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What Is Prior Authorization? How It Impacts the Healthcare Revenue Cycle

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What is Prior Authorization?

Prior Authorization is a requirement by insurers that a healthcare provider obtains approval before prescribing a particular treatment plan. If you as the provider fail to get prior authorization, the insurer will not cover the cost of treatment, meaning that the patient may have to bear the cost.

Health insurers require prior authorizations for several reasons, but the main objective is to minimize healthcare costs. Before authorizing a treatment plan, the payer checks if:

  • The intervention is medically necessary.
  • The plan is consistent with the best practices for treating the medical condition.
  • The treatment plan is the most economically efficient healthcare intervention. Payers will not approve an expensive intervention if there is a cheaper alternative.
  • There is no duplication of services where two or more practices provide the same treatment or recommend the same procedure or test.
  • The ongoing treatment is working. The aim is to avoid continuing with an intervention that is not helping the patient

The Importance of Prior Authorizations to Healthcare Providers and Revenue Cycle Management

Prior authorization has a profound impact on the income of healthcare organizations. If a procedure or treatment plan fails to get authorization, you cannot proceed with the service. In some cases, delays result in loss of revenue as the patient forgoes the treatment, or because such cases require further negotiation before the payer will approve the treatment or procedure.

Prior authorizations can result in delayed care and patients abandoning treatment. A recent survey indicated that over 60% of the physicians had to wait at least one business day for the payer to approve prior authorization requests, which is too long in some cases where a patient may need immediate treatment. Most practitioners also experience procedure requests being denied during the authorization process. With more obstacles, the chances are higher that the patient won’t receive treatment.

Insurers can refuse to approve treatments due to:

  • Procedural errors such as incomplete documents or missing patient information
  • Medical reasons such as procedures that the insurer deems unnecessary or too expensive.

Denied claims can also add an extra cost in terms of administrative work. You may find yourself or your staff spending valuable time following up on denied claims and requests for more information. In some cases, you may have to hire extra administrative staff to handle authorization processes and respond to denials. Below are some tips to avoid denied claims and better understand the process of prior authorization, approval, and insurance coverage.

Tips for Working with Patients and Insurance Companies on Prior Authorization for Treatment

Update Systems

You as the provider should standardize their administrative processes to align with prior authorization requirements. Streamlining prior authorization applications will enable you to identify treatments that need prior authorizations and make the necessary arrangements. Equally important is the need to keep updated records of exclusion lists from different payers. Exclusion lists indicate the type of medication or treatment procedure that is covered by a particular insurance plan. Updating records will ensure that providers can be proactive and creative with treatment, avoiding procedures or prescriptions that are no longer covered by the insurer.

Collaborate with Payers

Your healthcare organization can improve the efficiency of the prior authorization system by collaborating with payers to find a balance with regards to treatment costs while still providing patients with quality care. This can be helped by:

  • Educating payers on the importance of various treatment plans
  • Helping payers become familiar with medical specialties to reduce denied claims due to misunderstandings

Educate Staff and Patients

Practitioners should educate patients on authorization requirements so that they understand their options regarding treatment. Patients should understand that authorization can take several days or be denied. The informed patients can then make decisions on whether they will pay for any interventions out of pocket upon denial or delay in authorization. Education can eliminate delays that jeopardize patient satisfaction and lead to loss of revenue.

Ensure that your medical and administrative staff understand the coding requirements for different payers. Sometimes denials result from physicians or technicians entering data without complying with the coding requirements of the insurer. Further, the administrative staff should review the prior authorization requests before submission to avoid errors.

Familiarize yourselves with the policies of payers. Most insurers require authorization for imaging procedures and prescriptions involving expensive brand-name drugs. Healthcare organizations can prioritize generic drugs and develop a list of the ones that get direct approval without delay. This will help with approved claims as most insurers will not approve an expensive drug when there is a generic alternative available. This will reduce delays due to prior authorization and enable patients to access treatment expeditiously.

Automation through Revenue Cycle Management (RCM)

Research indicates that over 80% of reimbursement claims are denied because the practice did not get prior authorization, or the application contained errors. You can reduce prior authorization delays by implementing complete billing solutions to expedite the approval process. RCM is a complete billing solution that can be integrated with your Electronic Health Record (EHR) to help you collect and manage your revenue. This arrangement enables providers like Logik to help you:

  • Submit clean claims quickly
  • Obtain prior authorization faster so that you can give care immediately
  • Get paid faster

Logik elevates health care organizations by improving billing processes, increasing revenue collection, and optimizing patient care. Learn more about Logik and how Revenue Cycle Management can help your healthcare practice today!



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