Updates on State and Federal Prior Authorization; Future of Medicare Advantage

Today I’m bringing you some updates on things we discussed last week on a new prior auth bill on prescription drugs and a postponed CPT code decision. There was also additional movement in the federal and state level on prior authorization restrictions. I’m also diving into questions around the future of medicare advantage in the midst of some mixed market signals.?

Senators Introduce Bill to Make Prescription Drugs Easier to Access

Following the recent bipartisan Budget Committee hearing where experts urged Congress to modernize the prior authorization process which I covered in last week’s newsletter, Senators have taken action . Senator Sheldon Whitehouse (D-RI), along with Senators Roger Marshall, M.D. (R-KS), Ben Ray Luján (D-NM), Roger Wicker (R-MS), and Joe Manchin (D-WV), introduced a new bipartisan bill aimed at simplifying access to prescription drugs.

This bill seeks to cut through administrative red tape and expedite the process.

Senator Whitehouse emphasized the importance of the legislation, stating, “Our bipartisan legislation will streamline the prior authorization process so that patients can get their prescriptions faster.”

This move is a direct response to the calls for modernization heard during the Budget Committee hearing and reflects a commitment to improving healthcare access for all patients.

Recap on State Prior Authorization Restrictions

With many changes happening on the state level, here is a summary of new legislation on prior authorization: Georgia, Kentucky, Louisiana, Michigan, Minnesota, Montana, New Jersey, Ohio, Oregon, Tennessee, Virginia, Texas, Washington, and Washington, D.C., have enacted laws regarding the duration for which a prior authorization must be honored.?

In Tennessee, a new law effective in 2025 mandates that payers honor approved prior authorizations for the first 90 days of an enrollee’s coverage under a new health benefit plan.

In Texas, health plans cannot require more than one prior authorization annually for a prescription drug prescribed to treat autoimmune diseases, hemophilia, or Von Willebrand disease.

In Washington, D.C., the law stipulates that prior authorizations must be valid for at least one year or for the course of treatment, even if the physician changes the dosage. For chronic conditions, the authorization remains valid as long as it is medically necessary to avoid care disruption. Additionally, new insurers must honor prior authorizations for 60 days.

In Georgia, the law requires that a new plan honor a prior authorization from an old plan for 30 days. In Illinois, the law extends this period to 90 days when a patient changes plans.

Illinois is likely to be next with the forthcoming Healthcare Protection Act . This would ban PA for inpatient mental health treatment.

CMS Rule Delay Relieves Pharma Manufacturers

Also in the public-sphere, CMS announced this week it would delay implementing a provision in rule RIN 0938-AU28, which would have required pharmaceutical manufacturers to combine discounts and rebates to report a best price for the Medicaid drug rebate program.

This decision is seen as a significant relief for the pharmaceutical industry. The provision would have likely resulted in manufacturers paying more in rebates than they collected from sales for certain products, due to the removal of the average manufacturer price cap on the unit rebate amount calculation. This could have led to financial losses and operational challenges for many companies, potentially impacting their ability to invest in research and development.

For payers, the delayed implementation means they will not see the immediate cost reductions they might have anticipated. Payers had hoped the provision would lower drug prices by ensuring the Medicaid program benefits from the lowest possible prices. However, this delay allows pharmaceutical companies to maintain more stable pricing structures, which can help ensure a consistent supply of medications without drastic financial adjustments.

Overall, while this decision alleviates immediate financial pressure on pharmaceutical manufacturers, it also postpones potential savings for payers and Medicaid, highlighting the ongoing complexity and challenges in balancing drug pricing, affordability, and industry sustainability.

Answering Questions on Medicare Advantage Amid Growth and Challenges

Medicare Advantage has become the predominant form of Medicare, raising significant questions for payers, providers, and policymakers in the coming year.

Enrollment in MA has doubled over the past decade, with over half of Medicare beneficiaries enrolled in an MA plan in 2024. However, the program faces several challenges this year.

The public-private partnership remains a significant revenue source for insurers, but tightening reimbursements from the CMS, along with rising audits and medical costs, may reduce its profitability. Additionally, many hospitals are increasingly frustrated with MA, with several executives criticizing delayed and denied payments. Some have even advised patients to avoid MA plans altogether.

Despite these issues, MA remains highly popular among beneficiaries. The future of MA and Medicare as a whole will depend on the actions of providers, insurers, and lawmakers regarding key issues facing the program.

Questions Concerning the Future of Medicare Advantage

How long will hospitals tolerate denied payments?

Many hospital leaders have criticized MA plans for denied care and delayed payments. In late 2023, at least 15 hospitals and health systems dropped some or all MA plans. Furthermore, a majority of hospital CFOs reported significantly more difficulty in collecting payments from MA plans compared to two years ago.

What other options do hospitals have?

While a few hospitals have dropped the program, most cannot cut ties with MA due to the high enrollment rates among Medicare beneficiaries. Hospitals, despite facing delayed payments, cannot afford to drop MA plans because a significant portion of their patients are enrolled in MA.

Some hospitals are reducing the number of MA insurers they work with, focusing on those with better financial alignment. Others are creating their own MA plans to have more control over reimbursement and care coordination.

What is the future of prior authorization?

CMS has enacted new regulations to address complaints about delayed and denied payments. Starting in 2024, MA plans must follow traditional Medicare coverage guidelines and cannot impose prior authorization requirements in the first 90 days of enrollment. CMS has also issued guidance on the use of AI in coverage decisions, emphasizing compliance with coverage decision requirements.

How will the two-midnight rule impact hospitals' relationship with MA?

New regulations in 2024 require MA plans to cover inpatient admissions expected to last at least two midnights. This may increase hospital reimbursements but will require more rigorous documentation of patient stays. Hospital executives have noted mixed effects on inpatient volumes and revenue.

Has MA lost its appeal to insurers?

Insurers are facing declining profitability in the MA program. Despite growing premiums and membership, earnings have shrunk, with rising medical costs and tougher rate environments from CMS. Some insurers, like Cigna, are selling their MA businesses, while others, like CVS Health, expect losses but remain optimistic about the program's long-term potential.

Will MA benefits be cut back?

In response to CMS's tougher rate environment, insurers may cut supplemental benefits, increase premiums, or exit certain markets. For example, Humana has indicated it may leave certain markets due to the new CMS rates.

Are supplemental benefits working?

While nearly all MA plans offer supplemental benefits like hearing, vision, and dental coverage, the utilization of these benefits is unclear. CMS is seeking to improve transparency and data collection on supplemental benefit use to better understand their impact.

Can CMS curb overpayments?

Medicare Advantage enrollees cost the government more than those in fee-for-service Medicare, partly due to favorable selection and coding intensity. CMS is increasing audits to recoup overpayments and addressing concerns about upcoding by insurers.

Does MA deliver better outcomes?

Evidence is inconclusive on whether MA provides better outcomes compared to traditional Medicare. While MA enrollees report better access to preventive services, traditional Medicare beneficiaries with supplemental coverage report fewer cost-related issues. Overall healthcare costs may be lower for MA members.

What's the future of traditional Medicare?

Despite challenges, MA enrollment is expected to continue growing, potentially surpassing traditional Medicare. This raises questions about the sustainability of traditional Medicare, as its benchmarks are based on expense patterns of traditional Medicare. Policymakers may need to address this imbalance to ensure the program's long-term viability.

The trajectory of Medicare Advantage and traditional Medicare will depend on ongoing policy decisions and how stakeholders address these critical issues.

Prior Auth Billing Code Proposal Postponed

Lastly, another update from last week: the proposal to create new billing codes for prior authorizations has been postponed . The AMA’s Current Procedural Terminology Editorial Panel had scheduled a meeting from May 9 to 11 to discuss the creation of these new codes, which would allow physicians to bill for the time spent requesting treatment approvals. Insiders have hinted at promising developments and plans to resubmit the proposal with modifications but did not provide further details.?

The issue has garnered attention in Congress, where the “Improving Seniors’ Timely Access to Care Act” has strong bipartisan support and backing from medical groups. Although it has not yet passed, the act seeks to improve the prior authorization process. Earlier this year, lawmakers and medical organizations praised new CMS rules designed to expedite prior authorizations and enhance interoperability. Starting in 2026, these rules will require payers to provide quicker responses to care requests.?

As always, stay tuned for next week’s briefing.