Prior authorization is a practice used widely in U.S. health insurance markets. It requires certain services to be approved for payment by the insurer before a provider delivers them. Prior authorization is debated among stakeholders, including providers, legislators, patients, insurers, and advocacy groups. Critics say that prior authorization is expensive and contributes to delays in patient care or denials of payment, potentially putting patients at risk. They also note a lack of consistency among insurers across the industry, adding complexity and administrative burden to the system. Proponents counter that, despite the administrative expense, it is necessary to control medical and prescription drug costs and to improve quality and safety for patients. As complete elimination of the process would likely result in increases in premiums and patient out-of-pocket expense, reforms in response to the criticisms seem to be the more viable policy path.

In this paper, we discuss our creation of a Prior Authorization Index (PAI), a tool for stakeholders looking to improve industry consistency, efficiency, and both patient and provider experience with minimal loss of cost control. Using a single, consistent claims data set across all insurers, we analyzed 23 commercial insurers’ prior authorization code lists to determine the percentage of Healthcare Common Procedure Coding System (HCPCS) codes, utilization and medical.

Key findings:

• Insurers with a PAI above the 50th percentile have 43% fewer HCPCS codes subject to review compared with the average of the bottom 50th percentile.
• HCPCS codes selected by insurers with the higher PAIs subjected 72% fewer services to prior authorizations than those of lower-PAI insurers.
• While the best performers reviewed far fewer codes and services than the bottom performers, the potential medical cost savings associated with those reviews were only 17% lower compared with the bottom performers.
• Insurers with higher PAI scores focus on services that are on average more expensive per service.