Prior Authorizations: How to Manage this Hidden Healthcare Cost

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Administrative burdens — tasks mandated by commercial and government insurers — overwhelm the healthcare system on a daily basis and are just one aspect of what ails our troubled healthcare system. One such task, experienced by nearly every stakeholder in the delivery of healthcare (including the patient), is managing prior authorization requests required by most insurance plans.
According to, a prior authorization is “A decision by your health insurer or plan that a health care service, treatment plan, prescription drug or durable medical equipment is medically necessary. Sometimes called prior authorization, prior approval or precertification.” In theory, prior authorizations help control costs by encouraging providers to think outside the box when prescribing a plan of care for a patient.
This is often accomplished, for example, by prescribing generic medications or pursuing more conservative treatment options before costlier (but potentially more effective) solutions are considered — otherwise known as Step Therapy. In practice, however, prior authorizations more often than not add extra costs to the system, (at best) and in extreme cases, delay or deny much needed, and sometimes life-saving treatments to patients.
According to a 2009 survey commissioned by Health Affairs, prior authorizations add somewhere between $23B and $31B per year in healthcare spend across the United States — costs tied up in added administrative staff, provider time, and payer time — costs which have continued to rise in the years since. There is no doubt value in managing prior authorizations. Healthcare providers should always carefully consider the costs of any and all treatment options available to them. If a cheaper and equally effective alternative exists — think generic drugs, cheaper imaging modalities, and more sensible care settings for a particular disease state — then those should be pursued with vigor.
This cost-containment strategy, however, must be prudently applied, and certainly not at the patient’s expense. Indeed, a careful balance must be struck so that prior authorizations are not counter-productive. Many providers complain that step therapy, designed to rule out costlier prescription drugs, for example, simply accelerates spend, as a patient’s condition can worsen until and when their insurance plan allows them access to the drug their provider originally prescribed. These delays, therefore, add costs to the system and have negative consequences for the patient’s overall health.
Cost-controls and a patient’s health are not mutually exclusive, though. Instead, insurance companies should think like the financial institutions they are: invest a modest amount of capital in their members, up front, and reap the rewards later, when the patient’s chronic illnesses are well-controlled, thanks to prudent care management, executed in the name of preventing catastrophic episodes.
Prior authorizations add strain to the system in another way: the process by which prior authorizations are requested can be vastly different, and therefore incredibly time-consuming to manage, the onus of which falls on the provider and their staff. The incongruous nature of the prior authorization process can vary state to state and plan to plan, but no matter what, the practice is left to beef up staffing levels and devise management plans to push these requests through.
And truly, everyone feels the heat, from providers, who must sacrifice valuable clinical and personal time to prove to a payer why their patient needs a particular plan of care, to their staff, who labor to produce prior authorization forms, which, on average, can run to nearly six pages in length and cost close to $42 to produce (cost components include direct time to produce and the opportunity costs of completing the form).
It’s unlikely prior authorizations will be altogether eliminated from the healthcare system anytime soon. While we wait for the slow wheels of politics and regulatory reform to turn and produce efficiency in the system, there are some steps that can be taken now to reduce the pressure on providers, office managers and patients today.

  • Economies of scale aren’t just for large companies — prior authorization activities can be centralized, even in a one or two provider office, by designating a single point of contact, and empowering them to run point on all insurance plan interactions
  • Equip this staff with the proper tools of the trade; to reduce denials and pass clean information to the payer, submit prior authorizations electronically, whenever possible; if the payer doesn’t have an online portal, print out and make sure prior authorization forms are always on hand, and pre-populated to streamline the submission process
  • Estimate your regular prior authorization needs by knowing your payers well; for example, develop a course of action for specific drugs prescribed to members of a particular payer whom you know to be strict about step therapy
  • Use your EMR’s formulary knowledge base and clinical decision support functionalities to anticipate the needs of your patient based on what their insurance plan requires

These tips are not a cure-all for the administrative ailment known as prior authorizations — they’ll always be a fact of life, because they do achieve cost-savings, and can improve a patient’s quality of life and experience with the healthcare system. That does not mean they should incur the costs on the system they do today, however. With a small investment of time and resources, prior authorizations can be managed in a way to maximize a provider’s time, while reducing overall costs for the practice, the patient, and the payer.

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