Evaluating the Financial Impacts of Prior Authorization in Healthcare

Financial Impacts of Prior Authorization

Prior approval is a cost management procedure that insurance companies use, where healthcare providers need permission before offering patient services. This process aims to confirm that the recommended service or medication is necessary from a standpoint and aligns with established standards. While its aim is to control costs by preventing services prior authorization has implications for various parties in the healthcare system. This report delves into these impacts, focusing on patients, healthcare providers, insurance companies, and the broader healthcare infrastructure.

Financial Impact on Patients

Rising Personal Costs

One of the challenges faced by patients due to authorization is the sudden increase in out-of-pocket expenses. If a request for authorization is denied, patients are left responsible for covering the cost of the service or medication if they decide to proceed with treatment. This can be especially difficult for individuals requiring specialty medications or undergoing treatment plans, putting significant financial pressure on them.

Treatment Disruptions and Additional Costs

The authorization process can also result in treatment disruptions, potentially worsening the patient’s health condition. These interruptions, interventions, and longer treatment periods lead to healthcare costs for the patient. For instance, if a patient misses taking their prescribed medication on time, it could exacerbate their health condition, potentially resulting in visits to the emergency room or hospitalizations, which can incur expenses.

Financial Consequences for Healthcare Providers

Managing authorizations imposes an administrative burden on healthcare providers such as physicians, pharmacists, and staff members. They must invest time and resources in completing and submitting authorization requests, following up on approvals or denials, and appealing rejected cases. These responsibilities not only divert attention from care and other essential tasks but also lead to increased operational costs for the medical practice or facility, placing a strain on the healthcare system.

Disruptions in the Revenue Cycle

Denials of prior authorizations disrupt the revenue cycle for healthcare providers. This can result in decreased cash flow and higher outstanding payments that affect the provider’s health. Furthermore, if providers proceed with treatment without authorization approval, they risk not receiving reimbursement from insurance companies, directly impacting their stability.

Financial Impact on Insurers

Financial Gains and Resource Allocation

One benefit of authorizations for insurance companies is cost savings achieved by managing healthcare expenses efficiently.
By instituting review procedures, insurance companies can prevent paying for services of value that do not align with standards. The money saved from this can be used to enhance care, benefiting those covered by insurance.

Administrative Costs

On the other hand, insurers incur expenses associated with managing authorization requests. This includes hiring staff to evaluate and approve requests, handling appeals, and upkeeping the infrastructure for an authorization system. Despite these costs, savings from overseeing healthcare expenditures often help balance them out.