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Hospitals on the Hook for New Medicare Prior Authorization Process

Analysis  |  By Debbie Mackaman  
   April 23, 2020

The potential for increasing employee costs and write-offs is a reality for hospitals that perform a significant volume of outpatient services requiring prior authorization.

This article appears in the March/April 2020 edition of HealthLeaders magazine.

For many years, prior authorization or pre-certification has been a standard process for many services covered and paid by commercial insurers. To assist with payment of services, hospitals have added staff, or even entire departments, just to complete the prior authorization process in a timely manner.

In the commercial insurance world, prior authorization has a direct correlation to the term "medical necessity," which is often used in the context of Medicare services. In theory, both terms describe the justification for services or supplies that are needed to diagnose or treat an illness, injury, condition, disease, or symptom and that meet the accepted standards of medicine.

This year, prior authorization for certain Medicare services will refer to the process by which a request for a provisional affirmation of coverage is submitted to CMS or its contractors for review before the service is provided to the beneficiary and before the claim is submitted for processing.

Similar to the inpatient-only rule, CMS has determined that the hospital will ultimately remain responsible for ensuring this condition of payment is met. Claims for physicians' services outside of the hospital outpatient department setting will not be affected if the hospital fails to submit a prior authorization request for the service.

Hospital executives should begin establishing relationships with ordering and/or performing physicians now to identify best practices for submitting prior authorizations on behalf of their outpatient departments.

Provisional affirmations of coverage processes

Provisional affirmations of coverage will be implemented by either CMS or the Medicare Administrative Contractors. These will fall into one of two processes:

1. A provisional affirmation is a preliminary decision that the service will meet Medicare coverage, coding, and payment rules. The expected turnaround time for the decision will be 10 business days.

2. An expedited review is used for situations when a delay in service may jeopardize the beneficiary's life, health, or ability to regain maximum function. The expected turnaround time for the decision will be two business days.

A prior authorization request must include all documentation necessary to show that the service meets applicable Medicare coverage, coding, and payment rules; be submitted before the service is provided to the beneficiary; and be made before the claim is submitted.

CMS will be able to exempt a provider from the prior authorization process upon that provider's demonstration of compliance with Medicare coverage, coding, and payment rules. The exemption would apply to providers that achieve a prior authorization provisional affirmation threshold of at least 90% during a semiannual assessment. Likewise, if the rate of denied claims submitted becomes higher than 10% during the semiannual assessment, CMS may consider withdrawing the exemption. Hospitals should monitor their compliance rates internally to achieve and maintain the exemption, which could decrease the overall cost of performing the services that require prior authorization.

Hospitals will have to educate Medicare patients and the ordering and performing physicians well in advance of implementing this new practice. In a nutshell, the potential for increased employee costs and write-offs is a reality for hospitals that perform a significant volume of these services.

Prior authorization for the final list of services (CPT/HCPCS codes) can be found in Table 65 of 84 Federal Register 61464 and will be implemented by CMS beginning with dates of service on and after July 1, 2020. CMS has also created a website for hospitals to monitor updates to the prior authorization process at

Debbie Mackaman, RHIA, CCDS, is a regulatory specialist for HCPro's Medicare Membership and Watchdog services, specializing in regulatory guidance on coverage, billing, and reimbursement. HCPro is a Simplify Compliance brand.

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