How to Deal with Prior Authorization in Medical Billing

By Karen Smiley from Medical Billing and Coding For Dummies

As a medical billing professional, dealing with prior authorization is a necessary part of the job. Prior authorization (also known as preauthorization) is the process of getting an agreement from the payer to cover specific services before the service is performed. Normally, a payer that authorizes a service prior to an encounter assigns an authorization number that you need to include on the claim when you submit it for payment.

Get the correct CPT code beforehand

The key to a solid preauthorization is to provide the correct CPT code. The challenge is that you have to determine the correct procedural code before the service has been provided (and documented) — an often difficult task.

To determine the correct code, check with the physician to find out what she anticipates doing. Make sure you get all possible scenarios; otherwise, you run the risk that a procedure that was performed won’t be covered.

For example, if the doctor has scheduled a biopsy ( may not need prior authorization) but then actually excises a lesion (probably needs prior authorization), the claim for the excision will be denied. What’s a coder to do?

It’s better to authorize treatment not rendered than to be denied payment for no authorization. No penalty is incurred when a procedure has been authorized but is not completed, so err on the side of preauthorization.

In rare cases, the patient coverage is unavailable prior to an encounter. This scenario most often occurs in emergency situations, due to an accident or sudden illness that develops during the night or on weekends. When this happens, the servicing provider must contact the payer as soon as possible and secure the necessary authorizations.

Although you are the coder in charge of assigning the appropriate codes, the burden of obtaining necessary authorizations is largely on the provider, because it’s the provider who’ll be denied payment as expected. Getting preauthorization can save countless hours on the back end trying to chase claim payments. Preauthorization also results in faster claims processing and prompt payments.

When you don’t get the necessary preauthorization

Who gets stuck with footing the bill when preauthorizations don’t pan out? It depends. The determination as to who is responsible is often defined by the patient’s insurance plan.

If the plan benefits outline specific services that are not covered and the patient seeks those services, the responsibility for payment falls to the patient. If a provider fails to authorize treatment prior to providing services to a patient and payment is denied by the insurance company, then the provider may be obligated to absorb the cost of treatment, and no payment is due from the patient.

Many payers don’t issue retro authorizations, even when the failure to get preauthorization was a mistake. Some may overturn a denial on appeal, but they’re under no obligation to make payment if the proper process was not followed.

Some payers may assign full financial responsibility for a procedure that didn’t get the necessary preauthorization to the patient.

In this case, the provider has to make a decision about whether to pursue collecting the payment from the patient. Some swallow the loss. Others send the unpaid bill to the patient, but doing so is bad business. Patients are both unaware of the process and not in any sort of position to guess what CPT code should be submitted to the insurance company.

Occasionally you run into a situation in which the patient’s coverage was verified prior to services, and the patient’s employer terminates benefits retroactively. This usually happens when there is a termination of employment that is challenged in court or when an employer learns that a covered employee was in violation of his or her contract during employment. In these very unfortunate situations, the patient is responsible for the medical fees.