Practice of prior authorization draws increased scrutiny 

The use of prior authorization by health plans to require approval before a healthcare service is performed or prescription is filled has been coming under sharper review at both the federal and state levels.

On the one hand, plan sponsors and insurers point to prior authorization, or preauthorization, as a well-established cost-control tool addressing unnecessary and ineffective care. On the other hand, the practice is drawing increased scrutiny from providers and patients concerned with delays, care access and perceived paperwork burdens.

At the federal level, the Centers for Medicare and Medicaid Services issued a final rule in January that requires electronic processing known as Application Programming Interface for prior authorizations and other activities such as patient and provider access and payer-to-payer communications. The rule applies to Medicare, Medicaid, the Children’s Health Insurance Program and qualified health plans offered on the Federally-facilitated Exchange.

Starting in 2026, required prior-authorization turnaround times are reduced to 72 hours for urgent claims and seven calendar days for non-urgent claims. The preauthorization API rule’s scope is limited to “items and services,” which excludes most prescription drugs. Existing rules for group health plans have time frames of 72 hours for urgent claims and 15 calendar days for non-urgent claims.

Elsewhere, states are looking at restrictions or outright bans on preauthorization for some services and procedures. These laws typically, but not always, do not apply to self-funded ERISA plans. Here are a few of the laws enacted last year:

• Maine. A July law prohibits preauthorization for ground transportation to a hospital or between healthcare facilities and dictates rates for fully insured plans.
• Texas. A June law limits preauthorization to one per year for drugs treating an autoimmune disease, hemophilia or von Willebrand disease. The restriction applies to fully insured plans, as well as self-funded professional employer organizations, multiple employer welfare arrangements and school district plans. This law applies on an extraterritorial basis to state residents covered by fully insured plans issued in another state.  
• Washington, DC. A November law limits situations where fully insured plans may require preauthorization. While it is still allowed for covered services if a determination of medical necessity for different care exists or the care is experimental or investigational, it is not permitted when based solely on cost, and is not permitted for medication-assisted treatment or prehospitalization transportation or emergency services.

This year, bills limiting the use of preauthorization are currently pending in several states, including Colorado, Indiana, Mississippi and New Jersey. Here are some highlights:

• Colorado. HB 1149 would require insurers, utilization review organizations and pharmacy benefit managers to eliminate or substantially modify preauthorization to remove administrative burdens on providers and patients for certain healthcare services, prescription drugs or related benefits based on specified criteria. Approvals would be good for one year.
• Indiana. SB 3 would limit preauthorization to no more than 1% of any given specialty or service and 1% of healthcare providers overall in a year. The bill would also ban preauthorization for usual and customary care, any prescription drug approved by the FDA, medication for opioid use disorder, pre-hospital transportation and emergency care.
• Mississippi. SB 2140 was passed by both houses and would enhance notifications, including the public posting of certain statistics on preauthorization approvals and denials. Use of an electronic process would be required by 2025. Approvals would be valid for the lesser of six months or the length of treatment.
• New Jersey. SB 2257 would prohibit insurers, third-party administrators and PBMs from requiring preauthorization of medical tests, procedures or prescription drugs covered under the plan. AB 2983/SB 559 would prohibit preauthorization by those same entities for covered prenatal ultrasound screenings. These bills potentially apply to self-funded ERISA plans because of the inclusion of TPAs and PBMs.

Plan sponsors can respond to this evolving environment by reviewing prior authorization practices and considering any possible changes that might make the process more efficient or participant friendly. Plan sponsors can also consider how to better educate participants on the prior authorization process.

Learn what is going on at the relevant state houses and how pending bills might affect the coverage offered. Where appropriate, make your voice heard and discuss with your insurer, TPA or PBM the possible cost impact of any proposed legislative restrictions or prohibitions.