Five Ways Commercial Insurer Policies Drive Up Costs and Hurt Patients
This blog post is adapted from a forthcoming white paper.
Private commercial insurance is critically important to the millions of Americans who receive coverage through their jobs or the Marketplaces, as well as for the tens of millions of Medicare and Medicaid beneficiaries who rely on private insurers to administer their health benefits. Unfortunately, the way some commercial insurance companies operate creates significant overhead for hospitals and dangerous care delays for patients. For example, inappropriate use of prior authorization and step therapy add substantial and unnecessary administrative costs to the health care system – both in terms of staff time and the technology and software needed to comply with these policies. They also can delay patients’ access to care, which may make caring for these patients more resource intensive if their condition deteriorates. Addressing these costs could, by some estimates, save the U.S. health care system more than $266 billion per year.1
The AHA is committed to further identifying ways to improve health care system efficiency while providing the highest quality of care.
Here are some of the areas that should be addressed:
#1: Prior Authorization
Under prior authorization, providers have to receive approval from their patients’ insurer before delivering a treatment or service. Prior authorization was intended to make sure patients get the right care in a safe and appropriate way, as well as ensure the care would be covered by the patients’ health plan. Unfortunately, many insurers are overusing prior authorization and preventing timely delivery of important care. They also have increased the workload to complete the prior authorization process, bogging down provider staff and resources.
Currently, providers often must go through a manual process with hard-to-use websites to determine whether a procedure requires prior authorization. They also must wade through numerous documents to ensure they are following the right rules, which change from one request to the next. Additionally, they must collect and submit substantial amounts of documentation, which often must be faxed to the health insurer. At this point, providers often face a waiting game with days or even weeks passing before they receive a response. It is not unusual for the response to be a request for more evidence or information to support the request, largely starting the process again.
The health care system could save substantial resources if health insurers reserved prior authorization for only those services that are new, high risk or exceptionally high cost, and removed these requirements from care that is nearly universally approved. Savings also could be achieved through streamlining the process, including mandatory use of standardized electronic transactions.
#2: Step Therapy
Under step therapy, or “fail first” policies, commercial insurers require that the patient first try the insurer’s recommended prescription drug treatment, which may not be what the patients’ doctor recommends based on their clinical expertise. Only when the provider can document that the patient did not achieve the desired outcome from the insurer’s preferred treatment will the physician-recommended therapy be covered. Step therapy gets in the way of the doctor-patient relationship and can result in irreversible patient harm, which also may increase the cost of subsequent patient care. It also adds to staff burden, and therefore cost, to the system. A recent study found that more than half of step therapy protocols were more stringent and required more steps than recommended clinical guidelines.2
#3: Medical Necessity
Commercial insurers often will cite “medical necessity” when they decline to approve or pay for treatment. Too often this determination is based on flawed or overly stringent policies that frequently are not shared with doctors and hospitals. A recent report from the U.S. Department of Health and Human Services Office of Inspector General (OIG) found that 13% of commercial Medicare Advantage care denials should have been covered under Medicare. Additionally, about 18% of legitimate Medicare Advantage claims were denied despite meeting Medicare coverage rules.3 Such denials occur because commercial insurers frequently take established clinical guidelines, such as MCG Care Guidelines or InterQual, and make “proprietary” modifications to them for purposes of adjudicating prior authorization requests and claims. These denials interfere with patient care and add costs to the system, especially due to arduous appeals processes that patients and their providers must undertake to ensure care can proceed.
Medical necessity should be based on clinician-recognized best practices, not imposed by commercial insurance companies for financial gains.
#4: Leveraging Market Power to Sell Products
Some commercial health insurers, their subsidiaries or other companies with whom they share a parent company sell related products and services to providers. These products and services often are sold as being helpful for getting claims paid on time. However, the complex rules around claims approval and payment are often the result of insurer policies. Hence, there may be a financial incentive for some commercial health insurers to steer business to parent companies and their subsidiaries. This dynamic can lead to added costs for providers or denial of patient claims if providers do not buy the related products.
Hospitals and other providers should not have to spend extensive resources licensing or purchasing software and other tools to get paid for medically necessary care they have provided to their patients.
#5: Electronic Payments
Many insurers use virtual credit cards or fee-based electronic fund transfer (EFT) payments to pay providers. These electronic payment methods require providers to pay money in order to receive their contractual reimbursements from commercial insurers. The insurers often receive incentives from credit card companies or payment vendors for issuing these payments. Providers should not have to pay to get paid.
Reform Is Needed
As outlined, commercial health insurers have implemented a number of policies that compromise patient care while adding billions of dollars in unnecessary administrative costs to the health care system. Eliminating, streamlining, or standardizing a number of commercial health insurer administrative practices would reduce these unnecessary and low-value costs and improve patient care and outcomes.
Terrence Cunningham is AHA’s director of administrative simplification policy. Andrea Preisler is AHA’s senior associate director for administrative simplification policy.
- William H. Shrank. Waste in the US Health Care System, Journal of the American Medical Association. Available at: https://jamanetwork.com/journals/jama/article-abstract/2752664
- Kelly L. Lenahan, et al. Variation in Use and Content of Prescription Drug Step Therapy Protocols, Within and Across Health Plans, Health Affairs Journal. Available at: https://www.healthaffairs.org/doi/10.1377/hlthaff.2021.008222
- Government Accountability Office. Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns about Beneficiary Access to Medically Necessary Care. Available at: https://oig.hhs.gov/oei/reports/OEI-09-18-00260.pdf