Prior Authorization in Healthcare - How Big Is It?

This video provides an in-depth exploration of the scope and impact of prior authorization (PA) within American healthcare, drawing insights from a 2021 study published in the Journal of the American Medical Association. Dr. Eric Bricker, the presenter, outlines the study's methodology, which involved hypothetically applying CVS Aetna's 1,151 prior authorization requirements for outpatient medications, tests, and procedures to a sample of traditional Medicare Part B claims from 2017. The primary goal was to quantify the extent to which prior authorizations would affect patients, services, and spending, given that traditional Medicare Part B does not typically have such requirements.

The study revealed significant findings regarding the pervasive nature of prior authorizations. It found that 41% of Medicare Part B beneficiaries would be affected, with those patients facing a median of five prior authorizations per year. Crucially, 25% of all Medicare Part B spending, equating to approximately 14 million services annually, would be subject to prior authorization. The analysis further broke down the types of services most impacted, highlighting outpatient medication infusions and injections as the largest category, accounting for 35% of total prior authorizations and a staggering 57% of the associated spending. Specific high-cost drugs like EPO, Eylea, and Rituxan, many of which are cancer-related, were frequently cited as requiring prior authorization.

Beyond the patient and financial impact, the video delves into the burden on healthcare providers. It notes that 56% of doctors would encounter one or more prior authorizations annually, with a highly stratified impact across specialties. Radiation oncologists (97%) and cardiologists (93%) were among the most affected, largely due to the nature of their treatments (e.g., cancer therapies, cardiac imaging), while psychiatrists and pathologists experienced minimal involvement. Dr. Bricker also critically examines the funding of the study by CVS Aetna, suggesting it might be an attempt by the PBM (Pharmacy Benefit Manager) to highlight cost containment efforts amidst scrutiny over their role in rising healthcare costs, and points out the inherent conflict of interest in the PBM business model where pharmaceutical companies pay PBMs to restrict access to their own drugs.

Key Takeaways: • Significant Scope of Prior Authorization: The study indicates that prior authorizations are a widespread phenomenon, potentially affecting 41% of Medicare Part B patients and subjecting 25% of all Part B spending (14 million services annually) to approval processes. This highlights the immense administrative and financial footprint of PAs in the healthcare system. • Major Impact on Outpatient Medications: Outpatient medication infusions and injections represent the largest category for prior authorizations, accounting for 35% of services and a disproportionate 57% of spending. This is particularly relevant for pharmaceutical companies as these costs fall under medical spend, not pharmacy spend, yet PBMs are still involved in rebate negotiations. • High-Cost Drugs Frequently Targeted: Specific high-cost drugs such as EPO (for anemia in chemotherapy), Eylea (for macular degeneration), and Rituxan (for cancer and autoimmune diseases) are among the top medications requiring prior authorization. This directly impacts patient access to critical therapies and the commercial strategies of pharmaceutical manufacturers. • Disproportionate Burden on Specialists: Prior authorizations disproportionately affect certain medical specialties, with radiation oncology (97% of doctors) and cardiology (93%) experiencing the highest rates of PA encounters. This underscores the administrative strain on specific physician groups and the potential for delays in patient care for complex conditions. • Lack of Payer Transparency: The video emphasizes the lack of public data from health insurance companies regarding the actual percentage of their claims that undergo prior authorization, or the approval/denial rates. The need to hypothetically apply Aetna's rules to Medicare Part B claims highlights a significant transparency gap in the industry. • PBM Conflict of Interest: The presenter raises concerns about the PBM business model, where pharmaceutical companies pay PBMs to restrict access to their own drugs. This creates an inherent conflict of interest, questioning whether PBMs genuinely lower healthcare costs or primarily serve as "RX salesmen" generating revenue through rebates. • Implications for Commercial Operations: The extensive nature of prior authorizations has direct implications for pharmaceutical commercial operations, impacting patient access, sales cycles, and the overall market penetration of drugs, especially high-cost specialty medications. • Administrative Burden on Physicians: The fact that 56% of physicians encounter prior authorizations annually, with some specialties facing near-universal involvement, points to a substantial administrative burden that diverts time and resources from direct patient care. • Interplay of Medical and Pharmacy Spend: The discussion clarifies that outpatient drug infusions and injections fall under medical spend, not pharmacy spend, yet PBMs remain involved in rebate collection. This complex financial structure is crucial for understanding drug pricing and access dynamics. • Industry-Funded Research Scrutiny: The study's partial funding by CVS Aetna, alongside NIH funding, prompts a discussion about the potential influence of industry sponsorship on research findings and public perception, particularly when the sponsor is under public scrutiny.

Key Concepts:

• Prior Authorization (PA): A requirement by health insurance companies that a healthcare provider obtain approval before performing certain services or prescribing certain medications.
• Medicare Part B: Covers outpatient care, including physician services, outpatient hospital care, durable medical equipment, and some home health services.
• CPT and HCPCS Codes: Standardized codes used by healthcare providers to describe medical, surgical, and diagnostic services and procedures.
• PBM (Pharmacy Benefit Manager): A third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, and other government programs. They negotiate drug prices and rebates with manufacturers.

Examples/Case Studies:

• Study Methodology: The core example is the application of CVS Aetna's 1,151 prior authorization codes to 20% of traditional Medicare Part B claims from 2017 to estimate the hypothetical impact.
• Specific Drugs: EPO, Eylea, and Rituxan are cited as top drugs frequently requiring prior authorization, illustrating the focus on expensive, often specialty, medications.
• Physician Specialties: Radiation oncology and cardiology are highlighted as specialties most impacted by prior authorizations, while psychiatry and pathology are least impacted.