The Consequences and Future of Prior-Authorization Reform

Professional medical societies and state and federal policymakers have recently unveiled proposals to simplify and modernize prior authorization. Long used by insurers to restrain overuse of and unnecessary spending on drugs and services, prior authorization is frequently time-intensive, requiring phone calls and faxes by clinicians and other staff. Although it has been effective at reducing utilization, associated administrative burdens drive frustration and clinician burnout.

Among recent proposals from the Centers for Medicare and Medicaid Services (CMS) addressing prior authorization is a rule that would require implementation of electronic prior authorization for most public insurers by 2026. The proposed rule was issued in December 2022; it updates a 2020 proposed rule that was withdrawn after public comment. The new rule, which applies to health care services and not prescription drugs,¹ would affect Medicare Advantage, Medicaid, the Children’s Health Insurance Program, and qualified health plans offered on the Affordable Care Act’s marketplaces. CMS envisions that traditional Medicare will adopt the same provisions.

CMS aims to transition to a fully electronic submission and initial-determination system for prior authorization, with separate user interfaces for patients and clinicians and a payer-to-payer exchange. Under the proposed rule, the patient interface would show application status and coverage determinations. Clinicians could see at the point of care whether a planned treatment requires prior authorization and transfer required details from electronic medical records into the application. The payer would electronically return a determination with its rationale to the patient and clinician. The payer-to-payer exchange would enable insurers to view claims histories and decisions for similar services rendered by the patient’s previous insurer or a concurrent insurer, for patients with multiple sources of coverage.

The proposed rule intends to make prior authorization more transparent at the point of care and implements public reporting requirements. It’s currently difficult to anticipate when prior authorization will be needed and what information an application will require, and payers’ prior-authorization policies and forms vary. Once a prior-authorization form is submitted, application status can be difficult to ascertain. The rule would allow clinicians to query prior-authorization criteria at the point of care and follow a submission’s progress, oblige payers to reveal their reasons for approval or denial of prior-authorization requests, and permit payers to view each other’s decisions. This increased transparency could support active legislation related to utilization management, such as step-therapy laws preventing patients on a stable treatment regimen from having to repeat a previous ineffective treatment course after a coverage change.

In addition, the proposed rule seeks to improve the timeliness of prior authorization, requiring a decision within 7 days after a standard submission or within 72 hours for expedited requests. Patient and clinician interfaces would have to be updated within 1 day after each status change. Timely decision making is a feature of patient-centered care; these deadlines would therefore represent an improvement over the status quo. The clock wouldn’t start until an application was deemed complete, however, and extensions could be requested.

CMS forecasts that the rule would yield savings of $10 billion to $20 billion over 10 years, driven principally by reduced administrative-personnel costs for providers.¹ But there are several reasons why we believe these changes on their own might not generate savings — and could instead increase spending.

First, at the clinician-order level, implementation challenges could interfere with goals related to increasing administrative efficiency. The proposed rule outlines clear parameters for the initial prior-authorization application process, but it’s not similarly prescriptive about the appeals process. Payers could issue initial denials and defer the substantive work necessary for justifying a prior-authorization request (such as additional paperwork and phone calls with physician peers) to the appeals process, which might remain cumbersome. Current prior-authorization workflows often rely on nonphysician team members (e.g., medical assistants); therefore, embedding prior-authorization tasks into the prescriber’s electronic health record workflow might increase administrative burdens for physicians.

Second, at the provider-organization level, it’s not clear that any savings on administrative costs would be passed on to patients or payers in the form of lower prices. Although prices are administratively set in Medicare and Medicaid, organizations will still face incentives to maximize their negotiated prices in commercial and managed-care contracts built on fee-for-service prices.

Moreover, simplifying prior authorization may increase utilization and health care spending. Although facilitating access to services, especially among populations that face access-related obstacles, may benefit patients and reduce inequities, expanding the use of low-value services could increase patients’ cost burdens. The Congressional Budget Office (CBO) recently scored legislation proposing electronic prior authorization as increasing spending by $16 billion over 10 years.² That legislation pertains only to Medicare Advantage, with spending increases projected to come from increased utilization of services. Utilization and spending effects could be larger under CMS’s proposed rule, since it applies to more payers. A recent analysis supports the CBO’s projections, finding that the administrative costs associated with prior authorization in Medicare Part D are far lower than the savings it achieves by reducing utilization.³

At a market level, increased public reporting of plans’ prior-authorization policies would encourage consumers to select plans on the basis of those policies. Plans with less-burdensome prior-authorization processes might attract sicker patients. Insurers have previously used benefit-design mechanisms, such as placing medications for costly conditions on higher formulary tiers, to avoid attracting sicker patients.⁴ Transparency might therefore exacerbate, rather than reduce, systemwide burdens associated with prior authorization, since payers would have an incentive to increase their use of prior authorization to match competitors’ policies.

CMS and other payers could consider various remedies to help ensure that current efforts to reform prior authorization would reduce administrative costs and mitigate unintended consequences. To discourage shifting costs to an appeals process, CMS could hold appeals to the same standards as initial prior-authorization requests.

To help discourage the provision of low-value or wasteful care once prior authorization becomes easier to overcome, payers could adjust the prices of services on the basis of value, embed prior-authorization reform within prospective-payment contracts that aim to control spending, or implement audit-based utilization management after services are delivered. In the proposed rule, CMS expresses interest in a version of this third approach, “gold-carding,” wherein prior authorization wouldn’t be applied prospectively for physicians demonstrating a history of appropriate prescribing.¹

Finally, the equity implications of the proposed rule warrant consideration. Increasing the amount of information available to patients could give patients more insight into their care. But the rule identifies increasing patient involvement in the prior-authorization process as a mechanism for improving efficiency, in effect making patients uncompensated intermediaries in the delivery of services for which other parties are being paid. We find this approach concerning. Like money, time and resources are unevenly distributed. Increasing patients’ obligation to supervise their own care would impose more work when health needs increase and might disadvantage people who are unable to take on this role — thereby compounding structural inequities. Prior-authorization processes shouldn’t rely on patient oversight to function. Reporting requirements associated with electronic prior authorization could include demographic information to allow CMS, plans, and members of the public to assess disparities in impact. For example, CMS recently required Medicare Advantage plans to establish utilization-management committees⁵; plans should prioritize diversity in committee membership and activities.

Improving prior authorization is an important policy priority. Electronic prior authorization could offer needed relief from administrative burdens, but its implications for systemwide efficiencies remain uncertain. Operational design, behavioral responses by providers, and market reactions to increased transparency will determine the consequences of a streamlined prior-authorization system for patient care and societal resources.

Ultimately, the U.S. health care system delegates coverage determinations to private plans (notably those administering publicly financed insurance programs) in part because of a general struggle with decisions involving trade-offs. In other countries, value-laden decisions about access to various health care services are often under the purview of the government. Prior authorization is one of the most enduring, infuriating, and effective tools in the United States for managing health care spending. Easing prior authorization would put even more pressure on payment policy to control spending. This reality shouldn’t deter policymakers from reforms aimed at reducing burdens for clinicians and improving access for patients. But it will also be necessary to grapple with the likely unintended consequences.