and reduce medically inappropriate care. Denial rates would be lowered by broader and simplified benefits (identical for everyone) and thus less confusion. And by removing the profit motive that drives so many decisions today. More on this another day.