When Authorization is Required in Medical Billing – Complete Guide
In the complex world of healthcare revenue cycle management, understanding when authorization is required in medical billing is critical for ensuring timely reimbursements and avoiding costly claim denials. Pre-authorization or prior authorization is a key step that many medical practices often overlook or misunderstand, leading to delayed payments and patient dissatisfaction.
This comprehensive guide explains when authorization is required in medical billing, the types of authorization in healthcare, who is responsible for obtaining it, and why this process is essential to smooth operations and financial success.
What is Authorization in Medical Billing?
Authorization in medical billing refers to the process of obtaining approval from a patient’s insurance company before certain services, procedures, or treatments are provided. This step ensures that the payer agrees the service is medically necessary and is covered under the patient’s plan.
Without prior authorization, healthcare providers risk claim denials, reduced reimbursements, or making patients financially responsible for the entire cost.
Key Terms:
- Pre-authorization: Approval required before performing certain services.
- Prior approval: Another term for pre-authorization, often used interchangeably.
- Medical necessity verification: Checking whether a service is medically necessary based on payer guidelines.
- Utilization management: Insurer’s process of evaluating the necessity, appropriateness, and efficiency of healthcare services.
When Authorization is Required in Medical Billing
Not all services need authorization, but many procedures and treatments especially high-cost or specialized services do. The exact requirements vary by insurance payer, state regulations, and provider contracts. Here are the most common scenarios where authorization is required in medical billing:
1. High-Cost Diagnostic Tests
Services like MRI scans, CT scans, PET scans, and other advanced imaging typically require prior authorization to confirm medical necessity. Payers want to ensure these costly tests are justified and not duplicated unnecessarily.
2. Elective Surgeries
Procedures that are not emergencies, such as cosmetic or non-urgent surgeries, often need authorization. Examples include knee replacements, bariatric surgery, or spinal fusions.
3. Specialty Treatments and Medications
Certain specialty drugs, infusions, or biologics used to treat chronic or rare diseases require pre-authorization to verify coverage and appropriateness.
4. Inpatient Hospital Admissions
Many insurance plans require pre-certification for inpatient admissions to control costs. This includes planned surgeries, rehabilitation stays, and mental health admissions.
5. Outpatient Procedures
Some outpatient services, like endoscopies, cataract surgeries, or pain management injections, may need authorization depending on the payer’s policies.
6. Durable Medical Equipment (DME)
Items like wheelchairs, CPAP machines, prosthetics, or hospital beds often require prior authorization to confirm the patient meets medical necessity criteria.
7. Physical Therapy and Rehabilitation
Many payers limit the number of therapy sessions covered and require prior authorization for the initial and extended sessions.
Types of Authorization in Medical Billing
Understanding the types of authorization in medical billing is crucial to handling claims correctly. Authorizations can vary based on the type of service, setting, and payer requirements. Common types include:
1. Pre-Authorization (Prior Authorization)
This is required before services are rendered. The provider must obtain approval from the insurance company to ensure coverage.
Example: A patient scheduled for an MRI scan must have prior authorization approved by their insurance before the scan is performed.
2. Concurrent Authorization
This type occurs during the delivery of care, typically for inpatient hospital stays. The insurer monitors the patient’s progress to determine if continued care is medically necessary.
Example: A patient admitted for pneumonia may require ongoing concurrent authorizations to extend their hospital stay beyond the initial approved period.
3. Retrospective Authorization
This occurs after services are rendered, often in emergency situations where prior authorization wasn’t possible. The provider must justify the medical necessity to get coverage approved post-service.
Example: Emergency surgery for a trauma patient would not have prior authorization, but retrospective authorization may be obtained afterward.
Who is Responsible for Getting Pre-Authorization?
A common question in medical billing is “who is responsible for getting pre authorization?” The responsibility typically falls on the healthcare provider or their billing/administrative staff. However, patients also play a role by providing accurate insurance information and being aware of their plan requirements.
Provider’s Responsibility
- Checking payer requirements for each service
- Submitting authorization requests with supporting medical documentation
- Tracking authorization status and ensuring approval before scheduling services
- Notifying patients of any authorization issues or denials
Patient’s Role
- Providing accurate and up-to-date insurance information
- Knowing whether their insurance requires prior authorization for certain procedures
- Following up with their insurance company if needed
Pro Tip: At A2Z Billings, we recommend using automated eligibility and authorization tools integrated with your EHR system to reduce manual errors and speed up approvals.
How the Authorization Process Works
Here’s a simplified step-by-step outline of the typical authorization process in medical billing:
- Service Identification: The provider identifies the procedure or service that requires authorization based on payer rules.
- Eligibility Verification: Insurance eligibility and benefits are verified to ensure the patient’s coverage is active.
- Authorization Request Submission: The provider submits the request, usually through an online portal or fax, along with medical documentation.
- Payer Review: The insurance company reviews the medical necessity and coverage criteria.
- Authorization Number Issuance: If approved, the insurer issues an authorization number.
- Service Delivery: The provider delivers the service within the authorization period.
- Claim Submission: The claim is submitted with the authorization number for reimbursement.
How Many Digits in Authorization Number in Medical Billing?
The authorization number is a unique identifier issued by the insurance company once the pre-authorization is approved.
While the number of digits may vary by payer, most authorization numbers range from 6 to 10 digits, and may contain letters and numbers. Some payers issue shorter or longer strings, but they all serve the same purpose: linking the approved service to the claim.
Including the correct authorization number on the claim is essential. Missing or incorrect numbers are a common reason for claim denials.
Consequences of Not Getting Authorization
Failure to obtain proper authorization can have serious financial and operational impacts, including:
- Claim Denials: Insurance companies may deny payment entirely if authorization wasn’t obtained.
- Delayed Reimbursements: Even if retro authorization is possible, it can slow down payment.
- Patient Financial Liability: Patients may be held responsible for the full cost if coverage is denied.
- Administrative Burden: Time and resources are wasted on appeals and resubmissions.
- Revenue Leakage: Frequent authorization errors lead to lost revenue over time.
Best Practices for Managing Authorizations
To avoid errors and denials, healthcare providers should implement authorization best practices, including:
- Know Payer Rules: Maintain an up-to-date database of payer authorization requirements.
- Automate Where Possible: Use practice management systems with authorization tracking tools.
- Train Staff: Ensure billing and front-desk staff understand the authorization process thoroughly.
- Monitor Expiration Dates: Authorizations are often time-limited; keep track to avoid lapses.
- Document Everything: Keep detailed records of communications and approvals.
- Follow Up Proactively: Don’t wait for payers to respond be proactive in checking status.
Role of Medical Billing Companies in Authorization Management
Many practices outsource authorization management to professional billing companies like A2Z Billings. By partnering with experts, providers can:
- Reduce administrative burden
- Ensure compliance with payer rules
- Minimize claim denials
- Accelerate reimbursement cycles
- Focus on patient care rather than paperwork
Our team at A2Z Billings uses advanced software and experienced billers to streamline authorization workflows from verification to approval and claim submission.
Conclusion
Knowing when authorization is required in medical billing is essential for ensuring smooth claim processing, preventing denials, and maintaining healthy cash flow. From understanding types of authorization in healthcare to recognizing who is responsible for getting pre authorization, every step matters.
Frequently Asked Questions (FAQs)
- What is the difference between authorization and referral?
A referral is when a primary care physician recommends a patient to see a specialist, while authorization is approval from the insurance company to cover a specific service.
- Can a claim be submitted without an authorization number?
Technically yes, but it will most likely be denied unless the service doesn’t require prior authorization. Always verify payer requirements before submission.
- How long does it take to get authorization?
It can vary from a few hours to several days depending on the payer, service, and documentation completeness.
- What happens if authorization expires before the service date?
If authorization expires, a new authorization request must be submitted, or the claim may be denied.
- Can patients get their own authorizations?
In most cases, providers handle authorization. However, patients can follow up with their insurance to expedite or check status.