Does Traditional Medicare Require Prior Authorization?

People ask, what is the difference between Traditional Medicare (only Part A & Part B) and Medicare Advantage (or Part C)?  Traditional Medicare does not require prior authorization.

Prior Authorization Contains Cost

Medicare Advantage is managed healthcare, similar to your health insurance policies under an employer health plan. A tool that managed healthcare uses is prior authorization to contain costs.

Utilization management first appeared in the 1960s after Medicare Part A was created. Once Medicare Part A was instituted, the number and length of hospital stays skyrocketed. To contain costs, President Johnson and Congress approved the practice of utilization reviews for hospital stays.

It Started with Utilization Reviews

Utilization reviews confirm the need for hospital treatment. Two doctors needed to concur on the diagnosis and the need for hospital treatment. The standard of treatment was called “reasonable and customary.” What would most doctors consider “reason and customary” for this diagnosis? Again, the purpose was to limit unnecessary hospital stays and cut costs.

The utilization review process, which gained traction in the health insurance industry, was primarily driven by the need to address issues of medical necessity, misuse, and overutilization of services. As a result, health plans began scrutinizing claims for medical necessity and the duration of hospital stays. In some cases, health plans even mandated that the physician certify the admission and subsequent days after the admission to curb costs.

Traditional Medicare Does Not Require Prior Authorization

Ironically, Traditional Medicare now requires almost no prior authorizations, limited to a few cases involving durable medical equipment. In contrast, Medicare Advantage, as a managed health care system, necessitates prior authorization for a majority of its procedures and tests, with the exception of routine doctor visits and common practices.

Under Traditional Medicare–with no prior authorization processes–the only mechanism to limit fraud, waste, and abuse of tax-payor-funded resources is the 800-number to which people may voluntarily report fraud, waste, and abuse.

Medicare Advantage Organizations are Scrutinized

Medicare Advantage Organizations (MAO) constantly monitor submissions to make sure the requests for treatment are “medically necessary” as defined by the CMS (Center for Medicare & Medicaid Services) regulations for standards of care.

To make sure the MAOs perform their mission correctly,

“CMS (Center for Medicare & Medicare Services) oversees an entity’s continued compliance with the requirements for an MA organization. If an entity no longer meets those requirements, CMS terminates the contract in accordance with procedures described in Subpart K at 42 CFR Part 422 .”

None of us would write a blank check for someone. We want guarantees that our money is spent correctly. Medicare Advantage Organizations (MAO) are no different.  They also oversee that requests for reimbursement for treatments and procedures are within the standards of care that CMS authorizes.

An issue that has come up recently is: Are MAOs being too restrictive in their approvals of prior authorizations? After all, on the reverse side, the motivation for profits could motivate MAOs to restrict payments to keep revenue received from CMS for themselves.

Does Prior Authorization Hurt

Unfortunately, CMS does not currently require the MAOs to keep data on some aspects of prior authorization rejections. The two most recent studies are inadequate for giving a real idea.

Kaiser Family Foundation studied 35 million prior authorizations and found that less than 5 percent (or 2 million) were denied. It also noted that 82 percent of denials were overturned when appealed.

The Health & Human Services Office of Inspector General did a tiny study of less than 250 denials during one week in 2019. Among those denials, the OIG determined that 18 percent (or 33 cases) should not have been denied. The reasons for denials were not completely clear, though human error and lack of supporting documentation were the dominant reasons.

An objective and thorough study would be beneficial to dispel misunderstandings and false fears.

Prior Authorization Helps More Than Hurts

In my experience, prior authorizations that are denied do not require a formal appeal. The denial quite often is based on wrong codes, insufficient documentation, human error, and a lack of persistence on the part of the doctor’s back office.

The real question is not why Medicare Advantage has prior authorization. Instead, it is why Traditional Medicare does not protect patients and taxpayers from fraud, waste, and abuse with its own prior authorization protocols.