Health Insurance Denials and Prior Authorizations--Impact on Patients, Doctors and Wall Street.

This video provides an in-depth exploration of the true financial implications of health insurance prior authorizations and denials, challenging the perceived impact of announced reductions by major insurers like UnitedHealthcare. The speaker, Dr. Bricker, leverages the Pareto Principle (the 80/20 rule) to demonstrate how a seemingly significant decrease in the number of prior authorizations may have a minimal effect on the total dollar amount of claims requiring authorization, thereby maintaining tight control over medical loss ratios for insurance companies. The presentation progresses from an initial debunking of insurer claims to a detailed analysis of high-cost medical areas, the strategic motivations of health insurers, and the ultimate financial burden placed on patients and healthcare providers.

Dr. Bricker meticulously explains the Pareto Principle, illustrating that approximately 80% of the total claim spend requiring prior authorization is concentrated within only 20% of the actual prior authorization requests. This stratification is further detailed, showing that the top 4% of prior authorizations account for 50% of the money, while the bottom 20% accounts for merely 1%. This principle is then applied to UnitedHealthcare's pledge to reduce prior authorizations from 13 million to 10 million annually (a 23% reduction). The video argues that this reduction, if applied to the low-dollar, high-volume prior authorizations, would result in barely more than a 1% decrease in overall payments to providers, rendering the reduction largely financially insignificant from the insurer's perspective.

The discussion then shifts to identifying the specific high-dollar medical procedures that drive the majority of prior authorization costs. These include orthopedic and neurosurgeries (e.g., joint replacements, spine surgeries, scoliosis), organ transplants (predominantly kidney transplants), and oncology treatments (surgery, chemotherapy, radiation for common cancers like breast, colon, prostate, lung), as well as certain cardiac procedures (pacemakers, ICDs, stress tests, echocardiograms). These procedures often cost hundreds of thousands of dollars, making their prior authorization crucial for insurers. The video concludes by revealing that insurance companies intentionally maintain prior authorizations and denials as a "thermostat" to tightly control their Medical Loss Ratio (MLR), ensuring it stays within the Affordable Care Act's mandated 80-85% range. This control is so precise that even during periods of significant healthcare utilization shifts, such as the COVID-19 pandemic, major insurers like UnitedHealthcare maintained remarkably consistent MLRs, demonstrating their ability to adjust claim payments through these mechanisms.

Key Takeaways:

• The Pareto Principle in Healthcare Finance: The 80/20 rule is critical for understanding healthcare costs; 80% of the financial impact of prior authorizations comes from only 20% of the total number of authorizations. Similarly, 80% of a health plan's costs are driven by 20% of its members.
• Deceptive Prior Authorization Reductions: A reduction in the number of prior authorizations (e.g., UnitedHealthcare's 23% decrease) does not equate to a proportional reduction in the dollar amount of claims impacted. Such reductions often target low-cost, high-volume procedures, leading to a minimal financial impact (potentially just over 1% of total payments).
• High-Dollar Prior Authorization Categories: The vast majority of claim spend requiring prior authorization is concentrated in expensive clinical areas such as orthopedic and neurosurgeries (joint replacements, spine surgeries), organ transplants (especially kidney), oncology treatments (cancer surgeries, chemo, radiation), and complex cardiac procedures (pacemakers, ICDs).
• Strategic Use of Denials and Prior Authorizations: Health insurance companies intentionally keep denials and prior authorizations in contracts to serve as a "thermostat" for tightly controlling their Medical Loss Ratio (MLR), which is the percentage of premium revenue spent on claims. This control is crucial for meeting regulatory requirements (ACA) and satisfying Wall Street analysts.
• Consistent Medical Loss Ratios: Despite natural variability in medical care and claims submissions (e.g., higher claims in Q4 due to met deductibles, or shifts during a pandemic), major insurers demonstrate remarkably consistent MLRs quarter-over-quarter. This consistency is achieved by actively adjusting claim payments through denials and prior authorizations.
• Impact on Provider Revenue: Prior authorizations and denials impose a significant financial burden on doctors and hospitals, costing them 16-25% of their revenue to manage these processes and fight for payment. This constricts their cash flow and operational efficiency.
• Patient Financial Responsibility: Patients are ultimately financially responsible for care if their insurance company denies payment. The term "medical policy" used by insurers is often deceptive, masking what is effectively a document outlining non-coverage, leading to delayed or denied access to care.
• Quality of Engagement Over Quantity: When engaging a patient population to control costs, it's crucial to focus on the "quality" (who is being engaged) rather than just the "quantity." Engaging the bottom 60% of plan members, who only drive 8% of total spend, will have almost zero impact on overall plan costs.
• Implications for Pharma and Med Device: Pharmaceutical and medical device companies need to understand the PA landscape for their products. The prevalence and financial impact of PAs directly affect market access, patient adherence, and commercial strategies for high-cost drugs and devices, especially in areas like oncology, specialty drugs, and complex surgical implants.
• Data-Driven Market Access: Leveraging data engineering and business intelligence to analyze PA trends, denial rates, and their correlation with specific products or clinical areas can provide critical insights for pharma companies to optimize market access strategies and patient support programs.

Key Concepts:

• Pareto Principle (80/20 Rule): An observation that roughly 80% of effects come from 20% of causes. In healthcare, this means a small percentage of prior authorizations or plan members account for a large percentage of costs.
• Prior Authorization (PA): A requirement by some health insurance plans for a healthcare provider to obtain approval from the plan before performing a service or prescribing a medication.
• Denials: When an insurance company refuses to pay for a medical service or prescription.
• Medical Loss Ratio (MLR): The percentage of premium revenue that health insurers spend on medical care and quality improvement activities. The Affordable Care Act (ACA) mandates that insurers spend 80-85% of premiums on claims.
• Elective Surgeries: Non-emergency surgical procedures that can be scheduled in advance, often subject to prior authorization.

Examples/Case Studies:

• UnitedHealthcare's PA Reduction: The video analyzes UnitedHealthcare's promise to decrease prior authorizations from 13 million to 10 million per year, demonstrating how this 23% reduction in count would likely result in a minimal (barely >1%) financial impact due to the Pareto Principle.
• High-Cost Procedures: Specific examples include hip/knee replacements, spine surgeries, scoliosis surgeries, kidney transplants, and treatments for breast, colon, prostate, and lung cancers, as well as cardiac devices like pacemakers and ICDs.
• COVID-19 Impact on MLR: The video highlights how UnitedHealthcare maintained remarkably consistent MLRs during Q3 and Q4 of 2021 and Q1 of 2022, despite the pandemic causing a decrease in elective surgeries and subsequent rebound, illustrating the insurer's tight control through PAs and denials.

Tools/Resources Mentioned:

• Becker's ASC: A source cited for news on UnitedHealthcare's prior authorization cuts.
• QIMacros.com: A resource mentioned for understanding the Pareto Principle and Pareto charts.
• Dr. Bricker’s Book: "16 Lessons in the Business of Healing," available at ahealthcarez.com.