RD116 - Annual Report on the Collection and Impact of Prior Authorization Requirements


Executive Summary:
The 2002-2004 Appropriation Act (Item 322J) directed the Department of Medical Assistance Services (DMAS) to collect data and monitor the impact of all new prior authorization (PA) requirements for the fee-for-service program that were implemented on or after the start of state fiscal year (FY) 2004 (Appendix A). Item 322J required that DMAS report on the number of service denials, the number of prior authorization requests submitted, the number of requests approved and denied, the number of appeals from prior authorization denials, the outcome of those appeals, and all associated administrative costs. The PA requirements that are under the purview of this study include Preferred Drug List (PDL) drugs, home health services, outpatient rehabilitation and psychiatric services, and non-emergency diagnostic scans.

In addition to the legislative mandate, the DMAS Director requested that the prior authorization process and savings be examined for home health services, outpatient rehabilitation services, and diagnostic scans. The results of both the data tracking and evaluation are presented in this report. The PDL program was also evaluated for savings, PA process, and outcomes; the results of that analysis will be presented in a separate legislative report, mandated by Item 326BB(8) of the Act.

In FY 2004, DMAS spent $1.5 million (general fund) less than what would have been spent on diagnostic scans, home health, and outpatient rehabilitation and psychiatric services absent any policy or medical use changes. Although there was a clear policy change with the new PA requirements, there were also other policy and medical use changes that affected utilization and cost. Some of the events had the effect of increasing service costs, such as an increased medical use of diagnostic scans and an increase in the number of recipients in Medicaid. Other events had the effect of reducing costs, such as a change to the reimbursement methodology for outpatient rehabilitation that established a new payment ceiling. Taken in combination, the various policy, medical use, and utilization changes, including the changes to the prior authorization requirements, had the overall effect of reducing payments by $1.5 million. The changes to the PA process are still relatively new and will continue to be evaluated by the agency.

The process required for a provider to apply for a prior authorization needs improvement in terms of timeliness and consistency. The agency is in the process of improving the process, and will release a new request for proposal (RFP) in the fall of 2005 to procure a vendor to facilitate the new PA processes for the home health, outpatient rehabilitation and psychiatric services, and diagnostic scans, among other services that require PA. As part of the new contract, improvements, such as relying on national standards and moving towards a paperless system, will be implemented to facilitate a more efficient process.