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February 14, 2024
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David Burda
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Economics Policy System Dynamics
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The Costly Lever of Prior Authorization

The long-running debate over prior authorization (PA) typically is framed around patient care. PA delays or denials prevent patients from receiving medically necessary care when they need it. Within that frame is the administrative burden that PA puts on physicians. They spend too much time on PA requests when they could be spending that time with patients.

After reading the Council for Affordable Quality Healthcare’s latest annual CAQH Index Report, the long-running debate over PA is really about cost. Patient care and administrative burden are simply window dressing to avoid framing the debate around money.

The annual CAQH Index Report measures the cost of nine separate transactions between providers and payers during a patient’s episode of care, starting with eligibility and benefit verifications through claim payment. The report calculates the cost of those nine transactions done manually, partially electronically and fully electronically. It does that for medical claims and for dental claims.

Overall, the number of medical transactions rose 11% last year to 55.1 billion from 49.7 billion in 2022. The total cost of medical transactions jumped more than 50% to $82.7 billion last year from $55 billion in 2022. More transactions between providers and payers and more costly transactions between providers and payers.

The leading driver of the increasingly expensive transactions is PA. Why? Let’s look at some numbers from the report.

  • PA is second among the nine types of transactions in terms of being least fully electronic. Only 31% of medical PA transactions were fully electronic last year. The only transaction that was worse were attachments, which are additional information submitted by providers to payers to support a claim or PA request. Only 29% of attachments were fully electronic last year. By comparison, 94% of the eligibility and benefit verification transactions were fully electronic last year.
  • Traditional transactions are still in play: 37% of medical PA transactions were manual last year. Providers and payers were doing PA by phone, postal mail, email and fax. The only transaction that was worse was attachments at 71%.
  • Manual medical PA transactions are expensive. Manual PA transactions cost providers an average of $10.97 per transaction in 2023. That’s second only to a provider’s claim status inquiry at $11.37 per transaction. A fully electronic PA transaction for a provider is $5.79, about half of the cost of a manual PA transaction.
  • Providers bear most of the cost of a PA transaction regardless of how it’s done. The average cost of a manual PA transaction for a payer is $3.52, or less than a third of what it costs a provider. A fully electronic PA transaction costs a payer $0.05. Yes, a nickel. I guess it doesn’t take much for a software program to tell a provider no.

As you can see, the long-running PA debate is really about money. It’s not about patients or about doctors’ paperwork burden. It’s about money.

Per the CAQH report, if all medical PA transactions were fully electronic, spending on this thorn in the side of providers would drop by $494 million a year. That’s a lot of patient care and physician compensation.

Thanks for reading.

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About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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