Costs of prior authorizations increase for physician practices at an 'alarming' rate

Doctor on phone/fax
A new report found providers on average spend almost $11 per transaction to conduct a prior authorization manually versus $1.88 for an electronic transaction. (Getty/IPGGutenbergUKLtd)

The cost of prior authorization requirements on physician practices has continued to increase—up 60% in 2019 to manually generate a request to insurers.

The just released CAQH 2019 Index, which concluded that the healthcare industry can save $13.3 billion on administrative waste through automation of eight transactions including prior authorizations, said the medical industry could see potential annual savings of $454 million by transitioning to electronic prior authorizations.

The Medical Group Management Association (MGMA) said the CAQH report confirms its own concern about the burden prior authorizations place on physician practices.

“The just-released CAQH 2019 Index confirms MGMA’s findings that the financial burden of prior authorization requirements on physician practices is increasing at an alarming rate,” said Anders Gilberg, senior vice president of government affairs at MGMA, in a statement.

The CAQH index, put together by the nonprofit alliance, revealed that the cost for providers to manually generate a prior authorization increased from $6.61 in 2018 to $10.92 in 2019, Gilberg said. Payer cost for the same transaction decreased from $3.50 in 2018 to $3.32 in 2019.

At the same time, the cost for providers to generate an electronic prior authorization transaction dropped from $2.80 in 2018 to just $1.88 in 2019, and the cost for payers stayed steady.

However, overall industry use of electronic transactions increased only slightly from 12% in 2018 to 13% in 2019, the CAQH report said.

RELATED: AMA survey: 28% of physicians say prior authorizations led to serious adverse events

“In 2020, practices should not be forced to rely on fax machines to complete manual prior authorizations when health plans could modernize the process,” said Gilberg. The federal government needs to streamline prior authorization by requiring a national automated approach to minimize administrative costs and delays in patient care, he said.

Insurers, however, are pledging to do more and just last month launched a new initiative aimed at expanding the use of electronic prior authorization, hoping to address an issue most providers say is the most burdensome they face.

The Fast Prior Authorization Technology Highway initiative aims to use technology from Availity and Surescripts in physicians' offices to speed up requests and responses for prior authorization, where a provider must get permission from an insurer before prescribing a pricey drug or performing a certain surgical procedure.

The initiative is led by insurance industry group America’s Health Insurance Plans and several member insurers including Anthem, Cigna and WellCare. It will have physicians' offices volunteer to work with insurers to incorporate the new processes into existing technology.

Having to seek prior authorization from payers is the most burdensome regulatory issue for practice leaders, and it’s only getting worse, according to an MGMA survey taken last year.

The CAQH report said prior authorization is the most costly, time-consuming administrative transaction for providers. On average, providers spent almost $11 per transaction to conduct a prior authorization manually and nearly $4 using a web portal. The cost of an electronic transaction is $1.88.

Adoption of electronic prior authorization by medical plans remained low relative to other administrative transactions, with only that one percentage point increase in electronic adoption from 2018 to 2019, the report said.

The use of partially electronic transactions through payer’s web portals rose by almost 20 percentage points after a 21 percentage point decline, while manual use decreased 18 percentage points. Medical plans have reported that this shift to partially electronic versus manual utilization is the result of concerted efforts to encourage providers to submit prior authorization requests through plan specific portals, the report said.

RELATED: AHIP, BCBSA come to the defense of prior authorization as docs urge overhaul in MA

The process is time-consuming for practices. On average, a manual prior authorization required 21 minutes of provider staff time, while electronic prior authorization transactions can be completed in four minutes.

Prior authorizations were just one of the changes the CAHQ report highlighted. The U.S. healthcare industry spends $40.6 billion annually on just eight healthcare administrative transactions related to verifying patient insurance coverage and cost-sharing, obtaining authorization for care, submitting claims and supplemental information and sending and receiving payments, according to CAQH researchers.

RELATED: 370 healthcare organizations urge Congress to protect MA patients from prior authorization

CAQH found that by adopting fully electronic processes for just these eight transactions the industry can reduce waste by $13.3 billion annually—33% of administrative spending. Those eight transactions are:

1. Eligibility and benefit verification

2. Prior authorization

3. Claim submission

4. Attachments

5. Coordination of benefits

6. Claim status inquiry

7. Claim payment

8. Remittance advice

Of the $13.3 billion in potential savings through automation, $9.9 billion can be saved by medical plans and providers, while $3.4 billion can be saved by the dental industry, according to the report. In both industries, the greatest savings exist for providers as compared to plans.

The report also found that while the industry has made progress in automating fee-for-service processes, the industry is transitioning to value-based payment models. And there is a need now for more interoperable administrative and clinical systems.

While the industry has already avoided $102 billion annually by automating administrative transactions, significant opportunities for additional savings remain for both the medical and dental industries, CAQH said.

“While a greater percentage of business transactions are now conducted electronically, the U.S. continues to spend more on healthcare administration than any other nation,” said Kristine Burnaska, director of research and measurement at CAQH. “The Index offers a roadmap for those areas where further automation can drive down costs and burdens for both providers and plans.”

CAQH called for greater collaboration across industry stakeholders to harmonize and accelerate approaches that can accommodate emerging market needs. For example, standards and operating rules must be updated more quickly to support changing technology, payment models and patient care delivery strategies.

“While the industry has reduced administrative complexity by automating fee-for-service processes, our healthcare system is evolving,” said April Todd, senior vice president, CORE and Explorations at CAQH. “As the industry transitions to value-based payment models and the need for interoperable administrative and clinical systems becomes more acute, we need to adapt in order to maintain and improve upon the progress made to date.”

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