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Securing approval for reimbursement of care in a medical care system affected by overuse and ineffective care seems logical and arguably protective of patients’ interests. However, the prior authorization process has now become a significant burden on clinicians, patients, and health care organizations. Even though some organizations are actively advocating to reduce the financial implications and time requirements caused by this process, the full effects and consequences of prior authorization on patients and their families (particularly reversals of authorization after the fact) remain enormous. Along with whatever protections against unnecessary care that it offers, prior authorization has created a minefield of financial risks for patients and their families.
It should be a simple matter for patients and those who care for patients to ask insurers in advance if they will pay for the proposed care and to get a firm answer: approval or denial. Yet even when clinicians or hospitals inform patients that “insurance has given an all clear,” sometimes insurers subsequently refuse to pay, and patients receive unexpected and expensive bills.
Although published data about the frequency and costs of retrospective denials are not available, incidents reported by patients, advocacy groups, and hospital billing offices suggest that these denials do occur. Examples include when insurers rethink the authorization and decide, after the care is billed, that the procedure was experimental or not medically necessary. Some denials are triggered when physicians or hospitals receive prior authorization for one procedure code but bill for a different one. Still other denials happen when agents of the insurer give erroneous information to members who, relying on what they have been told, seek care at an unauthorized facility.
Whether caused by insurer, hospital, or physician, the financial toll, emotional distress, and psychological effects on patients can be substantial and recourse can be limited. Patients and their families are daunted by the arcane procedures required to appeal insurance denials effectively and they often do not know exactly what caused the reversal. Many patients pay these bills whether or not they are actually liable for them. Many other patients simply cannot afford to pay, which is one reason medical debt has been estimated to be the primary cause of more than half of personal bankruptcies in the United States.1 Although there is significant national momentum to address surprise medical bills, legislative efforts are largely confined to bills related to out-of-network care that patients unknowingly received following receipt of care at in-network settings.
The ultimate financial responsibility of reversals rests squarely, but unfairly, on patients. Importantly, clinicians and organizations are not responsible for collecting payment from insurers (although they have a strong incentive to do so whenever possible because insurers have far greater resources than patients do). Hospitals and medical offices, with interests in being paid for their services, set up payment plans that they justify based on the patients’ prior signatures on a document agreeing to pay any uncovered costs. Patients must sign such documents (which are often explained at the time of signing as a mere formality “since your insurer has already preapproved the procedure”) before they can receive care. When hospitals cannot secure payment even for discounted amounts from patients via payment plans, hospitals may write these amounts off as “bad debt” and sell them to collection agencies. These agencies, in turn, use various means to try to collect, causing additional suffering for patients who cannot afford to pay.
How did this peril arise? Why does an affirmation of coverage given by the insurer prior to the medical procedure not count as a binding agreement to pay? How can patients be held liable for hospital, clinician, or insurer errors made during the prior authorization process?
Preapproval has logical roots. Beginning in the early 1980s, insurance companies, informed in part by research from the RAND Corporation on appropriateness of care,2 became increasingly skeptical of the need for many procedures commonly ordered by physicians. As a counterweight, insurers introduced more thorough reviews of medical procedures in advance of treatment to ensure that they were, in fact, medically necessary.
During the preapproval process, insurers verify the identity and insurance status of the patient and confirm coverage for the prescribed procedure at the intended health care facility. When additional scrutiny is warranted, insurers engage in the prior authorization process to further verify that the prescribed drug or procedure is medically necessary or appropriate for this condition in this patient, and that it is not experimental. When preapproval and, when necessary, prior authorization are completed, the insurer affirms its approval to the clinician or organization and care proceeds.
Logically that is where the process should end. But it often does not. Strangely, a favorable decision is not binding on the insurer. At the end of virtually every preapproval call or document, insurers always add the caveat, “Of course, this is not a guarantee of payment,” as a form of protection in any subsequent decision to deny coverage. This short, unassuming sentence acts as a semantic loophole, allowing insurers to leave clinicians, organizations, and ultimately patients responsible for costly medical bills.3
Why is prior authorization not a guarantee of payment? In the absence of a billing error, clear fraud, or material misrepresentation, which are already effectively addressed in laws that protect insurers, there is no apparent reason that such advance approvals should not bind the insurer and the clinician or organization for the costs of care. In any event, whatever the reason, these disagreements should be resolved between the hospital or clinic and the insurer. The patient has no capacity to prevent uncovered care from occurring.
National efforts to reform prior authorization are ongoing; however, addressing the issue of appropriate patient liability has lagged. In 2017, the American Medical Association (AMA) and a multistakeholder group of physicians, hospitals, pharmacists, and patients developed utilization management reform principles aimed at reducing the burden of current prior authorization requirements on physicians and patients. These included specific provisions to ensure the reliability of prior authorization as a commitment to coverage, protecting patients from liability for the costs of care.4
In 2018, the AMA joined with groups representing pharmacists, medical groups, hospitals, and health plans in a consensus statement. Notably, the patient financial liability protection principles were not included.5
In August 2019, the AMA revised its 2014 model legislation entitled Ensuring Transparency in Authorization Act.6 Although the model legislation addresses important concerns, it stops short of explicitly holding patients harmless for costs they did not knowingly incur when prior authorization has been given. Although it is extremely heartening to see model legislation, broad and meaningful reform is unlikely so long as payers and insurers stand in opposition.
There are 2 ways to introduce “hold harmless” provisions into the insurance system: legislative and contractual. A legislative approach (which could be added to the protections in the proposed model legislation) would prohibit both insurers and hospitals and other health care organizations from holding patients accountable for care that has been approved for coverage.
A contractual approach would be a private agreement between insurers and those who provide care under which the insurer guarantees to pay once care is preapproved, unless the caregiver bills for a different procedure. Such provisions are currently encumbered by a restriction (typical in insurance policies) that allows only the beneficiary and not the clinician or hospital to appeal a denial of insurance coverage. This may be about to change. There are indications that courts are beginning to allow clinicians and health care organizations to appeal denials directly with insurers, which would be a significant move forward in the effort to protect patients from the pitfalls of reversed preapprovals.7
In a recent case (in 2015), the Third Circuit held that when a patient executes an Assignment of Benefits form, the provider gains standing to sue for that payment under §502(a) of the Employee Retirement Income Security Act of 1974 (ERISA). The Court reasoned that “this outcome will help ensure that beneficiaries of employee sponsored plans will have increased access to care and will allow providers to make direct claims against payers rather than requiring a patient to bring suit, and avoid suits against or demands for payment from the beneficiary.”8
It is time for new legislation and new contractual rules that make insurers’ prior authorization decisions binding and to hold clinicians and health care organizations responsible for their errors in prior authorization and billing processes. Patients should be protected against financial responsibility for choices they did not make according to rules they cannot affect.
Corresponding Author: Martha E. Gaines, JD, LLM, Center for Patient Partnerships, University of Wisconsin, 975 Bascom Mall, Madison, WI 53706 (firstname.lastname@example.org).
Published Online: February 3, 2020. doi:10.1001/jama.2020.0070
Conflict of Interest Disclosures: None reported.
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Gaines ME, Auleta AD, Berwick DM. Changing the Game of Prior Authorization: The Patient Perspective. JAMA. Published online February 03, 2020. doi:10.1001/jama.2020.0070
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