How Prior Authorization Drives Inequality in Health Care

AcademyHealth member and research champion Miranda Yaver highlights the impact of prior authorization on access to care, as well as possible reforms.

Every day across America, people go to their local pharmacy to pick up a prescription drug, only to find out that they cannot do so because of two words: prior authorization.

This process – required health insurer pre-approval for prescribed medical care – set out to contain rising health care costs and, relatedly, to guard against overprescribing that was apparent in fee-for-service health care delivery. But when hundreds of millions of claims are denied each year, and millions more prior authorizations are denied in costly and even less costly corners of American medicine, it is essential to unpack how these insurance processes drive administrative burdens and inequities in health care. That’s exactly what I worked on in my book Coverage Denied: How Health Insurers Drive Inequality.

Administrative burden – or the experience of policy as being onerous – can be understood as a combination of learning costs (learning of a program’s existence and one’s eligibility), compliance costs (filling out forms and following bureaucratic directives), and psychological costs (stress, anxiety, and loss of autonomy). Though it is typically discussed in the context of public programs such as those within the American safety net, this model can be fairly exported to the red tape of modern medicine, which is fragmented across public and private health insurance.

The good news is that health insurers provide appeal processes following coverage denials and are legally required to supply patients with the relevant information. The bad news is that this information isn’t breaking through, and due to information barriers and red tape that places significant health literacy demands on patients, most patients forego these appeal processes and are left without meaningful access to their health benefits. And the physicians doing their best to facilitate these appeals are overburdened and even outright burned out themselves, facing the strain of time and staffing demands to keep pace with prior authorization requirements that require non-billable hours to fulfill.

It is perhaps surprising that such a widespread experience of receiving and providing health care in America is so poorly understood. The fragmentation and opacity of our health insurance delivery offers some answers because we lack a central database of claims and prior authorizations, denials, appeals, and reversals across public and private health insurance and across private health insurers. And with inconsistent policies across health insurers, it can be difficult to glean what is required of patients and their physicians, and when guarantees are not being realized.

KFF’s annual analysis of claim denials in Affordable Care Act marketplace plans revealed not just a widespread and understudied health policy problem of denials – with nearly one in five claims getting denied – but also hinted at an important story of administrative burden because fewer than 1 percent of claim denials are appealed, despite nearly half of appeals being successful.

To better understand why that would be, I conducted a survey of 1,340 adults across the country, supplemented with state administrative data and a snowball sample of 111 semi-structured interviews with patients, physicians, former health insurance executives, claim reviewers, health insurance lawyers, and patient advocates. While these data do not allow me to assess precisely how many Americans are denied each year, let alone the clinical appropriateness of those insurer decisions, these sources of data collectively allowed me to triangulate to obtain a comprehensive portrait of the patient experience navigating health care, and the challenges that physicians face when operating within these constraints.

36 percent of respondents had experienced at least one (typically more than one) coverage denial. And while there are not pronounced inequities in who faces initial denial, the experience of administrative burden following the insurer’s decision drives deep divides between those who have the health insurance literacy and administrative capital to successfully navigate these processes and those who are left behind.

Some of the challenge lies in patients’ experience of learning costs – that is, understanding not only one’s right to appeal, which may have been conveyed in language several grade levels above the average American’s reading level, but also understanding the value of appealing. About half of appeals are successful, but most survey respondents estimated that insurers reverse an initial denial less than 20 percent of the time, and those individuals were especially unlikely to challenge their own denials.

And some of the challenge lies in the complexity of the process itself – that is, the compliance costs of multi-layered appeals that may demand coordination (during business hours) among one’s insurer, physician, and perhaps specialty pharmacy, all within the context of a health concern. It is thus little wonder why I find that less affluent patients are less likely than others to appeal at all, and that Black and Hispanic Medicaid patients and sicker patients are the least likely to successfully appeal. What’s more, as these denials are issued, less affluent patients and Black and Hispanic patients are also more likely to postpone both medical care (whether that which was prescribed or other care to forestall additional medical debts) and non-medical purchasing, highlighting the widespread and inequitable effects of prior authorization’s proliferation. While these managed care tools may work toward cost containment, they do so at the price of health equity.

Meanwhile, the physicians assisting with these appeals are overextended, completing peer-to-peer reviews in between clinical appointments, losing non-billable hours to paperwork burden and leaving little doubt as to explanations for the physician burnout and workforce shortage problems pervading the nation.

So, what can be done about this? Health reform has been historically fraught in the United States, but notably, state efforts to regulate and improve prior authorization administration have largely been bipartisan, if not unanimous, a stark departure from the tenor of national politics. For example, California’s 2024 enactment of SB 1120, which regulates health insurers’ reliance on artificial intelligence (AI) tools with which to process prior authorizations and claims, passed unanimously. Pennsylvania is considering similar legislation in a bipartisan manner. However, the reach of this state health policymaking is hampered by their inability to regulate the majority of employer-sponsored insurance due to the constraints of Employee Retirement Income Security Act (ERISA) preemption.

Prior authorization reforms appear to be afoot. The Centers for Medicare and Medicaid Services (CMS) has championed its Wasteful and Inappropriate Service Reduction (WISeR) model, which introduces through a pilot program in six states new prior authorization requirements to traditional Medicare, while also proposing a new rule to improve the efficiency with which prior authorizations are administered in plans regulated by CMS. Combining patient perspectives of feeling relegated to pushing Sisyphus’s boulder up a hill to obtain a prescribed medication, physician perspectives on the “black box” of prescribing, and new survey data on coverage denials’ deepening of existing health and economic inequities by necessitating administratively burdensome processes, Coverage Denied works to show why patients and their physicians are so sorely in need of comprehensive relief, and why guardrails on recourse aren’t the answer.