Ep 3. The Games Insurers Play: Utilization Management and Prior Authorization

In this week's episode of the VHV podcast we'll take a comprehensive look at utilization management (UM) and prior authorization (PA). Utilization management is the healthcare industry term for the various techniques health insurance companies employ to pay for care on their terms, according to their guidelines. Many times, their utilization management approach is in line with what physicians recommend. However, many times it is not. And when it's not, patients suffer delays in their care and physicians and their staff end up mired in extra work to make sure their patients get the care they have determined is best.

Introduction to Utilization Management

Amar, we're back for episode three, Value Health Voices, full-length episode. In this installment, we're going to take a comprehensive look at utilization management and prior authorization. Utilization management is a healthcare industry term for the various techniques that health insurance companies employ to pay for care on their terms, according to their guidelines.

Sometimes it's in line with what physicians were going to recommend anyway, but many times it's not. And so patients can suffer in delays of care and physician staff can end up in a lot of long extra work to get patients the care they deserve. This is an episode that touches pretty much every aspect of the healthcare industry.

The Financial Cost of Denials

If you think this is a niche issue, it is not. Nothing demonstrates the extent of the issues related to the financial impact of utilization management and prior authorization more than a very interesting analysis that was done in 2023 by Premier Inc. That showed that hospitals spend an average of almost $44 per claim to appeal denials that come from utilization management. This amounts to nearly $20 billion annually. That's right, 20 billion is wasted. Call that term if you like, spent anyway dealing with denials and getting them overturned.

In addition to the elements of utilization management that we most think of, which is prior authorization, we're going to discuss a whole range of additional things, including some of the technical details of how insurance companies do this. We'll talk about the appeals processes, which is something that many physicians, especially specialists, will be pretty familiar with.

We're going to get in a little bit to the emerging regulatory environment that government stakeholders have used or drafted, seeking to rein in insurer utilization management practices. As we get into that part of it, stay tuned for discussion on a glaring blind spot to these regulatory efforts to date.

I'm sure the insurance companies probably don't see it as a blind spot. In addition, when we get to what the regulatory environment is and what we are trying to do to fix the problem, we can get into the CMS Interoperability and Prior Authorization Final Rule, some congressional bills, some state legislation that's pending, and how physicians can handle emergency care situations for when they don't have time to wait on this prior authorization process.

Defining Utilization Management

It's a lot of activity at the government level, federal and state. For one of our other episodes, we created a whole separate fundamentals episode to explain the basics of Medicare. What we're going to do this time around is just start off explaining some basics about how utilization management works. What are some of the techniques that insurance companies use?

When we say utilization management, we're really talking about creating kinds of barriers, or at least checkpoints, to make sure from the insurer perspective that the care that the provider, the hospital, the physician assistant, or the physician seeks to deliver is by their definition efficient, appropriate, and medically necessary.

The Prior Authorization Process

The first aspect of that is prior authorization. What that means is that a physician or other provider must obtain a kind of insurer approval before certain services or medications are administered at all. In that process, the insurer assesses these requests against their clinical guidelines. They may or may not care about national guidelines that are published; they have their own guidelines.

They do an initial review. It could go on to where a physician who's taking care of the patient then talks to a physician from the insurance company, a so-called peer-to-peer discussion. There's a whole host of document submission requirements that the insurer will require in order to give the case even any consideration.

As physicians, Anthony, we go through this weekly, if not daily, on our patients. It's not just limited to obviously oncologists; it's across the board. All physicians are being impacted by this.

Concurrent and Retrospective Reviews

In addition to prior authorization, concurrent review is another way of utilization management. Someone who's admitted into the hospital, while they're admitted, they'll concurrently review their case and see if it agrees with the length of stay they have under their policies. Or are the hospitals exceeding length of stay? In which case that could be grounds for denials.

The corollary to that is the next step. So if there's concurrent review while the clinical care is being provided, why not retrospective review? That exists as well. After care is provided, even in cases where prior authorization has been obtained, there is a possibility that in a so-called back-end review that a back-end denial can occur. We'll get into some of the specifics of that and data to show that is a growing practice among insurers, especially of certain types.

Case Management and Step Therapy

Another method is case management. They'll hire case managers who review the case and determine if the procedures are appropriate. Are the drugs being prescribed appropriate? Or are they choosing high-cost procedures or high-cost drugs that they don't believe are medically necessary? In which case, once again, these claims can be denied.

A very close cousin of that approach is step therapy, where the insurer has a very clear escalation. For a given condition X, the provider has got to try the sort of lowest cost thing and then step up to more advanced therapies which sometimes ultimately arrive at an actual invasive procedure like a surgery. Some of these things, you think about them, they're quite reasonable. But of course, the devil's always in the details and how these things get operationalized.

Operationalizing Prior Authorization

In terms of operationalizing, let's just go straight into prior authorization. That's the one I think a lot of people are the most familiar with when it comes to utilization management. Prior authorization can consist of many different steps. There's an initial submission. If a patient comes to us wanting to get some kind of radiation therapy, we have to submit a prior authorization on the treatment and what way we're going to treat them.

With that initial request submission, not only does it include the amount of treatment and the type of treatment, but it has to have certain demographic information in the appropriate way that the insurer or the benefit manager wants to see it. They want to have the ICD-10 codes and the CPT codes and everything in certain ways the insurer wants to see it.

If any of those are off—let's say the diagnosis code is off, which is your ICD-10 code, or your CPT code is off, which is your procedure code—any of these claims can be denied. If the name is spelled wrong, the date of birth is off, or if there was a duplicate—let's say you submitted something and you resubmitted it—you have to fill out a different form. You can't just resubmit it for different insurers. The whole process is not the same insurer to insurer. Hospitals can't just create a fixed process. They have to adapt for tens of different insurance plans and benefit managers, all at the risk of having denials.

Administrative Burden on Staff

Insurers know this. This is the first step in denials. Do you find that your staff, or maybe when you talk to other people around the country, their staffs really struggle with this part because of just all the variability?

Oh my God. Struggle. Yes. It is putting such a burden on the entire staff. Not just the billers and coders, which obviously are intimately involved, but down to every aspect of the team: the nurses, the therapists in radiation oncology, the front desk, the PAs, everyone who's in the care process. They're all worried. Are they filling everything out correctly? Is anything wrong that may deny the entire claim? It's very stressful and time-consuming right now.

I think about it, you know, everybody has their other interests besides their day job. For me, a big interest is aviation. I think about the great standardization in aviation. A big part of that, since we don't have it in healthcare, is meant to prevent task saturation. It's meant to prevent low-value things from occupying space in your brain that results in big mistakes that can be very costly. I just think about our people and how they struggle with all this variability in their processes and how that increases the chance that they're going to miss something really important at a level of patient safety.

No, 100%. The insurers once again know this. This is why a lot of the legislation that we'll hear about later is all geared toward making this process more streamlined and transparent to prevent these denials that are just based on everyone trying to do the best they can. It's just almost bureaucracy, I would call it.

The Review Process and Benefit Managers

So after the claim is submitted, then it has to be reviewed. Sometimes the insurers themselves review it like you said earlier, against their guidelines. Sometimes they contract out to third-party benefits managers, whether they're pharma benefits managers or radiation oncology benefits managers or radiology benefit management. These benefit managers have their own guidelines.

Some are able to deviate from the guidelines. If they don't meet the guidelines, some allow a peer-to-peer process where then you speak with a "peer," quote-unquote, who's supposed to be a physician in the similar specialty. Not always, but sometimes once you plead your case to them, they can make an adjustment and allow the claim to go through. Other times they are not allowed to. No matter what you say, they're like, "Well I'm sorry, I agree with you, but this is the policy and I can't do anything beyond what's allowed."

Before I spend any time on it, I verify that we can actually result in a possible change of the initial denial from the conversation. Otherwise, I don't do it. I don't have time to be taking inconsequential calls.

Exactly how you're thinking is what they're hoping. The whole point of this process is they're hoping that providers are going to say, "Well it's not worth my time." So then the denial will stand. Because the vast majority of the time when these professional societies have surveyed members, they found out that after a peer-to-peer process, many times these claims are overturned. It's just the hassle of going through the process. Which means that once again, there was no issue with the evidence basis. It's just a way to cause headaches and delays to create denials.

The way you described it, your actual payer—the actual insurance company—basically offloads this aspect of their operations. They offloads this responsibility in many cases to some other entity, third-party benefits managers. They want to be arm's length; I say plausible deniability on the front end of the denial in my experience. This is one of the reasons why I'm cavalier with shutting down some of these peer-to-peers. In my experience, and I think it's the experience of many people, when you get to the level of the appeal with the payer directly, a lot of times you make a clear cogent case, you write a letter that says the right things, and these initial appeals are overturned. In my experience, I've actually never had an initial appeal upheld by the payer.

The Formal Appeals Process

It is a shame. It's a travesty. Maybe you could talk about what happens when the claim is denied. What can people do for actual formal appeal at that point?

If a prior authorization request is denied initially, either the patient or the physician receives a kind of notification as to why. My next step is to send a letter directly to the payer. Forget the third-party benefits manager; they have no role anymore. There's a way to do expedited appeals that require 72 hours turnaround. All the insurers will have a fax number or an email which you can electronically send these letters. In my experience, then you get an answer within two days, usually, even though it's 72 hours. At that level, that's where you see the initial appeal overturned.

Trends in Denials and Payment Delays

Some interesting analyses have been done. There's a group called the Healthcare Financial Management Association and they have looked at two related concepts, two related pieces of data to the whole prior authorization landscape. These data are fairly new, they came out in 2023, and they show that denials are actually increasing. Denials as a percentage of claim value was the way that they sought to quantify it. Back in 2020, at the start of COVID, it was about 10%. Now in 2023, it's gone up to about 12%.

In addition, the other thing they looked at was the payments that the hospitals are receiving. What they call accounts receivable and aged accounts receivable. If you're not receiving your accounts receivable within 90 days, that went up from 27% in 2020 to 36% in 2023. That's huge. If providers and hospitals aren't getting paid in a timely fashion, they're under such tight operating margins to begin with. It's a struggle to support staff and keep things running.

These are data that I think track very well with the experience. I really hope that some of our listeners add some comments about their own experience in this regard because it certainly tracks with mine. It tracks with the tenor of the conversations that we're having with payers. There's a reason why the cliché has now become quite common around the healthcare industry for certain payers of "slow pay, no pay." It is a real technique that has become popular.

According to this Healthcare Financial Management Association analysis, one-third of the time the payer is paying you greater than 90 days from when the service is provided. This is utterly ridiculous. One of the places that this would show up, if you were analyzing the health of a hospital system, you'd look at certain balance sheet metrics and one of those is days cash on hand. So if you're providing care and you're not getting paid for it, it obviously draws down your cash on hand.

Impact on Patient Care and Clinical Outcomes

What is the impact of all this? Obviously, it impacts patient care, but how? A lot of societies, whether it's cardiology societies, oncology societies, radiology societies, or the broader house of medicine with the American Medical Association, have all surveyed their members to find out what this means. One of the things is delays to care. That's across the board, I would say greater than 80 to 90% of delays to care across all these surveys. Some have also led to patients abandoning their treatment. The American Medical Association specifically said that 79% of patients abandoned recommended treatments due to the prior authorization process.

The physician taking care of the patient has recommended a course of action. The insurer has said no, and maybe it's because the physician didn't pursue overturning the denial, or maybe they did pursue it, but in any case, they couldn't get the care that they wanted authorized. So the patient four to five times in this survey ended up getting some other care than what was initially recommended.

We're not going to bore the listener with going through with a fine-tooth comb all the deep dives in this survey data, but to make it really poignant, ASCO, which is the American Society of Clinical Oncology, did a very extensive survey to assess the impact of prior authorization on cancer care. The thing that blew me away was that in their data, 80% of their respondents observed disease progression. That means there's a given cancer situation, maybe a stage one or a stage two cancer, couldn't get what they wanted approved, delays were the result of the prior authorization process, and again, four out of five times saw actual disease progression.

Even worse than that, our radiation oncology society recently in the updated survey even looked at survival and saw impacts on patient survival from these delays to care.

ASCO said their respondents, 36% were the reported instances where prior authorization contributed to patient deaths. Crazy. We're talking exactly not benign delays of care. This is impacting death and disease progression. It's really a shame that it's gotten to this point. That's why this has caught the eye of regulators, CMS, Congress, and many of the 50 states.

Economic Impact on Providers

It's not only impacting the care in terms of negative outcomes, but also doctors are switching their treatments to second-line treatments or treatments that are not standard of care to get things prior authorized. Also, it's so much of a burden. They're hiring additional staff to just deal with all the documentation. The cardiologists did a good job at quantifying that. Their respondents reported an average of 5 hours per week spent on prior authorization related tasks.

Looking at the American Society for Radiation Oncology, they had 63% of their respondents say that they had to hire additional staff to manage PA requests. It's a driver of cost, a driver of distraction. Some fields regularly have to have peer-to-peer conversations with physicians who are not peers at all. Nothing against them as people, but they are in another specialty. How can they have a sophisticated conversation about the use of one cancer therapy versus another? It's not possible.

Sometimes the burden of this also gets passed down to the patients. One of the surveys found that 88% of providers noted that these prior authorization processes resulted in higher out-of-pocket costs to the patients.

Federal Regulatory Efforts: CMS Rules

So, Anthony, I thought maybe we could talk a little about what's being done to fix it, starting maybe with the governmental agencies like CMS.

CMS released a final rule in January of this year, 2024, that they called the CMS Interoperability and Prior Authorization Final Rule. In this final rule, they sought to streamline prior authorization processes and standardize data reporting between insurers and providers. This rule applied to all Medicare Advantage, Medicaid, and CHIP plans.

A key aspect of this rule was it codified the timeline for a decision on the part of the insurer to the provider for prior authorization. That had to be 72 hours for what they call urgent requests and seven days for standard requests. You'll see if you poke around in this regulatory space, these are numbers that recur again and again. 72 hours for the fast response, 7 calendar days for a standard response. This is still relatively new, just released this year, and the full effect of this rule is not yet in place. But there are specific timelines set out in the rule.

Another important aspect is that the government requires a certain level of interoperability from a tech standpoint. The insurer has to communicate very specifically what they have authorized. They have to communicate this to the provider electronically using APIs and using a certain standard for healthcare communication, so that the hospital system receives this answer from the insurer electronically in a very transparent way directly into the electronic medical record.

Congressional Legislation

On the federal congressional level, there's legislation that's trying to do something very similar, but their focus is just limited to the Medicare Advantage processes. The good thing with the congressional ones is there's more likelihood of enforcement for commercial insurance plans than what CMS might be able to do. One of those is the Improving Seniors' Timely Access to Care Act, which was a bipartisan bill mandating electronic prior authorization systems, increased transparency for denials, and an appeals framework.

The other one, which is really interesting, is this GOLD Card Act. Pretty much, if you're a doctor who does not get many denials, then you could get an exemption or a Gold Card status, which means that you're one of the trusted providers, so you don't have to go through the prior authorization. In theory, maybe 90% or 80% of physicians could get this Gold Card status. The prior authorizations really would only be focused on 10 to 20% who are outliers and potentially prescribing things with high utilization.

As it relates to the Improving Seniors' Timely Access to Care Act, that is a bill that I think is particularly active in the current Congress. We're coming to the end here, and obviously, it is going to be the lame duck period coming up, and hopefully, it would be passed in that period. The GOLD Card Act saw a lot of action in 2023, and I've heard nothing about it in 2024. But I do know some individual Medicare Advantage plans are trying to look at creating their own kind of Gold Card. Even if it might not go through Congress, the concept of it would still be there.

State-Level Legislative Efforts

While there has been federal action in 2024, it really was a long time coming. In that period where there was really little at the federal level, the states themselves took a great interest and really wound up their efforts to clean up this landscape. Whether it's Texas, Ohio, New Jersey, Georgia, Michigan, Illinois, the list is long. Generally, the approaches focused at the state level are focused on timelines for decisions or on lengths of time for a prior authorization to remain valid. In some states, they've been very specific with the requirements of the physician's qualifications to engage in a prior authorization discussion.

For me, it's a positive development to see the states take interest in this. But again, the downside is that it remains this chaotic thing where the rules of the road are this here, and another thing there. In that chaos, often that provides latitude for doing whatever you want to do. When that happens, then the weaker party in the situation gets hurt to some degree or another.

The Blind Spot: Back-End Denials

What is an area where the regulatory approaches haven't focused much of their attention? This was the teaser you brought up in the intro: this idea that even if you do everything right, you get it all approved, the claim can still be denied through this back-end denial.

In essence, when the insurer reviews the course of the hospital stay and the documentation for that hospital stay, they may end up denying the length of the stay based on the severity of the illness. The other things you could have with back-end denials are also like for surgery. Something could be coded as an emergent necessary surgery. When they review it after the surgery has already been done, they could say, "No, this was an elective surgery," and deny on that. Even though we gave you the prior authorization, we are going to deny and not pay this claim.

In my surveying the situation and seeking out data on this, I think it's clear that this is a technique that insurers are using more and more today than they were just a few years ago. One of those reasons is they're reading the tea leaves. They see the way the game is going, where all this regulatory attention is being spent on the prior authorization side of it. So they say, "Okay, we'll do you a favor. We'll make the prior authorization process easier on you. We trust you." And then we deny you on the back end.

Data from Premier Inc. from 2023 show that 15% of claims that received prior authorization went on to be delayed at the back end. One of the other interesting things about this is a scary thing to say out loud to listeners: AI. If you think about it, AI could be used by these insurers to look at all this documentation that comes from a hospital and compare it to what is supposed to be the correct levels of complexity and severity, and use it to deny claims. Last year in Biden's ruling on AI, he included some guardrails around this, saying that insurers really should just be using AI to help with processing of claims, but not for a basis of denials. But it's a worry. Who's policing them?

The Role of AI in Claims Processing

It's an area where the ability to regulate AI requires protections. The speed of the technology development will always be many steps ahead of the regulators. It's sort of like fighting with one hand tied behind your back.

Epic is one of the largest EMR systems in the country. They had their users meeting a few months ago and they had a whole session geared for insurers on AI and using AI tools through Epic for denial management. Now it would be amazing if some of those tools were available for the revenue cycle teams at the hospital to leverage that AI to help fight against these denials and to maximize their documentation. But right now, a lot of the tools in the EMRs are geared toward the insurers and not necessarily to the providers.

The insurer and the provider, their money is equally green. Epic is serving as a kind of winner-take-all platform. I realize there's other companies out there doing their best in terms of EHRs, but Epic is the dominant player. If they're thinking strategically, they have to say, "All right, who has a higher willingness to pay? Is it more the provider side, is it more the insurer side? And who does it take less effort on our part to sell to?" To the extent that they're focusing on the insurer side, I think they think that's the way to start.

It is a scary thing. It's very dystopian what can come of it with AI and this. Something I think about often as it relates to the dominant EHR system is that I would truly love it if that company were publicly traded rather than completely privately held. Since they are privately held, their reporting requirements—the commentary that's released about what they're doing and not doing, or where a large sum of non-ordinary typical income comes from—all that stuff is not published as it otherwise would have to be if they were publicly traded. I don't like it, but nothing I can do about it. It is a fact of the landscape.

Handling Emergency Care Situations

I was going to pivot and talk about one other thing that can help when there's a true emergency. What a threat to life and limb is what these insurers call it. If you can justify that a delay is a threat to life and limb—which honestly I just don't understand the concept behind that because all our oncology stuff is in theory a threat to life, if not limb—but if you document something like that, then they're supposed to expedite and you should be allowed to proceed with the procedure or the treatment.

That is a long-standing expectation between provider and payer. The way that the provider can signal that to the insurer is in their documentation, clearly demonstrating the emergent risk. Secondary to that, often when we're seeing patients, evaluating them and then immediately performing procedures on the same date of service, there are modifiers to billing codes. One way to signal that is to put a modifier 25 on your billing code for the evaluation and management aspect to tell the payer, "Hey, expect other stuff on this same day."

Informal Peer Communications

Have you ever had communication with physicians who are our quote-unquote peers in these interactions sort of off the books? I've had this interesting experience again and again, usually with physicians employed by a very specific third-party benefits manager. I've had at least six interactions, sometimes written, sometimes calls even to my personal number saying, "Listen, yeah, this guideline, it ain't right. I wish it weren't that way. But appeal this thing because the payer doesn't want trouble and they're going to approve it." I'm curious if you had the same thing.

Oh yeah. Not all benefits managers are created equal and some have more leeway to deviate from their guidelines. It is a shame that even they know, the people they hire know that this is medically necessary, but they can't grant approval just based on these rigid guidelines that are created to save money.

Self-Insured Plans and Employer Involvement

Another wrinkle to prior authorization and appeals that I think a lot of people who aren't deep into this won't appreciate is that many times when you see a patient, the ultimate payer for their medical care is actually their employer. If you have people who have received coverage through work, there's basically two types: fully insured plans where the risk is fully assumed by the insurer, and self-insured where that company has a certain position in terms of cash availability.

The reason I bring it up is to say that when care is denied in some of these cases, when it's a self-insured plan, the actual payer is that person's employer. In that context, you as their physician can appeal to that person's company, essentially the HR and executive leadership. It's very useful to inform your patient and remind them that actually, since you're the employee inside this company, you actually have a role to play in this appeal as well. You have to be careful there because some people might be intimidated by going to their employer, but that is a very specific scenario that people need to be aware of.

One of the other interesting things I've heard anecdotally as well is that some physicians have said when they're getting these denials with the peer-to-peer process, they take the name of that person and they say I'm going to include it in the medical documentation. They document that after speaking, I believe this is the appropriate way to treat this patient, otherwise there'll be harm, and that this specific physician not doing the peer-to-peer is denying that care and inserting themselves into the doctor-patient relationship. Some people have used that tactic to try to get claims through.

I've actually never used that technique. I'm glad you brought that up. I would really love if somebody listening to the show leaves us a comment about their experience doing that or potentially even other approaches where they sort of try to turn up the heat on the other side of the phone call.

Conclusion and Future Outlook

We probably need to wrap up. Overall, what I'm taking away is that the prior authorization process is a huge hassle for providers, causing huge administrative burden, but also not only causing delays to patient care, but potentially affecting outcomes and even causing death. The bottom line is people are hurt by this. Patients are hurt by this. Staff are feeling more and more burnt out.

As a result of a kind of clear appreciation, all the skin in the game for patients, for hospital systems, we're finally seeing significant regulatory movement which is causing insurer movement.

The point that Amar and I want to give to you all who follow us is that we here at Value Health Voices are going to be watching this issue with great attention, and we're going to provide regular content on developments in the UM space because we know it matters to you. See you again next episode.