Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
- What Is Prior Authorization for Insurance?
- What Is Prior Authorization? How Does It Work?
- What Does It Mean When Insurance Requires Prior Authorization?
- What Is the Purpose of Prior Authorization for Insurance?
- The Prior Authorization Process
- What Common Types of Medications Require Prior Authorization?
- What Services Typically Require Prior Authorization?
What Is Prior Authorization for Insurance?
Prior authorization is an important component in pharmacy benefits and healthcare, used to ensure that the best products, procedures, and medications remain affordable for members of provider plans—while simultaneously freeing providers to recommend the best course of treatment a patient is covered for.
What Is Prior Authorization? How Does It Work?
Prior authorization, sometimes called precertification or preapproval, is a healthcare process in which a physician or other provider must receive approval from the patient’s insurance before prescribing medication or carrying out a medical procedure.
Healthcare insurers and PBMs use prior authorization to control prices for procedures and medications while ensuring patients receive the most appropriate care.
What Does It Mean When Insurance Requires Prior Authorization?
When an insurance provider requires prior authorization, the insurer will not cover the costs associated with the medical treatment recommended by the physician without approving it in advance.
What Is the Purpose of Prior Authorization for Insurance?
Prior authorization ensures that patients receive the most appropriate care while helping insurance companies manage costs and avoid paying for unnecessary or overly costly services.
By requiring prior authorization, insurers can confirm that a prescribed service or medication is necessary, safe, and appropriate for the patient’s condition. This process also helps prevent overuse or misuse of certain medical services and medications.
The Prior Authorization Process
The timeframe for prior authorization can be a few days or even a few weeks, depending on the factors involved. The authorization process involves the following sequence of events:
- A physician or other healthcare provider prescribes a medication or treatment requiring prior authorization. The physician or staff initiates the process by sending a request to the patient’s insurance provider.
- The insurance company reviews the request, which includes reviewing the patient’s medical record and history of treatment. PBMs are often involved in negotiating terms for which medications are included in a formulary and what medications require prior authorization.
- The insurer assesses whether the medication or procedure is considered medically necessary. They factor in the associated costs and weigh the risks against medical benefits for the patient.
- The insurer approves or denies the request. They may request more information from the provider.
- If the authorization request is denied, the provider and insurance representatives can communicate. The prescriber may choose to appeal the decision.
- If the procedure or medication is not approved, the patient has the option to pay out of pocket or work with their provider to select a covered drug or treatment
What Common Types of Medications Require Prior Authorization?
Three main types of medications typically require prior authorization:
- Drugs with serious known risks
- Drugs known to be highly addictive
- Specialty drugs for conditions that require specialized care
Additionally, the following are other medications that may require prior authorization:
- Brand name drugs with a generic equivalent
- Drugs prescribed for purely cosmetic reasons
- Drugs with dangerous interactions
- Drugs considered medically necessary only under specific criteria
What Services Typically Require Prior Authorization?
Some medical services may require prior authorization as well, including:
- Diagnostic imaging
- Rehabilitative therapy
- Home health services
- General outpatient services
- Treatments with more cost-effective alternatives
- Medical equipment like wheelchairs, at-home oxygen, etc.
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