Understanding Preauthorization in Medical Billing and Payment

Preauthorization is a crucial step in medical billing and payment, and understanding how it works can help you navigate the process with ease.

Preauthorization is required by insurance companies to ensure that a treatment or procedure is medically necessary and approved before it's performed.

This process can take anywhere from a few days to several weeks, depending on the complexity of the case and the insurance company's requirements.

Insurance companies use preauthorization to control costs and prevent unnecessary treatments.

Preauthorization is usually requested by the healthcare provider's office or billing department, and it's typically done through a phone call, fax, or online portal.

Pre-authorization is a permission from an insurance company that's required before a patient can receive certain treatment, care, or service. Virtually every payer requires pre-authorization for physical, occupational, and speech therapy.

In most cases, if pre-authorization isn't secured, services won't be covered by insurance, leaving the provider or patient to foot the entire bill. This can be a costly and time-consuming process, with physicians spending around 20 hours per week and $83,000 annually interacting with insurers.

Pre-authorization is also used in electronic payment processing, where it refers to a temporary hold on a customer's credit card. The issuing bank checks to ensure there are sufficient funds available to cover the requested amount, without actually debiting the cardholder's account.

A pre-authorization typically lasts around 5 days, or until the post-authorization comes through. The duration of the hold varies and is ultimately determined by your Merchant Classification Code or MCC.

In the context of insurance, pre-authorization requires the submission of a correct CPT code, a request form, and other supporting documentation to the insurance company. Within five to ten business days, the request will either be approved or denied.

Pre-authorization is a crucial step in ensuring patients receive the care they need and therapists get timely and proper reimbursement from insurance. 78 percent of physicians reported that delayed pre-authorization can lead patients to abandon treatment, costing therapists in private practice as much as $2.5 million in revenue each year.

To avoid these costly delays, therapists and front office staff should familiarize themselves with insurers' pre-authorization policies, especially those of top payers. This will allow therapists to secure pre-authorization on time, ensuring patients receive the care they need and insurance reimburses therapists accordingly.

Pre-authorization guidelines frequently change, and very few health plans have similar guidelines. A study from McKesson analyzed 23 different health plans—1,300 policies in total—and found only 8 percent of those policies shared common components.

Therapists can familiarize themselves with pre-authorization policies by looking on an insurer's website or calling a payer directly. Most insurers provide regional-specific guides with a policy that details a list of services that plan offers, which services require pre-authorization, and what CPT codes, if any, must be submitted.

Electronic pre-authorization software can simplify the process of pre-authorization. Integrated into electronic health records (EHRs), these systems eliminate the time-consuming tasks of filling paper forms, sending faxes, and making phone calls by allowing all necessary codes and documentation to be submitted to insurance companies electronically in real time.

Practices that implement electronic pre-authorization software experience as much as an 80 percent reduction in workload. These systems have also been shown to speed up the process of pre-authorization by over 60 percent.

Here are the steps to follow when using electronic pre-authorization software:

By following these steps and understanding the pre-authorization process, therapists can ensure patients receive the care they need and get timely and proper reimbursement from insurance.

Pre-authorizations are a valuable tool for businesses, especially those with a higher-than-average return or chargeback rates.

Incorporating pre-authorizations can reduce the risk of loss or damage, providing security and cover for merchants.

Pre-authorizations carry no payment processing fees until a final charge is processed, unlike full charges and subsequent refunds.

This can be especially useful for businesses with high return rates, as it eliminates the need to refund customers and pay associated fees.

Pre-authorizations also make funds more accessible to customers, providing them with instant access to their previously earmarked money.

This can give customers peace of mind, knowing that they won't be charged unless certain conditions are met.

By implementing pre-authorizations, businesses can reduce transaction costs and avoid unnecessary fees.

Pre-authorizations can also reduce the risk of fraud and consequential chargebacks, saving businesses in fines and headaches.

In fact, a pre-auth can't be reversed by the customer via a chargeback, unlike cash deposits.

Pre-authorization software can greatly simplify the process, reducing administrative tasks and speeding up the time between approval and therapy. According to MetroHealth Systems, practices that implement electronic pre-authorization software experience as much as an 80 percent reduction in workload.

Electronic pre-authorization software can save the medical industry as much as $454 million each year, as reported by the Council for Affordable Quality Healthcare (CAQH). This technology has been shown to speed up the process of pre-authorization by over 60 percent.

Patient Studios integrated and automated practice management system tracks information on individual patients and different insurance providers, limiting errors made in regard to pre-authorization. This system also helps to increase patient satisfaction.

Here are some key benefits of electronic pre-authorization software:

Becoming an expert in your top payers' pre-authorization policies can save your practice a significant amount of revenue each year. According to a study from the American Medical Association (AMA), 78 percent of physicians reported that delayed pre-authorization can lead patients to abandon treatment, costing therapists in private practice as much as $2.5 million in revenue annually.

Familiarizing yourself with insurers' pre-authorization policies can help you secure approval on time, ensuring patients receive the care they need and insurance reimburses you accordingly. You can find this information on an insurer's website, in payer contracts, or by calling the member services number provided on the back of the insurance card.

Most insurers provide regional-specific guides that detail the services they offer, which services require pre-authorization, and what CPT codes must be submitted. For example, United HealthCare's website links to a tool that allows you to determine whether or not a course of treatment requires pre-authorization.

To simplify the process, consider investing in electronic pre-authorization software (ePA). Integrated into electronic health records (EHRs), these systems can eliminate the time-consuming tasks of filling paper forms, sending faxes, and making phone calls. According to MetroHealth Systems, practices that implement ePA experience an 80 percent reduction in workload.

Here are some benefits of using electronic pre-authorization software:

To support pre-authorizations, make sure you have a payment gateway that allows you to run pre-auths and specify the type of transaction you want to send in your Gateway/shopping cart. You can capture the authorization within 24 hours to get the best possible interchange clearing.

Effective communication between insurers, office staff, and therapists is crucial in the pre-authorization process. This involves submitting the proper CPT codes and required forms, as well as tracking the number of sessions and authorizations. Modern practice management systems like PatientStudio can help streamline this process and reduce errors.

Pre-authorizations can be set to expire after five days if no further action is taken by the merchant.

The expiration period can depend on your Merchant Classification Code (MCC), so it's essential to check your MCC to determine the specific expiration period for your business.

Pre-authorizations that expire after five days can be run again, and this won't feel like an additional charge to your customers since funds were never actually charged.

Typically, pre-auths will be set to expire after five days, but some cases may require longer periods, which should be reflected by the appropriate MCC assigned to your merchant account.

If you regularly need to process pre-auths for periods beyond five days, you should arrange with your credit card processor to reassess your MCC to ensure you're using the correct one for your business.

Pre-authorization can be a lengthy and frustrating process for healthcare providers. A 2019 AMA study found that 64 percent of healthcare providers say they have to wait a full business day to receive pre-authorization from insurers, and 29 percent say they have to wait three business days or more.

The good news is that electronic pre-authorization software can help streamline this process. Integrated into electronic health records (EHRs), these systems eliminate the time-consuming tasks of filling paper forms, sending faxes, and making phone calls by allowing all necessary codes and documentation to be submitted to insurance companies electronically in real time.

Practices that implement electronic pre-authorization software experience as much as an 80 percent reduction in workload, according to MetroHealth Systems. This can also speed up the process of pre-authorization by over 60 percent, saving the medical industry as much as $454 million each year, as reported by the Council for Affordable Quality Healthcare (CAQH).

To prevent denials, it's essential to submit preauthorization requests beforehand, mention the preauthorization number on the claims form, and double-check the request form for errors. Here are some tips to keep in mind:

The main risk with a pre-auth is allowing the reserved funds to be released automatically, before the transaction is complete.

This can happen when the pre-auth expires, which typically occurs within a standard five-day period, after which time if no further action is taken the pre-auth will expire and the customer will regain full access to their funds.

There could be a very narrow window within which to commit your second pre-auth if the customer is savvy enough to recognise when the pre-auth will expire and is ready to exploit it.

Merchants need to keep on top of the period of time since the initial pre-auth was made to avoid this issue.

Preventing denials is crucial to ensure timely reimbursement for your services. According to a study, delayed pre-authorization can lead to patients abandoning treatment, resulting in significant revenue loss for therapists in private practice.

To avoid denials, it's essential to submit pre-authorization requests beforehand. In fact, getting a prior authorization is the only way to secure reimbursement. This is a critical step, as it ensures that you have permission from the insurance provider to perform the medical procedures.

Don't forget to mention the pre-authorization number on the claims form. This is often overlooked, but it's crucial to avoid denials. Missing the pre-authorization number can indicate that you performed the procedure(s) without authorization.

Double-checking the request form for errors is also vital. Errors can lead to rejected pre-authorization requests and delayed reimbursement. It's not uncommon for mistakes to slip through, but taking the time to review the form carefully can make all the difference.

To ensure smooth reimbursement, submit all the required documents with your pre-authorization request. This may include supporting medical services or procedures documentation.

Here are some key tips to prevent denials: