Difference Between Referrals & Prior Authorization in Medical Billing

Difference Between Referrals & Prior Authorization in Medical Billing - PracticeForces

Prior authorizations and medical referrals are sometimes used interchangeably, but these two terms are vastly different. A referral is issued by a primary care physician (PCP) for the patient to see a specialist. In contrast, prior authorization is issued by the payer (an insurance provider), giving a medical practice or physician the approval to perform a medical service. Let’s go over the difference between referrals and prior authorization in a little bit more detail.


Medical Referral


Heathcare.gov defines a referral as a written order from a primary care physician (PCP), asking the patient to see a specialist or get certain medical services. In many Healthcare Maintenance Organizations (HMOs), a referral is a must before a patient gets medical care from anyone other than the primary care provider. Going to a specialist without the approval of the PCP or seeing a specialist not credentialed with the insurance company, will result in the patient bearing almost the entire cost of treatment.


How do referrals work? In most cases, the patient needs to visit the primary care physician (PCP). If the PCP agrees to the need for a specialist, they refer the patient to one and make a note of the referral in the patient’s medical records. The referral is usually in writing. A verbal referral from the PCP will suffice, depending on the insurance plan.

HMOs require that a patient is referred to an in-network specialist. In comparison, a Point of Service (POS) plan allows the patient to get medical treatment outside the network, as long as the PCP makes the referral.


Prior Authorization


Prior authorization is a formal request made by the medical provider (before offering a medical service) seeking authorization from the insurance company to proceed with a medical service. Authorizations can be sought for tests, surgeries, prescriptions, and other medical services.


Prior authorization is not a promise to pay on the claim. It is only a confirmation that the payer will reimburse the medical bill with certain conditions being met. These conditions can include the following:


– The approved procedure must be performed within a specified period

– The physician can see the patient a specific number of times over a given period

– The authorization is provided for conditions specified at the time of approval. (The medical practice must obtain a new PA if the PCP recommends additional medical procedures.)


Several entities are involved in getting prior authorizations (PAs) approved – patients, healthcare practitioners, medical billing services, and insurance companies.


Prior authorizations can be taken over the phone by a medical practice or medical billing service. However, it is critical to keep a trail, which includes the authorization number, date and time of the call, and the name of the authorizing representative at the payer’s office. For authorizations approved over the payer’s portal, it is important to maintain a screenshot of the approval.


Two main types of prior authorizations


I. Prescription prior authorization


Some prescription medications require prior authorizations as well. These include drugs that:

– Have dangerous side-effects.

– May result in substance abuse.

– Are dangerous when used in combination with certain drugs

– Expensive medications that also have cheaper options.


When a prescription drug requires approval as per the patient’s insurance policy, the pharmacist (or the patient) must inform the physician, who then initiates the process for taking prior authorization. However, this often involves a frustrating wait for the patient as it may take anywhere from a few days to a couple of weeks.


II. Medical authorization


– When a service prescribed by the physician is not covered by the patient’s insurance company, the PCP must take a medical authorization. The physician needs to contact the insurance company or fill in the required forms to explain why the prescribed service is required and the supporting clinical factors.


– If a PA is declined then, the patient or doctor is free to ask for a review and appeal the decision. The insurance company may recommend a lower-cost drug or treatment. Basis the results, the insurance company will then assess if a more expensive treatment is needed. Alternatively, the doctor can prescribe a medication or service on the approved list of the patient’s insurance policy and does not require a pre-authorization.


Prior Authorizations are used mainly to regulate procedures and prescriptions that involve (a) drugs that are prone to misuse or are potentially harmful, (b) to evaluate medical necessity, (c) to assess relatively more cost-effective options, and (d) to cross-check for duplication of medication prescriptions across multiple specialists. PA’s are required to ensure patient safety, optimize outcomes, and reduce costs to patients and the healthcare system.


Pre-Authorization Challenges Faced by Patients and Medical Practices        


As stated, pre-authorizations are not a guarantee of a medical claim being honored by a payer. Retrospective claim denials are a reality for a small percentage of medical claims submitted after a pre-authorization has been taken. If you want to avoid these mistakes, breeze through this article to help prevent these denials. When insurers deny claims, the responsibility of medical bills falls entirely on the patient, who may not have the resources to meet the financial obligation. If the patient is unable to pay, medical practices are left with no option but to write off the accounts receivables as bad debt.


Also, many medical practices find it difficult to keep up with the changing payer guidelines on pre-authorizations. Hiring and training staff to handle the back-and-forth with insurers is expensive and time-consuming. According to a December 2020 AMA survey across 1000 practicing physicians, 40 percent of physicians have staff to work exclusively on PA, and 85 percent describe the burden associated with PA as high. Refer AMA statistics here.


Do you need help with improving your pre-authorization and medical billing outcomes?


PracticeForces is a one-stop-shop for the most crucial aspects of revenue management of a U.S. physician practice. We build the financial health of your practice, so you and your staff can focus on your patients’ health. Our goal – to create a radical boost to your medical practice bottom line! Contact us to know how we can be of help to your medical practice.


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Parul Garg, CEO and co-founder of PracticeForces, has significantly contributed to the growth of over 1,000 U.S. medical practices through her expertise in medical billing and coding since the company’s inception in 2003. With a background in Computer Science and an MBA in Human Resources, her leadership and AAPC-certified coding skills have been pivotal in managing the company’s operations effectively.

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