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How Prior Authorization Impacts Healthcare · CareTalk: Healthcare. Unfiltered.

• 0:00
  Prior authorization.
• 0:01
  It's a dreaded phrase for patients and providers alike.
• 0:05
  Now, some health plans like Cigna say they're cutting back on the practice and the feds are contemplating restrictions too.
• 0:11
  What is prior authorization in healthcare and can the U.
• 0:14
  S.
• 0:14
  healthcare system survive without it?
• 0:24
  Welcome to Care Talk, America's home for incisive debate about healthcare business and policy.
• 0:28
  I'm David Williams, president of Health Business Group.
• 0:31
  And I'm John Driscoll, the president of Walgreens Health.
• 0:34
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• 0:38
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• 0:50
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• 0:55
  We'll just have to take it off John's head.
• 0:58
  So David.
• 1:00
  This is complicated, but what is prior authorization in health care?
• 1:08
  John, prior authorization is basically approval for a medical procedure or a drug that's obtained in advance by the provider.
• 1:15
  That's the prior part of it, even if it's covered by the plan.
• 1:18
  And it's usually they check first for medical necessity and then cost effectiveness.
• 1:22
  So you're asking permission for something that you're already allowed to do according to the plan and according to your medical license.
• 1:29
  That's prior authorization.
• 1:31
  And so is it a gate that you have to go through?
• 1:36
  And so what, what's, what's the, what's, what services are subject to prior authorization?
• 1:44
  There's two main categories, John.
• 1:45
  One is drugs, which is where a lot of people have it.
• 1:47
  So there'll be a prescription.
• 1:48
  So I'll write a prescription.
• 1:50
  It needs a prior authorization.
• 1:52
  And then there's different services that tend to be high costs.
• 1:54
  So when we talk about drugs, it's not just any drugs, it's usually ones that are high cost.
• 1:58
  Uh, where there's maybe a risk of addiction or serious side effects, or sometimes when drugs are used often cosmetically, they're trying to make sure, hey, is this a cosmetic use or is this a legitimate medical use?
• 2:09
  On the services side, it tends to be high cost imaging, sometimes like an MRI, an expensive scan like that, durable medical equipment, home health care, elective surgery.
• 2:19
  Those are the sort of things that are, what's, well, what's the purpose of prior authorization?
• 2:26
  John, it's all about the money, you know, because, you know, we were talking about managed care.
• 2:31
  And if, and we talk about the high price of, uh, of healthcare and something has to be done, right.
• 2:36
  And one thing can be say, Hey, before you go ahead and spend 50, 000 or a hundred thousand dollars on, on a drug or a service, let's actually check to see if it's going to be beneficial, if it's cost effective.
• 2:48
  So it is a cost.
• 2:49
  mechanism largely, but it also, uh, there would be argued by those that are, that are doing that it's also for medical necessity, meaning like, is this even the right drug?
• 2:59
  For example, somebody might already be getting a drug in the same category.
• 3:03
  And then the second one that's, that's prescribed.
• 3:05
  So some of these are also for safety purposes as well, but cost is the primary purpose.
• 3:09
  And so is prior authorization all about, about optimizing.
• 3:15
  Your care or about the denial or reduction of care?
• 3:20
  Well, it, you know, in a sense you could say it's all about the denial or reduction of care because in the absence of prior authorization, these things would just sail through physician or other provider would order a test or prescribe something and you'd just be able to get it.
• 3:34
  So it's a blocker.
• 3:37
  And so, uh, prior authorization, from my perspective, having worked a little bit in healthcare is when you.
• 3:45
  You or your doctor think you need something and a health plan has a rule.
• 3:50
  And let me get that make sure this is right, which says that you have to talk to a clinical resource of some sort or go through some board at a managed care company to evaluate whether it's you're actually going to get access to that drug or service.
• 4:07
  Is that the right way to think about it?
• 4:08
  Yeah, although it's not necessarily, uh, that there's going to be procedure of like a board or, you know, something like that.
• 4:14
  It could be an automated kind of a tool, but it's just something that you're, that's going to be essentially if you submitted it without doing prior authorization, it's going to be initially denied.
• 4:23
  That's how you can tell.
• 4:24
  And in fact.
• 4:25
  You know, there's hundreds of drugs that could be covered by prior authorization.
• 4:29
  They're different from one health insurer to the other.
• 4:31
  It could even differ depending on the patient.
• 4:33
  And so sometimes the way you find out a prior authorization is needed is you, you check on it in advance.
• 4:37
  And sometimes you just write the prescription and see if it gets rejected.
• 4:41
  And does the, do the prior, the, I mean, I, I sort of have a sense of this, but I think Do the rules for prior authorization vary by what kind of plan you're on?
• 4:52
  Yeah, uh, they do vary by what type of plan you're on, and then they vary by the specific carrier too, so you could have two commercial insurance providers, uh, that have different rules, and in fact, some may cover, uh, prior authorization under a lot of areas, and some may, may, may do it under, you know, almost none.
• 5:09
  And you have, in fact, The biggest one is to say, uh, Medicare, traditional Medicare, generally speaking, does not have prior authorization except in very, very limited circumstances.
• 5:20
  Whereas, uh, Medicare Advantage does have, uh, prior authorization, commercial plans have prior authorization as well, and so does Medicaid.
• 5:29
  I think the history of prior authorizations, if I, if my, if I recollect correctly, is that premise was that if.
• 5:39
  Doctors and patients had to go through a, some form of a gate that evaluated.
• 5:45
  Whether you really needed it, or whether you really needed that service, or an MRI versus an X ray, one drug versus another, that it would create an optimization of resources so that by requiring the, by the company requiring the patient or the doctor to go through that evaluation, the number of Unnecessary services or, or, or, or two expensive drugs when there's a, uh, let's say a generic versus a brand that you'd actually reduce the, the, the cost trend, how effective have prior authorizations been.
• 6:25
  To reduce cost, David, there isn't anything published about, you know, how well it reduces cost.
• 6:31
  Um, the logic is definitely there, right?
• 6:33
  If you think about a traditional issues, we've discussed with third party payment, which is that, hey, somebody else is paying for it, right?
• 6:39
  So the doctor prescribes it.
• 6:40
  Somebody else is paying for it.
• 6:41
  I might as well take it.
• 6:42
  And so the prior authorization, in a sense, Brings the party who's the payer into the mix and says, well, I'm actually going to look at the, I'm actually going to look at this cause it's going to cost me, it's going to cost me something.
• 6:53
  There's some times where you've got, uh, the, uh, the prior authorization and then the care is, is denied.
• 7:01
  And so that would tell you that's going to reduce the cost, at least of that service.
• 7:05
  But the prior authorization also has another impact, which is that it may.
• 7:10
  preempt, it may prevent people from authorizing something or doing something that would otherwise, you know, not be paid for.
• 7:15
  So let's just take the example of the cosmetic, you know, so let's say a drug like, uh, Retin A, uh, which is prescribed for acne, but it's also people use it to reduce wrinkles.
• 7:26
  And if you didn't have prior authorization, the drug is just Did it work for you?
• 7:30
  No, but it does make your skin sensitive to the sun as well.
• 7:35
  And so that's why I have to wear, you know, a hat or a helmet even indoors too, John, even though it affects my, my lighting.
• 7:41
  If you didn't have, uh, if you, if you have prior authorization, yeah, they're going to review it.
• 7:47
  Sometimes it's a hassle and, you know, you're supposed to be getting the medication because it's really not for something cosmetic, but it's also probably going to stop a lot of those cosmetic prescriptions.
• 7:55
  Other cases, John, so one of the areas that, uh, we have prior authorization often is, is for home care.
• 8:01
  Well, guess what happens?
• 8:03
  So home care has a prior authorization.
• 8:05
  Guess what doesn't have prior authorization?
• 8:07
  A SNF, a, a, uh, a nursing home.
• 8:09
  You know, so somebody may go to the nursing home, which is more expensive, because I didn't have to bother to get the prior authorization.
• 8:14
  So it's not so clear what the cost savings is, John.
• 8:16
  Yeah.
• 8:17
  But I think, I think that the, the, the point that you're making, you know, do you need the multi thousand dollar MRI versus the multi hundred dollar x ray for a particular scan to determine whether you need more help?
• 8:28
  Should you be, you know, the, I think it's the PCSK9s are those really strong anti inflammatory drugs that bring down people's, uh, cholesterol dramatically, but most people are pretty successful at.
• 8:41
  doing that with a pennies on the dollar stat versus the hundreds of thousands of dollars with PCSK9s.
• 8:49
  So it's, it's a, it's a mech, the prior authorization is really thought to be a mechanism to titrate or tear.
• 8:57
  the right service for the right patient.
• 8:59
  But to your point, it's once you get into that business of creating a gate of review, you've got a two part problem.
• 9:08
  It's a, well, I guess the benefit is to your point is that it can affect people's behavior just to go for the low cost, uh, or the easy path as opposed to the high cost.
• 9:19
  Yeah.
• 9:19
  More complex path when that may be an alternative, but that's, I guess, a good thing that the bad thing is that it creates a fairly significant administrative burden on doctors and patients who may or may not be informed on the right way to actually.
• 9:36
  Make the prior authorization work to make sure that the patients get the care they need.
• 9:41
  You know, one of the challenges in this, in this whole area is because of that administrative burden, there's undoubtedly examples that everyone can find in their personal lives where you had a prior authorization for something and from a plan of one sort or another.
• 9:56
  And it just didn't make a great deal of sense based on the way you or your doctor.
• 10:00
  sought and unless you have the wherewithal to appeal and to push it, um, I think that that's a, that's a, that's what, why there's all this attention around this prior authorization because there is an administrative and personal burden, um, on the patient and the provider.
• 10:17
  But I guess the, my next question, David, is how frequently Our service is actually denied.
• 10:22
  Yeah.
• 10:23
  Well, John, let me, I know we're going to say plenty about the problems with prior authorization because there are, there are many challenges.
• 10:31
  Not many people are going to say that much more about the benefits.
• 10:34
  So let me just mention another example where you've got something that may be working for a while and then you actually need to review it.
• 10:41
  So a good example would be physical therapy.
• 10:44
  So you'll usually have prior authorization for physical therapy.
• 10:47
  And then after you'll get a certain number of visits, then after those visits, They may review it again, and you'll say, hey, is the, is the patient actually continuing to improve?
• 10:55
  Have they plateaued?
• 10:56
  Are they even being harmed by it?
• 10:57
  And so there's sort of that review that is necessary in order to keep the cost down, um, you know, longer term.
• 11:04
  So it's not even just a one time thing.
• 11:06
  On the, on the point now about, you know, what actually happens, uh, when there is prior authorization, how often are these denied?
• 11:14
  You know, there's.
• 11:15
  There's about, um, 6%, there's something like where there's, where there's good data on this, John, it's from Medicare Advantage, um, within Medicare Advantage in 2021, there were about 35 million prior authorizations, and that's about one and a half per enrollee per year.
• 11:32
  And it varies a lot.
• 11:33
  So, you know, Anthem has 10 times as many per person as Kaiser does.
• 11:38
  And about 6% of those are, are denied either fully or partially.
• 11:42
  And interestingly, the denial rate.
• 11:44
  is varies too from about 3% at Humana and Anthem to about 12% at CVS and Kaiser.
• 11:50
  But interestingly, Kaiser, as I said, was like really low on how many prior authorizations they require.
• 11:55
  So there's, there's a mix, right?
• 11:56
  If you're, you're requiring it, because it's more likely to have, have an issue.
• 12:00
  And then only about 11 of the denials, which is the 6%, which is about 2 million total denials, about 11% are appealed.
• 12:09
  And then 82% of those are either partly or fully Overturned.
• 12:15
  No.
• 12:15
  So I think one of the things that's, that's, that's hard about this is that the administrative burden is clear and the, the, the, the patient and the provider will naturally, you know, kind of resent.
• 12:30
  That to some degree, but the reality is we've got a health care system that costs a ton where that inflation is running out of control.
• 12:37
  We it's a we have a health care system that everybody wishes cost less and delivered better outcomes and prior authorization is actually.
• 12:47
  a pretty effective tool to, particularly on the, on the physician side, make sure that, that the recommended, uh, service that they're, that they're, that they're, that they want is, is, uh, is, is, is within medical guidelines.
• 13:05
  And appropriate to the challenge.
• 13:07
  I mean, I once had a, for one of my wife's pregnancies, uh, the OB suggested that, that she come in for a sonogram, uh, every month and I'm like, well, wait a second, is that indicated?
• 13:22
  And she said, no.
• 13:23
  And, and I said, is it.
• 13:25
  Are there any implications for the baby?
• 13:28
  She, it was just her way of staying on top of the pregnancy, but it was thousands of dollars.
• 13:34
  Right.
• 13:35
  It was in the hospital every time a month.
• 13:37
  And I, I don't know, but it's possible that the doctor had a, or the hospital had a piece of the imaging center and that their incentives were aligned towards volume as opposed to value.
• 13:51
  And those are the kinds of things that.
• 13:55
  Prior authorizations are set up, wherein the reason why managed care companies are so loathe to give them up is because they work.
• 14:03
  Now, that doesn't mean in every case they work, nor does it mean that they are appropriately tight traded to the challenge or the problem by category and by drug and by service.
• 14:14
  One of the challenges is, to your point, health plans are all over the place.
• 14:19
  I mean, at CareCentrics, we had a 2%.
• 14:22
  Uh, denial rate, uh, but some, some of our competitors had 10 or 15 or I mean much higher and you get to a level of, uh, not just authorization, but denial and appeal that it really spins out of control administratively and it is pretty common.
• 14:41
  For patients, uh, on an individual basis by anecdote or actually to be really put into, into, into, into real challenge situations when the prior authorization is applied in a way that doesn't make sense.
• 14:54
  But I think there's no question from a managed care perspective that one of the key things managed care plans do is they evaluate, authorize either by benefit design.
• 15:05
  Or by specific, specific interventions like prior authorizations to make sure that, that there is at least some effort to bring down the trend of healthcare cost inflation.
• 15:15
  So I think that it's important.
• 15:18
  To not just acknowledge the problem, but acknowledge the problem that that, uh, prior authorizations were designed to help solve for.
• 15:26
  So, John, I, I agree with that.
• 15:27
  And, you know, and despite all the positive things I'm saying about prior authorization, you know, the real pain in the neck have been for, for my family and sometimes cause a lot of stress and even, you know, delay of care and, and a lot of, a lot of challenges.
• 15:39
  What's interesting now is that you are seeing some, some movement against.
• 15:44
  Prior authorization and some attempts at least to make it less of a of just kind of a bulldozer and a little bit more targeted.
• 15:51
  So, um, despite the fact that the health care costs keep rising and the insurers presumably want to do something about it.
• 15:58
  There is a trend actually to reducing prior authorization.
• 16:02
  And you see that Cigna.
• 16:04
  Following actually United's lead from a while back has been reducing the number of codes that are subject to prior authorization.
• 16:10
  And so Cigna just reduced announced that they're reducing the number of codes by 25%, which represents.
• 16:16
  600 codes.
• 16:17
  Now, we don't know how many exact cases that applies to, etc.
• 16:19
  But there's, you know, significant, uh, movement toward reducing, uh, the number of, of, of codes.
• 16:25
  What do you, what do you think about that trend?
• 16:27
  Well, well, I, I, I'm really encouraged by it, but I don't think that, you know, I think you hit it, the, the, the nail on the head.
• 16:34
  It's the delay of care.
• 16:35
  and not applying it appropriately that people, patients are genuinely and appropriately resentful of.
• 16:42
  I mean, there, there, there should be a way to run a prior authorization system that still ensures that people get access to the care they want and answers on these and the ability to appeal quickly and transparently.
• 16:53
  And where I think what drives patients and physician nuts is when they can't get timely response on.
• 17:02
  a prior authorization and the path to actually get approvals is completely unclear.
• 17:07
  Um, so, and I think that, I think that what you're seeing is real, a resentment appropriately on the part of patients.
• 17:14
  You're seeing patient advocacy groups and, and, and, and, and congressmen and, and politicians of both parties really upset about it.
• 17:23
  And that pressure and that noise is starting to create a little bit of a self correction on the part of managed care companies That, that, that, I mean, honestly, probably had a little bit of a set it and forget it kind of approach to some of these prior authorizations, or at least they weren't evaluated as carefully.
• 17:41
  Many years ago, United Health Plans removed the gatekeeper approach to all of your access to specialists had to go through primary care doctors, because that worked for a while to reduce costs, but became a really unnecessary burden for patients.
• 17:56
  And as you see the reduction in these costs, and also the, a lot of the health plans have started to invest in more automation.
• 18:02
  All right, so that so that they can be more get get a more timely response if these are based on medical criteria, that should be a relatively easy thing to engineer from an AI perspective, but I think it's, uh, there's been a little bit of an unaccountable administrative reach on the part of some of the managed care companies.
• 18:20
  And I think that that That the political pressure is probably going to end up with a better system, David.
• 18:26
  It's interesting that the health plans focus on, you know, they reduce the number of codes that are subject to prior authorization, but a lot of the regulation and attention is actually focused on what you were saying in terms of the speed of turnaround, right?
• 18:38
  I don't really care.
• 18:39
  What I don't, you know, there's all sorts of things that happen.
• 18:41
  Like even if you go and use your credit card for something, not even in healthcare, right, it goes through a bunch of checks.
• 18:47
  Now, all that happens in a couple of seconds.
• 18:49
  You don't mind that it happens.
• 18:50
  You don't mind that it happens on big transactions, small transactions, as long as it's quick.
• 18:54
  Yeah, the problem here is a prior authorization might take five or six weeks, um, you know, left to its own, uh, own devices.
• 19:00
  So a lot of the focus has been actually on the speed.
• 19:03
  Now you see that there are some regulations that apply to the plans, uh, that are in the ACA marketplaces.
• 19:09
  Uh, they have to turn around a standard prior authorization in 14 days.
• 19:13
  Uh, for example, now there's, there's a focus.
• 19:15
  Uh, there's a federal proposal, actually, to reduce that time frame to, uh, seven days for a standard prior authorization or 72 hours for urgent requests, and there are actually state by state regulations and that apply to different sorts of plans, but even, uh, the, the most, um, the strictest one I saw was in Oregon, where it's a two day turnaround for, even for, you know, non emergency prior authorization, and I think speeding things up, which can be done through automation and so on, is the way to go, and that take a lot of friction for speed.
• 19:44
  out of the system.
• 19:44
  And it's one thing to appeal something, you know, after it was rejected in a day, if your treatment is two weeks from now, it's another thing to wait six weeks and then have to postpone it, uh, and so on.
• 19:54
  So I think that's going to be a big source of relief.
• 19:58
  But it's, this is again, one of those situations where it was put in for the same reason that people hire managed care organizations and interest rates to reduce costs.
• 20:07
  And, and the key is that it, it, it, it, it, you know, I think that the, the baseball bat versus the scalpel, the bulldozer, uh, versus a more targeted approach, that's fair.
• 20:19
  But I think that the most important thing is that there's a speedy resolution and that the criteria are clear and clinically valid.
• 20:27
  Uh, because again, there's, this is not an area where there's been a.
• 20:32
  Very much of a regulatory hand, it's an area where managed care plans apply different rules by different plans to your point that some of them have a 3% denial rate and some of them have a 12 or some of them have a 6% of their procedures by volume or value.
• 20:49
  through prior authorizations, other have 20.
• 20:51
  It is, it's a little bit all over the lot.
• 20:53
  And I think if we could get more transparency and speed transparency on the criteria and a speedy response, this would be considered less of a burden and more of a help.
• 21:02
  And that, that, that to me is the, is, is it should be the goal here while we kind of navigate, what's a genuine tension between my desire to get.
• 21:11
  The best drug, the best care, the quickest service and the systems need to kind of bring down the overall burden and cost because, you know, the, the, the, if you go to other systems in the industrialized world, people don't believe they have a right to every new technology and the system centrally controls it in a.
• 21:29
  It, whether it's Japan or Germany or even China, they will, they will control how many MRI, you know, devices are, are, are going to be sold or bought and what the price will be.
• 21:40
  And that'll by definition restrict access to some degree.
• 21:44
  Um, whereas we have a much more of a free market open system, which encourages more volume, um, and, uh, and in a less controlled price regime, because every, all the prices are controlled centrally in Germany and France.
• 22:00
  Uh, Japan.
• 22:01
  And so this is, this is our attempt to run through market perspective to, you know, selectively through private sector entities like managed care companies, regulate it.
• 22:10
  Uh, but I, but I, but I, I think there's no question, um, that we could improve the system.
• 22:16
  So John, last question to you.
• 22:17
  We've been speaking about all of this and sort of the traditional fee for service approach.
• 22:24
  We talk a lot on the show about value based care.
• 22:27
  Does value based care reduce the need for prior authorization?
• 22:31
  I, you know, I think.
• 22:32
  If it follows the value based care, you know, healthcare in a budget where doctors and physician groups and other parties will actually take risk on a fixed budget to manage the care for the patients.
• 22:46
  I think it's just going to be a different form of prior authorization.
• 22:49
  You're going to see, and the experience of groups that are in value based arrangements, particularly where managed care is mature, they capitate or, you know, have a fixed budget all the way down.
• 23:01
  And you do see Less access to specialists, less a, uh, fewer tests and fewer, uh, uh, fewer medical costs.
• 23:09
  And so what you go from a centralized prior authorization with some ability for transparent to one that's that's local and managed closely by the doctors.
• 23:17
  But it's just, I think it's a different form of authorization and approval.
• 23:21
  It's, it, it, it goes from central to delegated, but it'll, it'll, it'll be a different form of the same.
• 23:27
  You can't have value-based care, better outcomes at a lower cost unless there's less volume.
• 23:34
  So I guess the idea there is that, uh, this decentralized approach, the provider, whoever's closer to the patient, maybe they've got a better idea about what's needed and what isn't.
• 23:46
  Although you worry a little bit then on the other direction that, well, maybe they're going to withhold care because now it's in their, in their interest to do so.
• 23:52
  That's been the traditional concern about it.
• 23:54
  It's, it'll be restriction of a different sort.
• 23:57
  But, um, on that happy note.
• 24:00
  David, uh, what, what, what do you, do you have a different view on, on, on value based care and cap, and capitation and prior authorization?
• 24:12
  Well, John, here's my view.
• 24:14
  That's it for yet another episode of Care Talk.
• 24:16
  We've been talking today about prior authorization.
• 24:19
  I'm David Williams, president of Health Business Group.
• 24:22
  And I'm John Driscoll, the president of Walgreens Health.
• 24:24
  If you liked what you heard or you didn't, we hope you'll subscribe on your favorite service.