Importance of Preauthorization in Revenue Cycle Management (RCM)
 Revenue Cycle Management

Importance of Preauthorization in Revenue Cycle Management (RCM)

Susan Collins
Susan Collins
November 9, 2022
Last updated on:

November 9, 2022


Read time: 7 mins

Pre-authorization(PA) is the procedure of obtaining prior approval from the payer(insurance company) before the healthcare provider offers services to the patient; Also called prior approval or pre-certification, it is a confirmation by your health insurer that a health care service, treatment plan, prescription drug or durable medical equipment is medically necessary. PA is not a guarantee that the cost will be covered though. It does not affect cash transactions for medications and procedures. It comes into play only when medical billing is done through insurance.

Let us discuss in detail how critical the PA process is, keeping in mind different scenarios:

The Importance of Preauthorization in RCM

The PA process is a very important phase of the RCM Management services as payers need to confirm whether a particular medication or procedure will be approved.

If the insurance firms do not approve certain procedures and medical equipment, healthcare providers should wait or contact the insurance providers for approval and then perform the necessary procedure.

An unapproved authorization interrupts the patient treatment process due to unsanctioned procedures, missing patient information, or incomplete medical documentation.

At the same time, disapproval can also be in the best interests of a patient owing to the cost, dangerous side-effects, the efficacy of a drug, or whether there is a real requirement.

For instance:

  • A lung specialist may recommend a chest CT scan for a patient, but the same scan may have already been ordered by a heart specialist just a few weeks earlier. The insurer will not approve the procedure unless it is clear that the previous scan has already been reviewed and there is a need for an additional scan.
  • If a patient has undergone physiotherapy for say, a month, and there is a recommendation for another three months of similar therapy, the insurance provider will first evaluate if the treatment has helped at all. If the patient response is positive, the extension will be approved; if not, the insurance company will not give an extension.
  • In cases of emergency, certain procedures do not require PA and are excluded, and in cases where treatment is done, retroactive authorization is requested by healthcare providers.

Pre-Verification and Prior Authorization

Pre Verification and Prior Authorization
Image 1 - Pre-Verification and Prior Authorization

Steps Involved in Obtaining Pre-Authorization

Once the patient reaches the healthcare facility, his insurance cover is accessed, and his benefits verified. If there is some information missing, the patient is contacted for more details. At this juncture, the patient is also told about the cost he may have to bear. If there are any changes, the details are updated in the healthcare PA software. The PA team at the insurance company verifies the patient schedule and contacts the backend team at the insurance provider to obtain the preauthorization code.

They report the codes to the physician's office and confirm the insurance cover for the service, and the patient receives the services that he is entitled to. Remember, that once a referral has been accepted, the following steps should be completed in sequence:

  • Contact insurance and send across all clinical documentation to get initial authorization to start care
  • Next, complete the initial start of care report and plan of care documentation; send the clinical information along with the prior authorization request form to the insurance company to obtain authorization for all subsequent visits
  • Maintain a very strict follow-up schedule and set a calendar to track progress; for example, some facilities follow up with a phone call and fax after five business days of requesting an authorization; after a week, not only will the insurance company get a reminder call, even the patient will be alerted that the service may not be rendered unless the insurance company responds –this will also prompt the patient to do his own follow-ups with the insurer; after 10 days, letters will be dispatched to the insurer, the doctor and the patient warning all three of disruption in services; after 13 days, the service will be stopped. If not the same routine, healthcare facilities can devise their own ways to follow-up a PA request.
  • Make a habit of listing the status of all PA requests weekly: open, pending, or denied; this reporting and oversight process will provide inputs on how to streamline the PA function in the healthcare facility.

Some Advantages of Pre-Authorization are:

✔ Reduction of denials and enhanced collections

✔ Reduction in write-offs

✔ Helping the patient know their financial obligation

✔ Healthcare providers can focus on patients

✔ Accountability and cost containment

Ensure Seamless Preauthorization:

Healthcare providers invariably face problems in the preauthorization procedure; the following are some best practices to avoid major disruptions in the PA process

  1. Right handling of CPT codes is vital. The person who handles billing entry has to select the correct, current procedural terminology (CPT) code.
  2. Constant communication between the provider and payer is crucial. The provider should ensure, constant communication with the insurance provider.
  3. Provide detailed documentation to obtain preauthorization and follow-up regularly.
  4. Inform insurers about emergency patient admissions.
  5. Integrate pre-registration data with the PA method; as patient information is collected prior to appointment scheduling, it will streamline the PA process

What If Preauthorization Is Not Obtained?

In situations where preauthorization is not granted, the payer policies determine who bears the cost. Some health plans fix the responsibility on the patient, while others make the provider accountable. A few payers deny reimbursement if a patient undergoes a procedure without prior authorization.

Insurance providers use exclusion lists to determine which medications and procedures are covered under the Plan and which are not.

As a result, patients are denied procedures; at times, this prompts them to switch to new treatment plans, in spite of what the doctor originally recommended. Many individuals think that as long as they have health insurance, their prescribed medication or treatment will be reimbursed. They are not aware of the new additions to exclusion lists until their payer informs them that the procedure is no longer included.

Procedures Requiring Prior Authorization
Image 2 - Procedures Requiring Prior Authorization

Remember, each payer has his own exclusion and inclusion list.

Some payers may have procedures like selective/emergent/urgent medical procedures, surgical inpatient admissions, skilled nursing facility services, inpatient rehabilitation procedures, subacute admission procedures, and transplants under inclusions. So they need pre-authorization. Usually, expensive radiology services like ultrasounds, CAT scans, and MRIs, require pre-authorization.

However, procedures like the Screening Test (ST)/ Outpatient Treatment (OT)/Physical Therapy (PT) and initial evaluation do not require prior authorization. There is no PA required for ST for the first 12 visits or hours within a calendar year. Some medications are also not covered; hence, healthcare providers are advised not to prescribe or bill such drugs.

What are Retroactive Authorizations?

Retroactive authorizations are given when the patient is in a state (unconscious) where necessary medical information cannot be obtained for preauthorization. In such cases, many insurance providers require authorization for services within 14 days of services provided to the patient. These approval requests are called as retroactive authorizations- the provider submits the claims, and then the payer responds as per a standard set of guidelines, to reimburse the claims.

Retroactive authorizations also come to the rescue when the healthcare provider does not have sufficient time to obtain prior authorization or when there is a denial based on medical necessity.


Even though prior authorization can lead to treatment delays and deprive patients of medical care, it is critical for healthcare providers to pursue PA. Similarly, though patients may be burdened with a lot of documentation and long waiting periods, it is better to seek PA in the interest of cost containment and to access the most suitable treatment.

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