State Restrictions on Prior Authorization

Am J Manag Care. 2025;31(9):In Press

Takeaway Points

• Many states have adopted or are considering adopting restrictions on prior authorization.
• These restrictions include laws that reduce providers’ burden of prior authorization, make it more costly for plans to deny a request, and prohibit the use of prior authorization for specific services.
• These laws will raise costs and may lead to other unintended consequences.

Ideally, policies to restrain health care spending should reduce wasteful care while preserving access to cost-effective treatments. Insurers argue that prior authorization fits the bill. Instead of adopting one-size-fits-all coverage policies, prior authorization allows insurers to tailor their coverage based on individual patient characteristics. But the process can be arbitrary and time-consuming, leading to delays in care and requiring physicians to spend precious minutes on the phone with insurance company employees who may lack their experience and specialized training. There are no comprehensive, national data on prior authorization, but a recent analysis of the policies of 5 Medicare Advantage (MA) plans found that they require prior authorization for services that account for 17% to 33% of Part B spending.¹

Hospitals employ a small army of nurses and other staff whose sole job is to file prior authorization requests and appeal denials. Faced with a growing backlash to prior authorization, state policy makers have responded by enacting a number of restrictions on the practice. The Table summarizes the most common restrictions. As is generally the case with state insurance regulation, insurance plans offered by self-insured firms are exempt. However, these laws could become a model for federal regulation. Many legislatures are considering additional legislation. These restrictions may reduce administrative overhead and accelerate the resolution of requests, but they are likely to increase spending and could distort insurers’ decisions in unpredictable ways.

One group of reforms aims to reduce the administrative burden of prior authorization. “Gold carding” programs provide a yearlong exemption from prior authorization to physicians with high prior authorization approval rates (eg, > 90%). These programs give providers an incentive to limit requests that are unlikely to succeed. Providers could also game the system by submitting numerous requests they know are likely to be approved, thus pushing their approval rate above the minimum threshold. Insurers could respond by dropping prior authorization requirements for services with high approval rates to ensure that few providers reach the threshold. Some states limit the use of prior authorization for medications for chronic conditions and require insurers to honor enrollees’ approvals from their previous insurers. Although any reforms that exempt providers or make it easier to file requests will increase spending, this group of reforms does not substantially impede the ability of insurers to limit low-value care.

A second group of reforms is designed to make it more difficult or costly for plans to deny requests. Public reporting of denial rates may encourage plans to relax requirements, lest they lose enrollees. Public reporting could also lead insurers to manipulate reported rates by making undesirable adjustments to prior authorization policies. For example, insurers could make the process of filing a request more onerous, which would discourage physicians from filing requests that are likely to be denied. Or they could issue clear-cut coverage policies that are easy to interpret, resulting in fewer requests, but lack nuance and fail to consider how the benefits of a treatment vary with patient characteristics. Plans’ responses will depend on which types of consumers are most responsive to public reporting. If enrollees with costly conditions are most likely to avoid plans with high denial rates, insurers could find it profitable to deny more requests.

A common complaint about prior authorization is that requests are reviewed by clinicians lacking expertise or, increasingly, by artificial intelligence algorithms. Fourteen states require that denials of requests be reviewed by specialists with expertise in the patient’s condition. The District of Columbia additionally requires that prior authorization denials be reviewed by specialists licensed in the district. At the federal level, CMS recently prohibited MA plans from relying solely on computer algorithms when denying requests. Cigna and UnitedHealthcare are facing class-action lawsuits alleging that their artificial intelligence tools violate their contracts with and fiduciary duty to enrollees.² Opponents of prior authorization may reasonably hope that if conducting prior authorization becomes more costly to plans, the plans will do less of it. Involvement of specialists would ensure that requests receive at least a perfunctory review by clinicians able to make nuanced determinations about appropriateness. However, requirements that specialists review denials may exacerbate delays in the resolution of requests and will raise plans’ cost of prior authorization, potentially leading to wasteful care.

A third group of reforms restricts the use of prior authorization for specific services, such as prescription drugs, emergency medical care, or proton beam therapy for cancer. Proponents justify these restrictions on the grounds that prior authorization is unnecessary for treatments that have been approved by the FDA, is unduly burdensome (in the case of emergency care), or prevents patients from receiving lifesaving treatments. However, even treatments that are, on average, highly beneficial may be overused. For example, although inpatient admission is absolutely critical for some patients presenting to the emergency department, hospitals face financial incentives to overadmit patients.³

Predicting the impact of prior authorization reform is difficult. All private insurers use it to some degree, but insurers do not readily release prior authorization data. The best evidence of the effects of prior authorization on utilization comes from comparisons of MA and traditional Medicare. These show that beneficiaries in MA plans are more likely to receive biosimilars,⁴ less likely to use low-value care,⁵ and less likely to receive postacute care,⁶ which has been a major source of Medicare spending growth. A recent report by the US Senate Permanent Subcommittee on Investigations criticized MA insurers for their high postacute care denial rates,⁷ but the US General Accounting Office has recommended that traditional Medicare use prior authorization for home health and other services prone to abuse.⁸

Policy makers should continue to explore opportunities to reduce the administrative burden of prior authorization. The proposed Improving Seniors’ Timely Access to Care Act, which promotes the electronic exchange of information between providers and MA plans, may be especially promising in this regard. However, even modest changes to prior authorization can be costly. The Congressional Budget Office projected that the act would increase federal spending by $16 billion over 10 years.⁹ Adoption of payment models that better align the interests of insurers and providers could also reduce reliance on prior authorization. But policy makers should also recognize that insurers are the only party in the health care system that is financially motivated to reduce low-value care. Restricting prior authorization, one of the few tools insurers have at their disposal to affect enrollees’ treatment, will increase spending. 

Author Affiliations: Department of Health Policy and Management (DHH), Emory University (AD), Atlanta, GA.

Source of Funding: None.

Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (DHH, AD); drafting of the manuscript (DHH, AD); and critical revision of the manuscript for important intellectual content (DHH, AD).

Address Correspondence to: David H. Howard, PhD, Emory University, 1518 Clifton Rd NE, Atlanta, GA 30322. Email: david.howard@emory.edu.

REFERENCES

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7. Refusal of Recovery: How Medicare Advantage Insurers Have Denied Patients Access to Post-Acute Care. US Senate Permanent Subcommittee on Investigations; October 17, 2024. Accessed December 20, 2024. https://www.govinfo.gov/content/pkg/GOVPUB-Y4_G74_9-PURL-gpo234149/pdf/GOVPUB-Y4_G74_9-PURL-gpo234149.pdf

8. CMS Should Take Actions to Continue Prior Authorization Efforts to Reduce Spending. General Accounting Office report GAO-18-341. April 2018. Accessed December 20, 2024. https://www.gao.gov/assets/gao-18-341.pdf

9. CBO’s estimate of the statutory pay-as-you-go effects of H.R. 3173, Improving Seniors’ Timely Access to Care Act of 2021. Congressional Budget Office. September 14, 2022. Accessed October 15, 2024. https://www.cbo.gov/publication/58472