Prior Authorization of Healthcare Fraud

A TRM Talk Exclusive between TRM’s Michael J. Davis & Ricky D. Sluder, CFE

Part 1: What is Prior Authorization? 

By Michael J. Davis, Co-Founder of TRM Advisory Consulting

Prior Authorization is a utilization management technique that health insurance companies follow. It exists as a patient safety and cost savings measure to make coverage determinations on prescribed services, procedures, or medication.

This all sounds logical, right? 

The application of this well intended process we call Prior Authorization has created a lot of controversy across the medical community.  

For example, insurers believe that Prior Authorization provides health savings to patients by removing unneeded procedures and the need to use expensive brand name drugs when generic drugs are available.  

Which, in theory, makes sense to the average layperson.  After all, who among us wants an unneeded procedure performed on them? 

It also has the added benefit to help manage newly prescribed medications to try to avoid dangerous drug interactions with whatever cadre of prescriptions that you may be taking. 

So, what’s the problem with any of this, you might be asking?  

The better question is, where do I start in defining the problem?

Here is an idea…let’s start with some fact-provoking statements formed as a question to you, our reader.

Did you know that there are over 800 individual medical services, or prescriptions, for which an insurance company, or government-funded program like Medicaid, can require Prior Authorization? 

Any idea what the number is when you calculate all the possible combinations of services, with prescriptions, and the numerous variations in reasoning at the plan level for the Prior Authorization decision?  

As a lawyer by training, I am gonna stick to a lawyer answer.  Numerous!

Do you know the number of names Prior Authorization has in its application within the medical community? 

According to the research I performed, I found at least (6) six additional prevailing names for Prior Authorization.  They are as follows:

1.     Preauthorization

2.     Prior Approval

3.     Prior Notification

4.     Precertification

5.     Prior Review

6.     Prospective Review.  

One thing I have learned from my time in public policy is that when something has a lot of names it’s more than likely going to be broken, and each new name is an attempt to create a fresh x.0 version of the process. 

So, based on that logic, we are likely on Prior Authorization version 7.0. 

Back to where I was going earlier…I will use one example from the list above to get us there.  Let’s use Prospective Review.  Prospective Review tends to look at a patient’s age, medical necessity, drug interactions, and the availability of the generic alternative.  Essentially, the insurers are checking to see if the medical plan that a physician has put together is sound, and if there are alternative, and of course cheaper, ways to accomplish the same intent.  

Quick question:  Do you want your health insurer playing Monday-morning Quarterback for you, or your kid’s health?

My first thought, because I tend to monetize issues, was that this entire process, regardless of version control cited above, must be expensive for insurers to do this so-called Aaron Rodgers Discount Double Check.

Guess what?  

I was right!  Prior Authorization costs over $20 billion a year, on the low side, to implement. 

It begs the question then, if it costs more than $20 billion a year to implement Prior Authorization reviews, then why is there so much fraud, waste, and abuse, or Improper Payments, within Healthcare?  We will sack that quarterback in the second half of this paper! 

The process of conducting Prior Authorization reviews is a tedious one.  For example, a failed authorization can result in a denial of service, or the start of a separate process called Step therapy.  Step Therapy, of course, also goes by another name, Fail First (or Step Therapy 2.0 – are you seeing the pattern?).  This approach states that a patient must first fail orshow unsuccessful results from the medication given for the approved service approach that the insurer believes will work – Part II of the Aaron Rodgers Discount Double Check.  Of course, If you can find a way to prove them wrong, you will receive the first recommended treatment by your doctor.  

So, is a fail first methodology the type of medical protocol that we really want our insurers practicing?

In my professional opinion, it seems we are putting a really expensive cart before the horse. 

Here is a question for you.  Why not just go to the health insurer first to get your treatment plan, and then go see your doctor for approval of what, they, the insurer determines to be the appropriate medical protocol for your specific medical situation? 

My guess is that the provider community would not like that very much; probably even less than they like the current form of Prior Authorization that, according to a Health Affairs study, costs them on average $68,274 per physician, per year.

Now it’s time to sack the quarterback! 

Part 2: Does Prior Authorization Prevent Fraud, Waste, or Abuse? 

By Ricky D. Sluder, CFE, Co-Founder of TRM Advisory Consulting

Before I give you the simple answer to the question, I need to set the stage with a truism, establish my credentials on the subject, and then I will provide you with some Use Cases so you can see why I have adopted this notion that Prior Authorization is a problem and not a solution.

Are you ready? 

Truism:  When you seek refuge from a problem, or habit, by resorting to another problem, or habit, that new problem, or habit, becomes your captor, instead of a refuge.

In my humble opinion, Prior Authorization (regardless of the version that Michael so eloquently cited above) is to Healthcare, what Egypt was to the Israelites.  

In case you are not aware of the Exodus of the Israelites that occurred in Egyptian history back in 1446 BC, under Pharaoh Thutmoses III, let me give you a brief history lesson for the sake of the parallel I drew above.  In short, the Israelites fled to Egypt due to famine and settled in Goshen.  For a time, Egypt was a refuge.  Eventually, the Israelites became enslaved by the Egyptians and remained that way for approximately 400 years.  A man named Moses, an Israelite who grew up in the palace of Pharaoh, cited that God told him to confront Pharaoh and demand he let his people go.  

My point in telling you this story is that sometimes we resort to finding a refuge to a solve a problem, only for that new solution to become a problem, as well.  I believe that Prior Authorization fits this same mold. 

As Michael J. Davis pointed out above, the intent of the Prior Authorization process was for plans to save money on unnecessary medical treatments.  I guess some would argue, they have accomplished that mission by implementing the Prior Authorization process.  

My question is, what unintended consequences have come as a result of this process and how has the insurer become captive to the very process that was supposed to provide them with freedom from overutilization? 

I want to submit for your consideration that the largest unintended consequence of Prior Authorization is Fraud.  As the title of this paper overtly states, I believe we are Prior Authorizing Fraud!

Before you write me off as a dullard that doesn’t understand the industry, please allow me to share my bonafides to establish my credibility on this subject:  

• Special Criminal Investigator assigned to the Dallas County District Attorney’s Office Specialized Crime Division and invited to serve full time on the FBI’s White Collar and Healthcare Fraud Task Forces
• Program Integrity Manager for CMS ZPIC Zone 4 – Texas, Oklahoma, New Mexico & Colorado - Over $400 Million in recoveries in 2011 alone - Over $1 Billion in DOJ Fraud Prosecutions from 2011 cases - The Largest Home Health Care Fraud Case in US History – 2011 – $375 Million USD
• SME Team Lead for the CMS Fraud Prevention System v1.0

For the past eight years, I have been in a series of professional roles, from Managing Consultant to Vice President of Healthcare Solutions, where I have provided thought leadership for the creation and/or improvement of Enterprise Fraud Analytic Software Solutions that has taken me to 35 US States and seven countries.  I have visited with Medicaid officials in all of these states, Medicare officials, and if not all, I have met with the vast majority of the commercial carrier segment, as well.  For purposes of this paper, I am not going to mention the foreign entities, as they administer healthcare in many different ways across the globe.  

So, with my credibility established, I want to present you with some Use Cases from my time on the road that has led me to the conclusion that Prior Authorization is causing more Fraud, and definitely more Improper Payments, than it is avoiding! 

Use Case #1:  Medicaid Agencies & MFCUs

In 100% of the meetings I attended with Medicaid Directors and/or Medicaid Fraud Control Units on how best to identify Fraud, Waste, and Abuse, or Improper Payments of any kind, I was repeatedly told that most of the universe of claims for reimbursement could not be medically reviewed, or called into question, because the claims had all been Prior Authorized.  

This statement led me to ask this next question, 100% of the time:

“So, because the claims have been Prior Authorized, does that mean the provider is not over utilizing the benefits of the recipient?”  

Categorical Admonishment:

“No!  We know that overutilization is occurring, we just cannot do anything about it because the claims have been Prior Authorized.”

Use Case #2:  Commercial Plans (Primarily Tier 1 Carriers)

In 100% of the meetings I attended with Commercial Plans on how best to identify Fraud, Waste, and Abuse, or Improper Payments of any kind, I was repeatedly told that most of the universe of claims for reimbursement could not be medically reviewed, or called into question, because the claims had all been Prior Authorized.  

This statement led me to ask this next question, 100% of the time:

“So, because the claims have been Prior Authorized, does that mean the provider is not over utilizing the benefits of the member?”  

Categorical Admonishment:

“No!  We know that overutilization is occurring, we just cannot do anything about it because the claims have been Prior Authorized.”

In case you are wondering if I just copied and pasted that, I did, because it was as if I was living in the movie Groundhog’s Day!  I have had this same conversation with the same answer everywhere I have traveled within the USA for eight consecutive years.  

Use Case #3:  Overutilization Examples

On the implementation and/or consulting side of this equation, I have sat down with very intelligent peers at government agencies and commercial plans where we were diligently trying to solve the problem of Fraud, Waste, Abuse, or Improper Payments of any kind. 

When we examined the data sets, we found some interesting patterns that I want to discuss.  

No Prior Authorization Number in the Data:

In Medicaid and Commercial, for example, the vast majority of claims (if not 100%) require Prior Authorization before reimbursements can be made.  Meaning, the claims adjudication system should have an edit feature in place that denies the claim(s) for reimbursement that do not have a Prior Authorization number in the field on the claim form.  However, when we pulled the data down on all paid claims for a given universe, we often found null values where a Prior Authorization number should have been on paid claims.  When this was questioned, I was nearly always met with “We will send it over to the Prior Authorization team to find out why it wasn’t Prior Authorized and get it Prior Authorized”, ex post facto, or after the fact.  

Since we don’t know if these services were valid, or even rendered, meeting the Prior Authorization checkbox requirement takes precedent over determining if this is an Improper Payment, or worse, Fraud? 

The conundrum that we faced, and still do today, was/is this:  Claims for reimbursement with no Prior Authorization number allowed us to request medical records from the provider and review the claims for reimbursement for veracity.  But, if the claims for reimbursement were later Prior Authorized, because for some administrative reason they had not been before, then these same claims were no longer eligible for review, because they were Prior Authorized, or at least should have been…

Someone order me a neck brace from your favorite DME supplier and bill it as a mummy kit, Prior Authorized, of course, because my head is spinning from trying to keep up with this circular logic! 

Prior Authorization Number in the Data and the Max Units for Service Exceeded:

Another interesting pattern that exists, in Medicaid and Commercial, are claims for reimbursement that exceed the maximum number of hours, units, or amount of services that the recipient is able to receive in a given benefit period.  The services are by and large Prior Authorized, unless they weren’t and then they are, as cited above, and the claims adjudication system paid the claims for reimbursement, even though edits should have been in place to deny the claims for exceeding the max units, with or without modifiers.

In my most recent case, I observed where the Managed Care plan had Prior Authorized the recipient to receive up to 200 hours of Home Health Care, per the Medicaid states coverage determination protocol; yet, the paid claims for the provider had exceeded 2,000 hours for one recipient.  As you might imagine, this pattern repeated itself recipient after recipient and the provider was making a lot of money for services that never should have been paid.  When I asked if we could medically review the claims for reimbursement, my client told me that “their lawyers” would not allow it because the claims for reimbursement had all been Prior Authorized. 

This statement led me to a question: 

“In the Prior Authorization process that you follow, are you detailing the number of services, hours, or units that should be rendered based on the recipient’s unique healthcare requirements, and if so, can you show me where that data is kept?  In addition, wouldn’t any claim that exceeds the allowed services, hours, or units, per the Prior Authorization criteria, be deemed overutilization?”

Answer: “We are not sure exactly where that data is stored, but we can give you access to the systems where we think it might be stored.  Yes, I agree with you that fundamentally anything above and beyond the Prior Authorization criteria would be overutilization, but we will have to have our lawyers make that determination, as we cannot touch any claim for reimbursement that has been Prior Authorized.”

Great ideas, reduced to conversation, and no actual monies were recovered in this process.

Conclusion to My Prior Authorization Observations:

Net effect, the good people who have the daily task to protect the “trust fund” from Improper Payments, have been precluded from doing so because of a Prior Authorization requirement that was originally implemented to prevent Improper Payments, but has gradually become the mechanism that is now directly causing them to occur.  

In addition, Prior Authorization, and it’s administrative and financial burden on legitimate providers, is the reason we are seeing fewer providers available to serve our sick and infirmed.  

Welcome to Egypt my friends! 

While I cannot for say for certain, I would be willing to bet my paycheck as to why Medicaid Improper Payments have risen from ~$26 Billion in about 2015, to ~$41 Billion in 2018.  None of us are allowed to actually review claims for reimbursement, because they have all been Prior Authorized…or should have been!

My name is Ricky D. Sluder, and I am a Fraud Fighter at heart.  But today, I am trading in my CFE credentials for a stick and changing my name to Moses. 

“Hey Pharaoh – Let my Prior Authorized claims for reimbursement go and be reviewed for medical necessity!”