Hospital Claim Denials Up for Most, Driven by Prior Authorizations

Hospitals and health systems are facing a growing volume of claim denials, with private plan prior authorization issues driving the recent increase, according to a new report from the American Hospital Association (AHA).

For the report, AHA surveyed more than 200 hospitals and health systems in 2019 to understand the impacts utilization management practices employed by commercial health plans had on patients and providers. The group also interviewed several hundred hospital and health system executives.

The survey found that 89 percent of hospital and health system respondents have experienced an increase in claim denials over the past three years, and 51 percent of all respondents described the increase as “significant.”

Commercial health plans denied claims several different ways, including post-payment audit denials, partial or line-item denials, and downcoding. However, survey respondents highlighted claim denials and reimbursement delays stemming from prior authorizations.

The report stated that failure to obtain a prior authorization was one of the most common reasons for a claim denial from a commercial health plan. In some instances, respondents even reported plans denying claims even though providers could not wait for a plan’s response to a prior authorization request because treatment had already begun or a patient’s condition changed during the approved procedure.

Respondents also frequently cited instances of downcoding in which health plans reclassify inpatient claims to observation status, then deny the claims since providers did not request a prior authorization for the observation stay.

These claim denials are only adding to the burden hospitals and health systems face with prior authorizations, AHA stated.

Hospitals are expending significant resources to address prior authorizations, including different submission processes by health plan, changes in prior authorization policies midway through a contract period, and unreasonable or unrelated requests for additional documentation.

One 17-hospital system told the AHA that it spends $11 million annually on complying with health plan prior authorization requests, while a single 355-bed psychiatric facility reported needing 24 full-time staff to deal with the authorizations.

Overall, physicians report that their offices spend an average of two business days a week managing prior authorization requests, and 86 percent rate the burden of prior authorizations as high or extremely high, according to a cited survey conducted by the American Medical Association (AMA). More recent survey data from the AMA shows that the burden level has remained the same for most physicians.*

The findings underscore the need for greater oversight of private plan prior authorizations, including submission standardization, the AHA stated in the report.

The hospital group urged federal agencies including CMS and state insurance commissioners to standardize the format for communicating services subject to prior authorizations, the format of prior authorization requests and responses, the timelines for responses (i.e., 72 hours for scheduled, non-urgent care and 24 hours for urgent services), and the appeals process.

Additionally, the group called for health plans to respond to prior authorizations 24/7 and communicate denials fully and completely in writing, not just a verbal response.

But standardizing the prior authorization process and implementing other recommended reforms, like setting thresholds for appropriate levels of prior authorizations and penalizing plans for inappropriate denials, may require states and federal agencies to acquire additional authority, AHA stated.

The group advised policymakers to ensure federal law “not unduly restrict regulators’ abilities to ensure access to care and coverage for patients and fair reimbursement for providers,” the hospital group said.

The recommendations would also be key to helping hospitals and health systems fight the ongoing COVID-19 pandemic.

“Hospitals and health systems face severe staffing shortages during the COVID-19 pandemic. We cannot afford commercial health plan abuses that deny medically necessary treatment to patients and increase clinician burnout on top of that,” Rick Pollack, AHA president and CEO, said in a press release. “Caregivers need immediate relief from these excessive burdens so they can focus their attention where it is needed most: caring for patients and saving lives.”

CORRECTION 12/14/2020: Article has been updated to reflect that 86 percent, not 89 percent, of physicians rate the burden of prior authorizations as high or extremely high and that is according to a survey conducted by the AMA and cited by AHA.