When it comes to controlling health spending, the fundamental difference between our health system and those of other wealthy nations is that they each have a way to control total health spending, and then they leave health professionals and health care institutions relatively free, compared to us, to do their jobs with the resources they have. Those other countries spend a much smaller share of GDP on health care and some of them limit care just by spending less money on health, but generally, their health professionals maintain greater professional autonomy. They make less money but maintain high social status and respect. The United States, by contrast, has no mechanism to control overall health spending in our fragmented health system and then to compensate, we micromanage to control costs, making health care overly complex for patients and, too often, making the experience of providing it a desultory one for health professionals. It's a primary reason why almost half of our doctors say they regret choosing medicine—not a good outcome no matter what you think of our health system or of doctors.
The posterchild of how this happens in the U.S. is prior authorization review, the system by which insurance companies decide whether they will authorize payment for a procedure or a diagnostic test or a drug, or if they'll authorize it in one setting or another. These days, prior authorization is becoming a duel between provider AI tools helping hospitals and large group practices out maneuver insurance company prior authorization, and insurance company AIs trying to weed out necessary from unnecessary care and promote "value" as well as, of course, insurance company profits. Everybody thinks they're the good guy in the prior authorization dance. There's the doctor who 99% of the time is looking out for the patient. There's the insurance company, which thinks it's on guard against unnecessary and unnecessarily costly care and bad apple doctors. And then there's the patient, who may be waiting anxiously for the results of a crucial test or hoping that a procedure will bring relief.
Other than out-of-pocket costs, I would wager that prior authorization review is the one thing consumers find most burdensome in our current health system. I will test that out on one of KFF's upcoming polls.
A proposal to eliminate prior authorization altogether could be the single most tangible and popular "health reform" idea a candidate could propose, Republican or Democrat. The speech would write itself: "I propose to get insurance companies out from between you and your doctor. No more hours on the phone trying to get your MRI approved. Your doctor will no longer need a team of administrators just to fight with your insurance company."
It is, of course, not that simple. As with everything in health policy, there are tradeoffs, and addressing them makes things complicated quickly.
The most comprehensive analysis of eliminating prior authorization was conducted by Milliman in 2023 (Potential impacts on commercial costs and premiums related to the elimination of prior authorization requirements). It was a national study commissioned by the Blue Cross and Blue Shield Association in Massachusetts in the middle of ongoing fights there about meeting state cost targets. Boiling down a complex study, here are a few essentials:
- Milliman's mid-range estimate for eliminating prior authorization says it would raise premiums by up to 4.8% for plans with a broad range of services. (Credit to Milliman for providing ranges where exact estimates cannot reliably be determined.)
- They worried that eliminating prior authorization could also have a "sentinel effect"—meaning services prior authorization deters just by being there would start to be provided.
- Patient cost sharing could also go up simply because people would be using more services.
- And yes, they concluded that there would also be a significant offsetting reduction in administrative costs (and hassles and anxiety, but Millman doesn't go into that much).
These conclusions (and more in the analysis) add up to a daunting set of reasons why in our fragmented system, with no great way to control costs or limit unnecessary care, we seem to be stuck with prior authorization review. As frustrating as prior authorization can be for patients and health professionals, it's hard to imagine anyone swallowing an almost 5% premium increase to abandon it, or risking the bad outcome from an unnecessary procedure an insurance company might sometimes catch. Still, traditional Medicare has operated almost entirely without any form of prior authorization review for decades and survived the experience as health care's most popular and politically sacrosanct program. (Its competitor, Medicare Advantage, features prior authorization.)
Consider a hypothetical test of how much physicians value autonomy versus money and insurers really care about value versus the bottom line. Imagine a "deal" between insurers—or an insurer—and providers in which insurers eliminate prior authorization and in return, reduce payments to physicians by, say, 2% or 3%, to offset some of the expected increase in costs. In effect, physicians would trade income for greater professional autonomy more like what their counterparts have in some other countries, and insurers would get off their high horse about the loftier purposes of prior authorization to reduce administrative costs and bank certain savings, unless physicians make up lost revenue with greater volume. I don't expect this somewhat fantastical experiment to happen.
The tradeoffs and potential costs of eliminating prior authorization have driven most payers in a different direction: don't eliminate it, "do prior authorization smarter." States have mounted a long list of prior authorization reforms to make it less onerous for patients and providers (9 states pass bills to fix prior authorization | American Medical Association). These include "gold carding": essentially exempting physicians from prior authorization with a good track record of ordering needed services. Or, eliminating or restricting prior authorization for ongoing care for patients with a chronic illness. Take a patient with lifelong chronic migraines who has taken the same prophylactic drug for 20 years and treated the migraines with Sumatriptan for the same period of time. That patient and their provider probably can go with a longer interval of time before the next set of likely identical prescriptions are reviewed.
A trend will be circumscribing the role AI plays in reviews by requiring an actual physician to approve any review determination. That's politically popular although, of course, physicians working for insurance companies issued many a denial long before AI was around.
Even traditional Medicare has now entered the "do it smarter" game. Recently CMMI announced WISeR, the Wasteful and Inappropriate Service Reduction Model, to test out prior authorization for selected services in six states. Services targeted include skin and tissue substitutes (controversy surrounding them motivated the demo), electrical nerve stimulator implants, cervical fusion, and more. Reportedly, a "gold carding" demo is also planned. It was perhaps surprising politics that CMS would move to one of health care's least popular practices in politically sensitive traditional Medicare at this time, but it fits with the "do prior authorization smarter" trend. Earlier the administration and a group of insurance companies also announced a voluntary initiative to streamline prior authorization and make it less burdensome. A poll we did at the time showed that few have much faith that insurance companies will follow through on the initiative.
As these initiatives show, prior authorization is down but far from out, and we are almost certainly stuck with prior authorization with some modifications around the edges. It's an example of the "small ball" featured in cost containment in health today. However, the impact of getting rid of prior authorization cannot only be measured by actuaries in premium increases. There are also the benefits to be found in reduced complexity, hassles, anxiety and administrative costs that limiting or eliminating prior authorization would have for patients and health professionals who have to struggle through the prior authorization maze.
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