Instead of prior authorization, insurers should go back to the old ‘pay-and-chase’ model

The news Jennifer G. and her husband got from her medical team was devastating.

If you had come to us a month sooner, they said, we would have used chemotherapy to treat your cancer. But because of the delay, we have to amputate your leg, your hip, and your pelvis.

The delay they referred to wasn’t due to any negligence on the part of the 46-year-old mother or the doctor treating her. Instead, the 38-day delay was caused by her insurance company, which had denied her orthopedist’s request for an MRI of Jennifer’s hip, deeming it “not medically necessary.”

Jennifer (not her real name) had initially sought care for pain in her leg and hip some three months before, and had completed a doctor-prescribed course of six weeks of physical therapy. But the pain continued. Her insurance company — and its utilization review contractor, the company it relied onto assess medical necessity — deemed the MRI “not medically necessary” until Jennifer had completed six weeks of physical therapy and over-the-counter painkillers.

In the process of trying to secure authorization for the MRI, the orthopedist pointed out that not only had Jennifer already completed the required course of physical therapy, but that the insurance company had even paid for it.

The insurance company’s response to Jennifer’s doctor was “You need to appeal the denial.”

Although the doctor immediately filed an appeal, trivial demands and bureaucratic delays ate up 38 days before the insurer reversed its denial. And in those 38 days, according to both Jennifer’s treating doctors and a consulting expert witness, a fast-growing cancer had spread, making those massive amputations necessary. (I know these details because my law firm represents Jennifer’s estate in a lawsuit against the insurer and its utilization review company.)

Two years after that 38-day delay in her diagnosis and treatment, Jennifer, maimed and in pain, died.

Just months before Jennifer’s ordeal, the same utilization review company denied a New Hampshire woman an MRI. While she thankfully did not die, her delay resulted in her having to use a wheelchair for the rest of her life.

Rather than being the exception, denials and delays by insurance companies are often the norm. The American Medical Association has been surveying doctors about prior authorization reviews for several years. Their impact is not good: 83% of doctors report that prior authorization requirements harm the continuity of care and 86% report that the problem has gotten worse over the last five years.

The rationale for insurers requiring prior authorization and engaging in utilization reviews seems legitimate — at least at first glance — because there is waste and fraud in the health care system. With some $3.8 trillion dollars, almost 18% of the nation’s gross domestic product, being spent on health care each year, the temptation for wrong-doers is substantial. Insurance industry and law enforcement estimates of health care fraud range between 3% and 10% of that $3.5 trillion — at the high end, that’s about $350 billion annually.

The administrative cost of rooting out this waste and fraud is even higher than the fraud itself. The Center for American Progress estimates that billing and insurance-related costs to be $496 billion annually, and the National Academy of Medicine estimated that these costs are twice as high as they need to be. Doctors estimate that they and staff members spend two full business days a week dealing with prior authorization bureaucracy.

For insurers, the administrative hoops they demand doctors jump through make perfect sense — at least economically. Doctors report that 20% of patients always or often abandon the treatment their doctors have recommended while awaiting authorization; and another 55% sometimes do. When patients don’t get the prescribed test or treatment, that saves the insurer money.

Sometimes there is no real harm: conditions resolve themselves, pain abates, and patients recover. But all too often there are serious complications: 24% of doctors report that delays in prior authorization have led to serious adverse events for patients in their care; and fully 16% report that such delays have led to a patient’s hospitalization.

Tellingly, insurance companies have provided scant evidence that their utilization reviews and demands for prior authorization have actually helped root out fraud or waste. The industry’s trade group, brilliantly named the National Health Care Anti-Fraud Association, does a capable job of recounting the hypothetical estimates of fraud and citing appalling stories of crooked providers illegally reaping millions from scams.

Insurers’ rationale for prior authorization is simple: It bolsters the bottom line. Tellingly, it is a reversal of their longtime practice of “pay-and-chase.” Once upon a time, insurers would pay medical claims up front and then use their investigators to attempt to recover payments believed made in error or as the result of fraud. By shifting the burden to doctors and patients, payments to providers are reduced and delayed.

Yet the old pay-and-chase is precisely the procedure that should be followed — with a well-proven twist. Insurers should not have carte blanche to require prior authorization for routine procedures or medications, but they should be able to reap substantial awards when they do uncover fraud. The nearly 160-year-old False Claims Act (also known as Lincoln’s Law) assesses treble damages against fraudsters and gives incentives to whistleblowers to share in such recoveries. Significantly, this arrangement results in the federal government recovering more than $2.6 billion annually just from health care scams. Congress should extend the formula to all health care fraud, not just federally-funded procedures.

The current system of prior authorization harms too many patients, erodes the doctor-patient relationship, and uncovers too little fraud, while bolstering an insurer’s bottom line. It is time to flip the model in favor of patients such as Jennifer G.

Steve Cohen is an attorney at Pollock Cohen LLP in New York, which represents the estate of Jennifer G. in a lawsuit against her insurer and its utilization review company.