Prior Authorization and It’s Impact on Practice Collection

Prior authorization is a check run by some insurance companies or third-party payers before they will agree to cover certain prescribed medications or medical procedures. There are a number of reasons that insurance providers require prior authorization, including age, medical necessity, the availability of a generic alternative, or checking for drug interactions. A failed authorization can result in a requested service being denied, or an insurance company requiring the patient to go through a separate process known as “step therapy” or “fail first”. Step therapy dictates that a patient must first see unsuccessful results from medication or service preferred by the insurance provider, typically considered either more cost-effective or safer before the insurance company will cover a different service.

Prior authorization is a headache for patients and providers. It’s a time-consuming process:

Physician offices spend hours getting OKs from health plans to cover medications and specific medical procedures. The idea behind prior authorizations is cost savings. Getting authorization beforehand should ensure only appropriate procedures and medications are provided to patients.

A recent study in the “Journal of the American Board of Family Medicine” estimated that the mean cost per full-time provider for prior authorization compliance was between $2,100 and $3,400. Keep in mind, this figure accounts only for the provider’s time, not including the time of other credentialed staff and front office employees. In 2017, the most recent year comprehensive figures were compiled, the average primary care nurse spent 14.1 hours per week on the patient prior authorizations and clerical staff spent 6.4 hours per week on prior authorization-related tasks.

Altogether, according to research published by “Health Affairs,” the annual cost of compliance with insurance-mandated prior authorizations is between $23 billion and $31 billion per year. It doesn’t take a CPA to tell you that keeping up with the never-ending prior authorization paperwork is a drain on your practice’s profit.

According to research from the American Medical Association, who analyzed a large number of claims for their 2013 National Health Insurer’s Report Card, not all payers are equal in their prior authorization burdens. Check out these statistics about the percentage of claims requiring  prior authorization:









2012 4.70% 2.20% 7.10% 4.10% 14% 6.70% 0.80%
2013 5.40% 2.10% 4.70% 7.30% 8.40% 12.40% 3.50%

Most prior authorizations involve imaging studies and medications, and the Government Accounting Office reports spending on advanced imaging studies has increased at a much more rapid rate than less expensive studies, which may be driving some of the increase in prior authorizations. On the other hand, the wider availability of inexpensive generic drugs reducing some of the paperwork burdens for medications.

Prior authorization is an unavoidable cost of running a medical practice, but there are some steps you can take to lower the drain on staff hours.

  • Centralize the prior authorization process with just one or two staff members. This streamlines the procedure and facilitates forming personal relationships with major payers, making things move more quickly and easily.
  • Familiarize yourself with your main plan formularies and develop treatment protocols around medications covered by the plan that doesn’t require prior authorization for the conditions you treat most, provided it’s medically appropriate for the patient.
  • Use your EHR to capture demographic information and progress notes supporting medical necessity for use when a payer’s utilization review department will need it for prior authorization for advanced imaging studies and other procedures. Be sure you know the authorization criteria for each payer so your EHR form captures everything that will be required to get the approval.
  • Evaluate your insurance contracts to see which payers require the most prior authorizations. If it’s a contract that isn’t a major part of your revenue, and it’s taking an inordinate amount of time in compliance, consider whether you really want to participate when it’s time to renew.
  • Use the payer’s website whenever possible to get authorization; phone service takes much longer.