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What Is Prior Authorization?

Also called "certification" or "formulary exception," it's an approval a physician must get in order to prescribe certain drugs.

September 18, 2017 - By Josh Mendelowitz - read

Prior authorization is the required approval a physician must receive from an insurance provider before prescribing certain medications. Other terms for prior authorization are “certification” and “formulary exception.”

How Does Prior Authorization Work?

The prior authorization process is complex. The steps generally go through the following order:

  1. Your physician prescribes you a medication.
  2. You take that prescription to your local pharmacy.
  3. If your prescription needs prior authorization or a formulary exception, your pharmacist will let you know.
  4. If/when your prescription does need certification, then they’ll get in touch with your physician/medical provider.
  5. Your physician then fills out required forms and sends those forms to your insurer or a pharmacy benefit manager (PBM).
  6. From there, it’s a matter of approval or denial based on the information provided on those forms. Sometimes your insurer or PBM will require additional information before making a final decision.

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What’s a Pharmacy Benefit Manager?

A pharmacy benefit manager serves as a middleman between pharmacies and health insurance companies. Primarily, their job is to manage eligibility for certain prescription drugs, negotiate rates between insurers and pharmacies, and minimize costs for insurers.

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Do All Medications Require Prior Authorization?

No. The types of medications that tend to require prior authorization usually are:

  • Brand name drugs (as opposed to generic ones);
  • Often more expensive than other available options on the market;
  • Not medically necessary; or
  • At higher doses than what’s usually prescribed.

How Long Does the Overall Process Usually Take?

On the consumer side, prior authorization should take one to two days to be completed; however, the process may take longer depending on the circumstances. For physicians, nurses, and medical staff this process takes hours to fill out.

If your prior authorization is rejected, you have the option to appeal the decision. In that case, the overall process would be extended.

What Happens If a Prescription Isn’t Immediately Approved?

In some cases, insurers or PBMs won’t immediately approve a prescription, and they’ll instead implement two methods to go about prescribing you a certain drug.

Step Therapy

In cases where the prescribed drug that needs prior authorization is the most expensive option, PBMs and insurers may implement a step therapy method of prior authorization. When this happens, you start off using the cheapest possible drug alternative that can be used before moving on to the more expensive option. Essentially, the goal is test whether cheaper alternatives can provide you the treatment you need before trying more costly options. If the most frugal option proves ineffective, you move up to the next cheapest drug in that category. In step therapy, you continue along in the process –  like steps up on a ladder – until you reach the most expensive drug in that category.

Quantity Limits

Another tactic used by PBMs is the use of quantity limits. Quantity limits are used to restrict the amount of a particular medication taken, often to Federal Drug Administration (FDA) standards. For example, your primary care physician (PCP) wants to prescribe you 30 tablets of a specific medication. According to your drug formulary, though, you’re limited to 15 tablets. If that’s the case, then your PCP has to get in contact with your insurance company or PBM to get approval.

What Are the Advantages of Prior Authorization?

The main advantage of prior authorization is that it can be an effective cost-saving measure for insurance providers. Since most physicians are not as concerned with costs, prior authorization allows insurance providers to ensure that the most cost-efficient medication is used for each given situation. This can save you money down the line.

Prior authorization can also serve as a protection for patients against the ills of overprescribing. By limiting physicians’ ability to prescribe certain medications over a suggested limit, insurance providers can help deter doctors from prescribing drugs at dangerous levels. This is best seen in the context of the American opioid epidemic where insurance providers are limiting the amount of painkillers that doctors can prescribe to help stay the rising numbers of opioid-addicted patients.

What Are the Disadvantages of Prior Authorization?

The central disadvantage of prior authorization is the time and effort it requires from doctors and nurses who might otherwise be treating patients. The complex process can be difficult to navigate for medical professionals who are hoping to get their patients as soon as possible. That lost time equates to large sums of money. According to a 2009 study, the entire process takes around 20 hours per week per medical practice. Over the course of a year, that total is the equivalent of $13 billion to $21 billion.

Another principle disadvantage is that it can place cost-saving measures ahead of patient care. This is a major complaint from major medical groups such a the American Medical Association (AMA). AMA contends that prior authorization “can create significant barriers for patients by delaying the start or continuation of necessary treatment and negatively affecting patient health outcomes.” For instance, by having a patient test different drugs through step therapy, more immediate treatment could be provided by instead immediately authorizing a certain drug.

What Is Being Done to Improve This Process?

Digitization

Insurance providers and PBMs are making coordinated efforts to shift from physical prior authorization forms to a strictly online process known as electronic prior authorization (ePA). This change should simplify and streamline what is currently a rather complex process. The digitization of these forms can also potentially save hundreds of hours and thousands of dollars for medical practices.

Overall Reform of Prior Authorization System

Meanwhile physicians groups such as the AMA have proposed reforms and changes to the entire prior authorization system. AMA has listed 21 principles it would like to see adopted when it comes to prior authorization including more transparency, fewer exemptions and an increase in timeliness. The group has also drafted model legislation it would like to see enacted by Congress.

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What Do You Need to Know?

Prior authorization can affect you as a consumer if you ever need expensive medication and can’t afford to pay out-of-pocket. Therefore, make sure you know your insurance providers’ drug formulary and that you keep in constant contact between your physician and insurer, acting as a liaison between the two. This will ensure a smooth and quick process that enables you to purchase the right medication at the right cost.

Taking the Next Steps

You can evaluate your health coverage and see if it’s the best option for your needs.

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