Survey: The Costs and Benefits of Eliminating Prior Authorization in Massachusetts

The healthcare industry is currently debating the role of prior authorization, a process that requires healthcare providers to obtain approval from health plans before delivering certain services. Proponents of prior authorization argue that it is a necessary tool to control costs and ensure that patients receive appropriate care. Opponents argue that prior authorization is an unnecessary administrative burden that can delay care and lead to denials of necessary treatment.

A recent study by Milliman, an independent actuarial and consulting firm, has found that restricting or eliminating prior authorization could lead to significant increases in health insurance premiums. The study estimates that commercial premiums could increase by between $600 and $1,500 per member annually, and Medicaid capitation rates could increase by between $270 and $1,100 per beneficiary annually.

The study also found that eliminating prior authorization could have an impact on the “sentinel effect,” which refers to the tendency of providers to refrain from ordering tests, procedures, or treatments when approval for those services is subject to external review. Milliman estimates that eliminating the sentinel effect by restricting prior authorization could increase premiums an additional 5.6% to 16.7%.

These findings have raised concerns among employers and healthcare consumers, who are already facing rising healthcare costs. The Retailers Association of Massachusetts, the Associated Industries of Massachusetts (AIM), and the National Association of Benefits and Insurance Professionals in Massachusetts (NABIPMA) have all expressed concerns about the potential impact of restricting or eliminating prior authorization on their members.

In response to these concerns, the Massachusetts Association of Health Plans (MAHP) has argued that prior authorization is a vital tool for ensuring safe and cost-effective care. MAHP also notes that working in conjunction with hospitals and physicians, plans have successfully standardized prior authorization requirements across the fully insured market relating to behavioral health, prescription drugs, imaging and radiology. With the support of hospitals and physicians, MAHP believes that the industry can move quickly away from antiquated technologies like fax machines towards automated processes that will provide physicians with approvals in seconds.

The debate over prior authorization is complex and there are no easy answers. While prior authorization can be an effective tool for controlling costs, it is important to weigh the potential benefits against the potential costs. Healthcare policymakers and stakeholders need to carefully consider the impact of prior authorization on both providers and patients before making any changes to current policy.

Additional Considerations

In addition to the potential impact on premiums, there are several other factors to consider when evaluating the role of prior authorization.

• Timeliness of approvals: Prior authorization can sometimes delay care, as providers may have to wait for approval from health plans before they can proceed with treatment. This can be particularly problematic for patients with urgent needs.

• Denials of care: Even with prior authorization, there is a risk that health plans will deny coverage for certain services. This can be frustrating for patients and can lead to financial hardship.

• Burden on providers: Prior authorization can be an administrative burden on providers, who may have to spend significant time and resources completing paperwork and following up with health plans.

• Transparency of prior authorization requirements: It can be difficult for providers and patients to understand the prior authorization requirements of different health plans. This can lead to confusion and frustration.

Key findings by the survey

• Commercial premiums could increase by between approximately $600 and $1,500 per member annually if prior authorization is eliminated or restricted.
• Medicaid capitation rates could increase by between $270 and $1,100 per beneficiary annually if prior authorization is eliminated or restricted.
• Eliminating the sentinel effect by restricting prior authorization could increase premiums an additional 5.6% to 16.7%.
• Efforts to eliminate or restrict prior authorization could also have an impact on the state’s ability to meet the Health Care Cost Growth Benchmark established in Chapter 224 of the Acts of 2012 by increasing patient utilization or shifting utilization to medications, services, and treatments with higher costs.

There are both potential benefits and costs to consider. Healthcare policymakers and stakeholders need to carefully weigh these factors before making any changes to current policy.