Prior authorization do insurers pay bonuses denying new drug requests

Urged on by employers traumatized by costs, health plans are renewing their interest in prior authorization, but using a lighter hand

The truth is that prior authorization never died. Instead, it has evolved. “As a cost saving technique, it didn’t fail. It actually saved money,” says Glen Stettin, MD, vice president for clinical products at Medco Health Solutions, the 8-million member pharmacy benefit management company. “But it became so unpopular with members that health plans backed away. Then costs went sky-high again, and today many of our employer customers are asking for it. Health plans remain more hesitant.”

Plans are cautious about how they use prior authorization because they were burned by the technique not so long ago: In the mid- and late- 1990s, health plans were vilified because they controlled costs by controlling access. Consumers were bitter about the restrictions, and that led to a backlash. So, in the tight labor market of the late 1990s, employers moved away from plans that had limited choice of providers and broad restrictions. They expanded their networks and eased authorization provisions, eliminating most prior-approval requirements for referrals, tests, and procedures.

Health plan executives began saying they were giving up restraints on access to become information-based conduits for consumers, guiding appropriate care instead of denying it, and allowing unfettered access to specialists. That was all well and good, but by the beginning of this decade, costs soared once again. Employers, bearing the heftiest part of the cost because of growing premiums, demanded relief and plans responded with new market techniques.

The biggest players with the deepest pockets, like WellPoint and UnitedHealth, bought companies that sell consumer-directed health plans. Other plans, such as Aetna, developed their own consumer-directed products. Plans also made huge investments in information technology, allowing them to mine data they could use to evaluate utilization patterns at the population level. This information, when melded with old techniques such as prior authorization, also could be used to affect member utilization.

“HMOs changed the way they talked about themselves and they’ve developed new product lines and invested in technology, but they continue to use the techniques that have worked for them in the past. They’ve just gotten better at it,” says Peter R. Kongstvedt, MD, a vice president of Capgemini.

For example, notwithstanding high deductibles, many consumer-directed plans use utilization management techniques aggressively, according to experts like Allen Wisher, CEO of Flexible Benefit Service, which administers the savings accounts associated with CDHPs. He says most plans maintain traditional managed care cost control techniques.

Recent surveys reinforce the idea that these new products are using old techniques. “We are finding that to be true. In the last couple of years, prior authorization continues to be used by most health plans for most of their products in order to control drug and imaging costs. But we’re also finding that insurers are increasingly selective on how they use these measures,” says Glen Mays, PhD, associate professor and director of research in the department of health policy and management at the University of Arkansas for Medical Science. He is also a leader of the Community Tracking Study conducted every two years, since 1996, by the Center for Studying Health System Change (HSC).

Recent data

Mays is referring to as-yet-unpublished 2004-2005 data from the most recent HSC survey of health plan practices, gathered through interviews with 1,000 health professionals in 12 locations (Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y.). According to Mays, these recent data match the results of their 2002-2003 interviews, published in an article titled “Managed Care Rebound? Recent Changes in Health Plans’ Cost Containment Strategies” in the August 11 “Web exclusive” edition of Health Affairs. That article created a media uproar, with Associated Press headlines reading “Health Plans Resurrect Cost Controls” and “Prior Approval Re-Emerges to Control Costs.”

Some popularity regained

“Our research found that health plans were revisiting some of the cost measures that were vilified in the backlash against managed care because there was some optimism that the tools could be effective,” says Mays. “The news stories may have slightly exaggerated, but there’s no doubt that prior authorization regained some popularity among health plans, just in a more sophisticated form. There’s no doubt, too, that many plans remain cautious about how they use utilization constraints. And we’re finding that in the most recent data, too.”

The 2002-2003 HSC data did mark a change, however, from earlier interviews. During the 2000-2001 site visits, plans had reported no major changes in utilization as a result of the relaxation of management controls such as prior authorization. But by 2002-2003, plans were reporting that reduced utilization management had resulted in higher costs. QualChoice in Little Rock, for example, reported that after eliminating prior-authorization requirements for computed axial tomography and magnetic resonance imaging scans, utilization rates doubled. Aetna of New Jersey reported similar results.

The result was that HSC found that by 2003, 5 of 56 surveyed health plans had increased their use of prior-authorization requirements for outpatient services. There was no change in requirements for hospital pre-authorizations, however, “because unnecessary hospitalizations have become rare and plans don’t want to burden patients with unnecessary paperwork,” says Mays.

Some plans base their preauthorization requirements on the frequency of service. Regence BlueShield in Seattle, for example, requires prior authorization after a third magnetic resonance imaging scan or the tenth visit to a chiropractor. In addition, 15 plans increased their use of retrospective review of treatments and profiling hospitals and doctors.

But Mays also discovered that although plans such as Aetna did reinstate several prior-authorization requirements, plans in the 12 communities expressed little interest in returning to blanket pre-authorization. Instead, they focused on services that are exceptionally costly or at high risk for inappropriate use, such as outpatient surgery, plastic surgery, diagnostic imaging, chiropractic care, and physical therapy.

They also continued to avoid gatekeeping, allowing members increased access to a wide range of services and providers. In Phoenix, Blue Cross Blue Shield of Arizona eliminated gatekeeping requirements by moving all of its HMO members to open-access products.

In fact, according to America’s Health Insurance Plans, nearly 60 percent of all managed care plans offer open-access products.

There was a significant exception to a general rollback of strict prior authorization: plans serving Medicaid enrollees. HSC found that those plans have retained prior authorization, primary care gatekeeping, and other restrictions associated with traditional HMO products.

HSC found that private plans also manage drug utilization aggressively.

Expensive drugs

That continues to be the trend in the 2004-2005 data, says Mays. The primary cost -control technique for private plans in 2002-2003 was increased sharing of costs with patients. But plans are increasingly instituting prior-authorization requirements for expensive drugs, especially those perceived as lifestyle drugs, such as Viagra, or those prone to abuse, such as OxyContin.

In private plans today there is a continuum of prior-authorization techniques, ranging from the blunt, old-fashioned kind like that used by most health plans for bariatric surgery to sophisticated step-therapy and dosing provisions that fine-tune drug utilization at the consumer level.

In between, there’s the type of prior authorization that plans tie into diagnostic imaging, using specific guidelines to limit the frequency of procedures. Doctors know that they have to jump through hoops to get an MRI or PET scan, so they don’t try.

“Bariatric surgery is very expensive and so the expense of extensive administrative controls is justified,” says Alan Wright, MD, vice president for business strategy at Resolution Health, a benefit consulting company. “And it is perceived as dangerous, so a review of medical necessity is well justified.”

Administrative headache

But most medical procedures can’t be excluded out-of-hand, and prior authorization — at least the “just say no” kind — can be a huge administrative headache. “It’s effective when it is precise,” says Wright, “but much less effective when it is used without carefully designed guidelines.”

It is also effective when it is made as easy for consumers as possible, something that technology makes more and more possible says, Medco’s Stettin. “The biggest innovation we see with prior authorization at Medco is the desire to make the process easier,” he says. “It should not be necessary to hassle people when there is enough information available to preclude even using it.”

Stettin says that many reviews are unnecessary if drugs are prescribed for the diagnosis for which they have been approved. Medco’s coverage reviews, including cost savings, step therapy, and quantity, dosing, and duration provisions, have increased almost tenfold since 1998, growing from 115,000 to 1.1 million.

That makes his clients happy. They saved about $780 million in 2003 through some form of coverage review, doubling in the last six years. That’s a savings of up to 4 percent for a plan sponsor’s overall drug spending.

Prior authorization for services and drugs that meet standards of medical necessity probably won’t be going anywhere very soon, say Mays and others. As noted, consumer-directed plans are using the technique even though they pass a considerable amount of cost to consumers.

Whether people paying so much out of pocket will tolerate prior authorization, in whatever manifestation, remains an open question. But today, at least, prior authorization remains a significant tool of managed care.

Imaging costs

Diagnostic imaging continues to be one of the costliest components of health care. According to National Imaging Associates, a company that provides imaging services to health plans, the number of imaging procedures, including traditional X-rays, is rising 20 percent a year. Costs for advanced imaging techniques, such as MRIs and PET scans, are increasing by as much as 35 percent a year, according to the company, and account for most of the spending increase.

“Those costs could pass pharmacy costs as a percentage of overall health care costs,” says John J. Donohue, chief executive of National Imaging. In 2003, $90 billion was spent on diagnostic imaging, compared to $180 billion for prescription drugs. Imaging inflation, he says, is driven by rapid growth in technology, consumer demand, and increased use of imaging to minimize the possibility of malpractice lawsuits.

Increasing scrutiny

Health plans throughout the country are increasingly scrutinizing the use of MRIs and PET scans, which some plan officials believe are used by some physicians primarily to limit liability. “Controlling imaging costs is a very common use of prior authorization,” says Wright of Resolution Health. “Plans set up specific guidelines, ask doctors ‘What are you using this for?’ and then usually approve the procedure.”

On December 1, Blue Cross and Blue Shield of Massachusetts began to require that most doctors receive authorization before scheduling advanced imaging procedures. Doctors in practices that have a record of ordering an above-average number of imaging procedures such as MRIs and PET scans will face the stiffest reviews, say plan officials. Physicians whose practices already have a procedure for reviewing imaging requests may be exempt from the plan.

According to Peter Goldbach, MD, Blue Cross medical director, the health plan will not deny payment for any imaging procedure that meets its medical policies. Nor will the review process apply to hospitalized patients or those seeking emergency room care.

Most PCPs affected

In making this move, Blue Cross joins Harvard Pilgrim Health Care, which instituted a review program in 2004, and Tufts Health Plan, which implanted prior authorization for MRIs and PET scans last October. But Blue Cross, with more than 2.8 million members, is larger than all of the other health insurers in Massachusetts put together and the move will affect just about every primary care physician in the state.

Sentinel effect

A primary value of the process is what Wright and others call the sentinel effect, which deters utilization by requiring the administrative effort necessary to authorize the procedure. “Studies have shown the sentinel effect to be persuasive,” says Wright. “The idea is deterrence.”

Eric J. Sax, MD, president of the Massachusetts Radiological Society and a radiologist at Newton-Wellesley Hospital, says physicians know that is the point of the process. “It’s hassle factor that payers are counting on,” says Sax, “making it so hard to get a study that the referring doctors will stop asking” for it.

Tufts is taking something of a punitive approach — the company announced that if a physician orders a procedure without authorization, the doctor or patient will be responsible for the cost if the request is eventually denied. Goldbach says that Blue Cross hopes to be more flexible. “Our plan is to advise, not refuse” the large majority of imaging studies, he says. “We know this creates more administrative work for physicians, but we want to make it as simple for our physicians as possible.”

Under the Blue Cross program, to be run by American Imaging Management of Chicago, the degree of administrative control in scheduling imaging procedures will depend on a primary care physician’s practice pattern. A physician who works in a medical group with a number of imaging requests below a regional average will have to register online or by telephone to perform some imaging procedures.

For more advanced and expensive imaging procedures, physicians will be required to fill out a form describing the patient’s condition. In addition, they might also have to speak to a reviewer at American Imaging. Primary care physicians who work in medical groups where imaging requests are above average will have to provide patient information for every advanced imaging procedure they request.

“The cost is unsustainable unless we set some guidelines,” says Goldbach.