Prior authorization found to reduce healthcare spending efficiently

A working paper published this week by the National Bureau of Economic Research found that prior authorization requirements reduced drug spending far more than they increased physicians’ administrative costs

Using a random assignment of plans within Medicare Part D’s low-income subsidy program, the study determined that a prior authorization requirement decreased a drug’s utilization by just over 25 percent, with around half of denied beneficiaries opting for a comparable alternative and the other half receiving no drug at all. This generated $96 in per-beneficiary-per-year savings, which the authors estimate to be around 10 times greater than the administrative costs incurred.  

The Gist: Physician groups have long despised prior authorization processes, listing it as their most burdensome regulatory issue. While studies like this are useful for demonstrating the returns from these processes and putting the tradeoffs in perspective, they fail to account for who is bearing the burden of the time spent, and who captures the cost savings: physicians bear the administrative costs, and payers capture the returns. Not to mention that worried patients, anxious to receive treatment, are often put in the position of “quarterbacking” a convoluted and bureaucratic appeals process. 

Ongoing work should focus on streamlining authorizations, to lessen the impact on physicians’ time and satisfaction, and make navigating the process simpler for patients. An increasing array of technology options aims to solve this problem though automation, but the challenge remains for payers and providers to come together to deliver on that potential.

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