What is Prior Authorization?

Definition: Prior Approval 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 that 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, but when required precertification affects patient care action must be taken. This page is about reigning in cost at the physician’s practice by implementing electronic auths as your primary method of obtaining prior approval.

The Six Things You Need to Know Today

  1. You have no choice, you have to change. Going electronic is inevitable as processing auths manually has become 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 today 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 your patients.
  3. Presently, just 70 payers accept the 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 electronic preauthorization (ePA).
  5. Expect to pay in the neighborhood of $7 for each electronic auth, and $15 each for manually processed outsourced authorizations. The average cost of processing an auth industry wide is $35 excluding clinical intervention, which necessitates manual actions and increases cost on a per occurrence basis.
  6. You have a choice of ePA vendors, but the best solutions are ones that integrate seamlessly within your EHR and practice management system.

Prior Authorization Calculator

Calculate the Impact Prior-Auth is Having on Your Practice

Physicians on average obtain 29 medical approvals per week, and 80% of these requests for 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.

When Time Is Money

According to a study published on HealthAffairs, when that time is calculated in dollars, median spending for a primary care practiceto obtain PA is $47,707 per full time physician––or $23 billion and $31 billion annually.

According to the most recent study conducted by McKesson using data from CAQH––the organization that monitors electronic adoption in healthcare; when faxes, phone calls, clinical time and other aspects are considered, out-of-pocket costs to a doctor range from $35 to $100 per prior approval.

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 CAQH, health care providers could save $7.5 billion annually by switching on electronic prior authorization, but other groups like the AMA put the potential savings to physicians at two to three times that.

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

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
After EHR, PA is the number two cause of job dissatisfaction among physicians. And 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 medication is 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 authorization 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 regulations, 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 $23 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. These 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

The Best Software for Medical Billing Companies

See How Eligibility Can Increase Cash Collections

  • 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, in the light of industry wide failed ePA adoption, how does one explain the success 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 prior authorization form differences exist in the thousands, recently 70 of the largest payers such Blue Cross Blue Shield, United Health Care, AETNA, CIGNA, and HUMANA have adopted the ANSI 278 pre-certification standard, which 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 prior approval 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.

The Best Software for Medical Billing Companies

Closed Loop Authorization Process Flow

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 medical services covered under a health benefit plan, referred to as medical authorizations. Doctors must obtain prior auths for surgical procedures, durable medical equipment, expensive or controlled prescriptions, physical therapy, referral to a specialist, radiology and diagnostic testing, and something new, molecular and advanced diagnostic genetic testing.

Preauthorization for Dummies

Simplified; the permission-approval 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

Calculate Your Savings Now

Step Therapy & Authorization Denials

Stepping Away from Step Therapy
Insurers call it step therapy; critics call it fail first—and the contrast between those terms makes healthcare’s deep divide on this topic abundantly clear. The problem is that, on paper, step therapy seems perfectly reasonable. The patient must try a generic version of a drug or less expensive therapy before being approved for a more expensive drug or therapy. The reality is something completely different.

In the past few years, physicians have encountered situations where step therapy has caused patients serious injury and, in some cases, increased their risk of dying. Dr. Kenneth Blankstein, a New Jersey oncologist, told Stat News about a lung cancer patient. Because she responded well to the first chemotherapy drugs he prescribed, he gave her a temporary break when her health stabilized. When he tried to return her to treatment, the insurer said the break was evidence the treatment had failed and demanded she move to a different treatment.

“The patient’s being told to use a drug we know isn’t going to work, but we have to use it anyway for someone with terminal illness? To me that’s just insane, but it’s the way they do things,” Blankstein said. “It’s taken away clinical judgment. It’s managing by algorithms.”

Reducing frustration through transparency
Healthcare experts agree that step therapy has been on the rise in the last decade. A Milliman report sponsored by Pfizer found that total formulary restrictions increased from 41% in 2011 to 76% in 2016. One reason for the increased restrictions and mounting physician frustration is increased use of high-priced biologic medications.

Physicians argue that restricting biologic use is penny-wise and pound foolish. Initial costs may be high, but overall costs are lower if patients stay healthier and avoid additional treatments and/or hospitalizations.

There are no federal laws that address step therapy, and state laws vary widely. Indiana’s law is the strictest, according to the National Patient Advocate Foundation, barring insurers from restarting the step-therapy sequence if a patient has failed certain treatments with a previous insurers. In addition, insurers must adjudicate appeals within three days.

That fast turnaround, along with increased transparency, is the key to solving the step-therapy issue, say many physicians. Today, reform efforts at the state and federal level are centered around:

  1. Requiring health plans to provide a reason other than cost for denying coverage of a prescription drug
  2. Giving physicians the option to override the health plan’s decisions if the treatment option identified by the insurer is likely to be ineffective based on the patient’s medical history or clinical practice guidelines.
  3. Requiring more advanced, standardized communication around the step- therapy process so that adjustments and exceptions can occur quickly.

In addition to advocating for federal and state laws aimed at step therapy reform, clinicians interviewed by PM360 recommended the following to improve the chances that patients will receive the best treatment without delay

  1. Use generic and/or formulary medications where appropriate (the idea is to strengthen the credibility of the prescriber when he/she orders a non-generic or non-formulary drug––a medication that’s not on the authorization list for member benefits).
  2. Thoroughly document your rational for prescribing a specific agent using clinical practice guidelines and (where possible) randomized clinical trial data.
  3. Document the prior authorization process in detail for each patient. In some cases, practices can receive special status that exempts them from routine pre-auth by demonstrating a low rate of preauthorization denials.

Dr. Steven Pearson, founder of the Institute for Clinical and Economic Review put it this way: Most people would say it’s reasonable to try the less expensive or non formulary drug first in a situation where two treatments would likely offer equal benefits. “The important nuance comes when there might be specific reasons where a patient or doctor feels like the more expensive drug would work better. So it all depends on what the harm would be if they tried the less expensive one first.”

While ePA does not guarantee payment, practices using it report near zero denials due to lack of preauthorization, they 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.

Recent Legislation on Authorization Form Standardization

The government, mainly in the form of CMS, has been for years pushing hard on healthcare entities to improve care while lowering costs. Recently, experts pointed at preauthorization as an excellent new target.

On July 31, the Senate health committee held a hearing on administrative costs where Harvard economics professor David Cutler estimated that streamlining billing systems could cut the health system’s administrative costs in half. He recommended standardizing prior notification forms for all insurers, eliminating extraneous billing codes, and directing the integration of EHRs and billing systems so that patients’ health histories are automatically linked to treatment authorization.

Cutler told the senators that since government is the biggest payer, it needs to be the one to standardize and simplify coding. He also likened administrative costs to an “arms race,” saying that when insurers are pushed to reduce spending, they introduce requirements providers must fulfill to get paid. In response, providers hire personnel to maximize reimbursement and, seeing this, insurers beef up the rules again.

According to Modern Healthcare, several senators agreed that obtaining authorizations are a major issue for providers. Senators Hassan (D-NH), Murkowski (R-Alaska), and Cassidy (R-La.) criticized the health insurance industry for the way it currently treats treatment authorization and said insurer’s verification requirements can place undue burden on patients and physicians while threatening delays in medical care.

Find Free Features

The Senate committee plans to consider creating legislation that would regulate how health insurers handle prior authorizations. Senator Smith (D-Minn.) said she’s working legislation to support public-private partnerships as a way to demonstrate success in standardization efforts.

One such effort is a collaboration of more than 130 health plans, hospitals, and vendors that was recently endorsed by the Council for Affordable Quality Healthcare (CAQH) and the Committee on Operating Rules for Information Exchange (CORE), a not-for-profit that aims to help stakeholders adopt standardized electronic transactions.

“Substantially improving prior approval on behalf of the industry ranks among our highest priorities in 2018,” says CAQH CORE, adding that because requirements to obtain precertification for miscellaneous items has a significant impact on healthcare costs and continuity of care, it has been working extensively to address the issue through CAQH CORE Operating Rules and Certification.

Industry efforts notwithstanding, the panel will no doubt consider Cutler’s strong emphasis on the role of government. He says that while payment reform and IT promotion (both part of the HITECH Act) are important areas, they would be more effective if seen as part of a larger goal: creating and implementing a plan to reduce the administrative costs of medical care.

“The reality of the situation is this,” he says, “Unless the federal government leads the way, the United States will continue wasting hundreds of billions of dollars annually on unnecessary administrative expenses. I urge Congress to act to prevent this.”

Prior Auth Denials In Radiology & Imaging

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.

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.

Technology Developments in Prior Auth

Other technology developments today are interactive prior-approval criteria which allow real-time pharmacy benefit transactions (RTPB) and the capability 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.

Electronic Prior Authorization Software

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 prior authorization services in addition to technical automation; such as in the case where an insurance does not have the capability to receive electronic auths, but coverage determination is needed within business days rather than calendar days, and quantity limits are set in place for the non-breaching party.

Learn more about current pre-auth legislation.