Healthcare spending in the United States is expected to surpass $4.7 trillion in 2023. As Applied Policy has previously reported, some of that money may be spent on unproven, ineffective, unnecessarily expensive, or even harmful practices. Some of it will be spent on effective treatments for which there are less expensive alternatives. Some of it will be lost through improper payments.

While medical providers pursue the best treatment options for their patients, payers—whether health insurance plans, self-funded programs, or government entities—must pay attention to the numbers, even at the risk of being characterized as insensitive and maligned for “greed.”

Utilization management, including prior authorization requirements under which a provider must secure payer approval in advance of a prescription, procedure, or admission, allows payers to review the appropriateness of treatment before it is provided. It positions payers to flag inappropriate treatment options or redirect providers to less costly care.

But prior authorization also puts payers between providers and patients, limiting provider autonomy and delaying treatment. Unsurprisingly, prior authorization has become one of healthcare’s most debated issues.

The divide

AHIP, the organization which represents America’s health plans, calls prior authorization a valuable tool in its members’ efforts “to promote safe, timely, evidence-based, affordable, and efficient care.” And, in representing the process’s potential to reduce waste in spending, the organization shrewdly points to a 2019 study published in the Journal of the American Medical Association which estimated that the “cost of waste in the U.S. health care system ranged from $760 billion to $935 billion, approximately 25% of total health care spending.”

But, for the American Medical Association (AMA) and other provider and practice groups, including the American Hospital Association (AHA) and Medical Group Management Association (MGMA), the prior authorization process is a major concern and growing source of frustration. They argue that the time required to complete and submit prior authorization forms—whether standardized per state regulation or specific to individual plans—represents an administrative and financial burden which negatively impacts both patient care and their bottom lines.

There is data to support this argument. According to CAQH, the cost to providers for manually generating a single prior authorization request is close to $11, while the cost to generate a request through an electronic portal is less than half as much. This can cost the average medical practice over $70,000 a year in actual expenses and opportunity costs.

However, at the macro level, prior authorizations seem to be cost effective and may be lowering total healthcare spending. A working paper published in the National Bureau of Economic Research in January concluded “that prior authorization restrictions tend to generate financial savings vastly exceeding the associated administrative costs.”

Given that providers are contributing to, but not directly sharing in, these cost savings, they have not been persuaded by the research. Prior authorization reform has become a priority for both the AMA and the AHA. The latter targets prior authorization as part of what it calls an environment of “regulatory overload,” while the AMA has listed prior authorization reform as a pillar of its Recovery Plan for America’s Physicians. The group uses powerful stories of patients who have suffered adverse events following prior authorization delays or denials to an emotional advantage in lobbying for change.

Phrma, which represents biopharmaceutical research companies, sides with providers and healthcare systems, characterizing prior authorization as red tape that can prevent patients from realizing the full benefit of available treatments, ultimately resulting in higher costs and worse health outcomes.

Establishing Prior Authorization Requirements

Opponents criticize health plans for what they call opacity in both the establishment of prior authorization requirements and the making of individual approval decisions. AHIP counters that the processes are evidence-based and entail input from clinicians.

A survey of AHIP members found that a majority of the member health plans used input from specialty society and medical professional associations in determining which drugs and procedures will require prior authorization. The majority of respondents said that they used provider-developed clinical guidelines and vendor-provided propriety guidelines in determining which drugs and procedures will be subject to prior authorization requirements. And 82% report consulting with specialists as needed.

All the plans queried reported that they annually review their lists of medications requiring prior authorization and 95 percent review prior authorization requirements for medical services annually.

AHIP reports that 64% of commercial enrollees are in plans in which less than a tenth of drugs and services are subject to prior authorization requirements. And, contrary to generalizations from critics, less than ten percent of commercial enrollees are in plans in which more than 25% of services are subject to prior authorization.

Discord

There is evidence that prior authorization requirements exacerbate the growing provider shortage. Administrative burdens, including prior authorizations, are increasingly cited by physicians leaving the medical profession and negotiating prior authorization mazes has been identified as a reason for a loss of enthusiasm for their chosen field among radiation and medical oncology residents.

A changing landscape

Almost all states have existing laws specific to prior authorizations. And with voices as influential as Surgeon General Vivek Murphy calling for changes to prior authorization processes and the AMA offering a model bill for state medical societies to share with legislators, at least 40 states are expected to consider some form of prior authorization reform in 2023.

Under a new law which took effect last fall, health plans in Texas are now required to grant prior authorization exemptions—so called “gold card status”— to providers who meet a predetermined threshold for approval of a service or treatment.

In Pennsylvania, newly passed legislation will require health plans to publish the criteria used in making coverage decisions. It also specifies that plans must ensure that physicians involved in prior authorization determinations hold qualifications within the relevant medical specialty—effectively eliminating scenarios in which an orthopedic surgeon might be assigned to make decisions for obstetrics coverage.

Not all changes in prior authorization are being mandated. In March, The Wall Street Journal was the first to report that United Healthcare plans to voluntarily reduce the number of medical devices and procedures for which it requires prior authorization, as well as to implement gold-card status for qualifying providers and healthcare systems.

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Applied Policy will continue its examination of prior authorizations in the coming months.

• In May: Prior authorizations within the larger context of the U.S. healthcare system
• In June: Prior authorizations in Medicare Advantage and Medicaid programs
• In July: Prior authorizations, patients, and health equity