What Are Medical Authorizations?


Definition: Prior authorization is an aspect of utilization management, specifically prospective utilization review, where an insurance payer looks at a number of factors such as medical necessity, prior treatment, clinical indications, and total therapy cost to determine whether a cost-savings can occur. It is commonly also referred to as precertification, prior notification, prior approval, prospective review, prior review; and the colloquial pre-cert, pre-auth and prior-auth is commonly used by specialist, as is the conversational shortened-form: “auth”. Example: Have you obtained the auth for that patient yet.

Utilization management is practiced by both insurance payers and hospitals to rein in costs and reduce denials.

The Six Things You Need to Know Today

  1. You have no choice, you have to change. Going electric is inevitable as processing auths manually is unsustainable. They are expensive, time consuming, and on the increase. The last 18 months have witnessed a 38% rise in prior auth requirement.
  2. Changing means a sharp decrease in wasted time and money – as much as a factor of 5 times – translating to less expense for you, and more time for patients.
  3. Presently, just 70 payers accept ANSI 278 electronic service authorization form, but they are the seventy largest, and represent over 80% of all eligibility, claims and auths.
  4. You will still need some manual processing, but in some cases (like with PracticeSuite), it can be outsourced to the vendor who is helping you with ePA.
  5. Expect to pay in the neighborhood of $7 for each electronic auth, and $15 each for outsourced manually processed authorization. The industry-wide average cost of processing an auth is $35 excluding clinical intervention, which necessitates manual actions and increases cost on a per occurrence basis.
  6. You have choices of ePA vendors, but the best solutions are ones that integrate seamlessly within your EHR and practice management system.

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Physicians on average obtain 29 medical approvals per week, and 80% of these requests for treatment approval cannot be completed without responding to clinical questions or submitting clinical records, so on average, precertification consumes 16.3 hours of staff time per week (two entire work days), comprising of 1-2 hours of physician time, 13 hours of nurse time, and 2 hours of office staff.

According to the most recent study conducted by McKesson using CAQH index data, when faxes, phone calls, clinical time and other aspects are considered, out-of-pocket costs to a doctor range from $35 to $100 per pre-cert. In 2016, 82% of pre-authorizations were done manually over the phone and fax, but during 2017, electronic adoption dropped from a high of 18% to just 8% today. During this same time period, pre-authorization cost rose $1.8 billion, while the rate of administrative transactions increased 38%.

According to the organization that monitors electronic adoption in healthcare CAQH, health care providers could save $7.5 billion annually by switching on electronic authorizations (ePA), but other groups like the AMA put the potential savings to physicians at $21 billion.

Do you know just how much precertifications are costing you?Calculate the savings you could experience by switching to electronic auths.

But just how many different types of auths and precertification are there?

The short answer is too many, but the grand division lies between prescriptions, and services covered under a health benefit plan, referred to as medical authorization. Doctors must obtain prior auths for surgical procedures, medical devices, expensive or controlled prescriptions, physical therapy, referrals to a specialist, radiology and diagnostic testing, and something new, molecular and advanced diagnostic genetic testing.

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Manual Pre-Authorization

Providers and their staff report obtaining pre-certification as time consuming, expensive, and frustrating. The AMA reports 84% of doctors surveyed reported that their preauthorization burden was high or extremely high.

Given the complexity, limited commonality, and frequency of changes found among both payers and plans, it’s remarkable that out of 1,300 procedure-specific authorization policies among 23 major health plans, that only eight percent commonality exist between plans (ie. patient demographics). Then there are sub-plans that can require a separate auth from a different party.

Not having a required PA ultimately results in a denied request, and due to direct loss of revenue from denial of payment by insurances––referred to as fatal denials, official estimates place PA cost to the provider at $55,000 per year. And a recent study by MGMA shows that PA is still on the rise.

Impact on Doctors
Of the tens of thousands of dollars that doctors pay out of pocket each year to process preauthorizations, none of it is reimbursed by insurance companies, representing an egregious and injurious burden placed upon providers who are bound by oath, by desire, and by law to provide the best possible healthcare for their patients. Resources spent on bureaucracy are resources unavailable to patients.

Impact on Patients
Patients suffer directly when access to treatment and medications are delayed – often days, sometimes weeks – resulting in confusion, Rx Abandonment, and an overall dissatisfied experience with the doctor.

A Technology Gap

This CAQH graph shows industry wide adoption rates of each electronic HIPAA transaction types
This CAQH graph shows industry wide adoption rates of each electronic HIPAA transaction type

Although 87% of primary care physicians have adopted EHR, and 70% e-prescribing, and although adoption of electronic claim submission is at 95%, the adoption rate for transmitting prior authorizations digitally is just a shocking 8%, meaning that as of today, 92% of pre-authorizations are being done manually via phone and fax.

If PA is so hated and the bane of every practice’s existence, wherein lies the disconnect?

The Ugly Truth
A significant technology gap exist due to the inability of software makers to reconcile the incomprehensible variables of over 2000 health plans that each have their own prior authorization request form. But wait! The standardized form for electronic precertification, the ANSI 278 Services Authorization, has been in place since 1996 by HIPAA regulation, and is now overseen by the NCPDP ePA data exchange standard.

But until recently insurance payers have not been forced to adhere to it, so doctors were simply left to bear the cost burden of an industry-wide problem of no form standardization enforcement––to the tune of $21 billion dollars a year. When you look at an insurance company skyscraper (that incidentally takes up an entire city block of the financial district), and compare it to a family doctor’s small office, it’s a difficult pill to swallow. Rather than a technology gap, what we seem to have is an integrity gap on the part of the insurance industry.

21 Principles To Better Care
But doctors have done their part. In Jan 2017, in an attempt to take on preauthorization rules that hinder patient care, the AMA and a coalition of 16 other healthcare associations representing physicians, medical groups, hospitals, pharmacists, and patients drafted a comprehensive plan to simplify the prior auth process by offering 21 principles to reform PA requirements. The patient centered principles are divided into five categories:

  • Clinical validity – Is UM criteria based on up-to-date clinical criteria
  • Continuity of Care– Current medical treatment or prescription drug regimen should not be interrupted while the utilization management requirements are determined

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  • Transparency and Fairness – Medical necessity review entities should provide accurate, patient-specific, and up-to-date formularies, along with detailed explanations for denials, especially on non-formulary drugs
  • Timely Access – Establish maximum-response times for UM decisions so that patient care is not disrupted
  • Alternatives and exemptions – As Principle # 21 states: “A health care provider that contracts with a health plan to participate in a financial risk-sharing payment plan should be exempt from precertification and step-therapy requirements for services covered under the plan’s benefits.”

The 21 principles attempt to make PA patient centered rather than focused purely on profit.

So, how does one explain the successful adoption of electronic claims, and electronic prescriptions?

Adoption of electronic claims is explainable as over the last twenty years, one by one States required insurances to adopt the CMS-1500 claim form as the standard for all insurance claim submission – both public and private – and then they legislated that all claims be submitted electronically – except by exception request.

Wide adoption of electronic prescription ordering is explained by the fact that in 2001 pharmacy associations formed Surescripts to create a link to physicians, and replace paper prescriptions with more accurate e-prescribing. Then in 2009, The HITECH ACT activated doctors to adopt EHR which also contained ePrescribing modules.

Electronic prescriptions avert millions of medication errors each year (17.4 million errors last year alone), and today, States are averting a controlled substance crisis by reining in prescription fraud through implementing of the e-prescription system, thus showing the efficacy of electronic solutions.

The Advent of Electronic Authorizations

Recently a handful of software vendors have traversed the chasm of electronic prior auths(ePA).

Although individual payer rules presently exist in the hundreds of thousands, and preauthorization claim form differences exist in the thousands, recently 23 of the largest payers such BCBS, UHC, AETNA, CIGNA, and HUMANA have adopted the ANSI 278 pre-certification standardwhich has been in use by the The Centers for Medicare & Medicaid (CMS) for years now.

Even though ANSI 278 standards for ePA, along with similar HL7 Protocols have existed for over twenty years, this recent move by the larger healthcare payers makes it possible for software makers to now organize the pre-authorization process, and include e-prior-auths as part of an integrated clinical EHR record. But as demonstrated above, adoption is painfully slow as the electronic approvals are only now seeing the light of day.

But, ePA is now automated to the point where the software program can recognize a CPT code or hcpcs code, match it up with payer rules, and then submit the required data gathered from the encounter notes to obtain preapproval for diagnostic orders such as DNA testing, medication, procedures and devices without the effort of the clinical or office staff.

And in the best ePA systems, a physician can now: Order diagnostics, diagnose a problem, prescribe, and (in a perfect world) recommend a treatment plan – all without ever have to interact with the insurance carrier because now software manages the entire prior consent process in an automated fashion, end-to-end.

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Closed Loop Authorization Process Flow

PreAuthorization for Dummies

Simplified; the permission process is three and a half steps:

  1. Determination – Does this particular payer require a PA for this procedure, medication, or device. ePA software accomplishes this almost instantly by looking at tables of data supplied by the insurance carrier.
  2. Requesting Approval, PA Form Submission – software has been handling form-submission for decades. Now that a standardized form is in play – problem solved.
  3. Status Monitoring and Appeals – While the payer determines whether this is the right test or treatment for the right condition on the right patient, the software is on the lookout for status updates from the payer. Once received, it then updates the secure web portal solution and initiates the next step as required. Approved, you have your PA. Denied, you correct and resubmit.

Of the top ten reasons for denied authorizations, all are due to absent minded errors such as missing or incorrect patient demographics. You can greatly speed up the prior auth process by taking the following steps:

  • Make certain all relevant fields are completed (accurately)
  • Make certain F/L Name, DOB, Sex, and SSN are present and correct
  • Make sure the CPT code for which approval is sought agrees with age and sex

In a precertified procedure, when the covered entity has received permission from a third party authorization (TPA) for the correct CPT, the tpas then forwards the coordination of benefits and acknowledges the precertification completion for the approved authorization request form.

While ePA does not guarantee payment, practices using it report near zero denials due to lack of pre-auth, report approval of PA within hours (sometimes minutes) rather than days or weeks, and report being able to schedule follow up the same day, or next available.

Without a required PA, a denial is inevitable. And one specialty hit hard by PA denials is Radiology and Diagnostic Testing where a physician needs evidential data in order to form a diagnosis. The area is controversial because the doctor is reasoning from training and experience whereas the payer is operating from actuaries – or in other words care vs profit. Again here the hospital or provider are assured of a denial unless a PA is obtained, but in this setting, time is of the essence. Only ePA can address this time sensitive problem as approval can be obtained electronically in minutes or hours.

Other technology developments today are interactive prior-approval criteria which allow real-time benefit check capabilities to obtain approvals in minutes and hours, not days. And applying robotic processing automation (RPA) to repetitive, transactional and rule-based processes to help streamline operations, reduce the time to complete tasks, improve the customer experience, and lower labor costs.

What can electronic (ePA) or automated precertification software do? A look at the complex world of Labs and RAD shows how software provides a solution. While the industry tends to focus on prescriptions, treatment authorizations are far more complex, time consuming, and impact treatment equally if not more. This in-depth analysis looks at the problem areas of Testing and Radiology, which have complex preauthorization and notification needs; and may also require pre-approval for medical services in addition to technical automation; such as in the case where a payer does not have the capability to receive electronic prior-auth.

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