In July, the Centers for Medicare and Medicaid Services (CMS) announced a six-year test of more aggressive prior authorization in Medicare’s traditional fee-for-service (FFS) program. CMS will conduct the demonstration through its Center for Medicare and Medicaid Innovation (CMMI) which was created by the Affordable Care Act (ACA). Given the large volume of services paid for by FFS (1.1 billion claims were processed in 2021) and the minimal oversight of many requested reimbursements, there is substantial room for cost-cutting. The challenge will be to target waste without driving up inappropriate denials to levels that precipitate a backlash.
Prior authorization is the practice of conducting pre-service reviews of planned medical interventions. Physicians submit paperwork documenting their justifications for the services they recommend and then either receive approvals or denials from the relevant insurance plans. Providers can appeal the denials pursuant to established protocols.
In some cases, providers can choose not to request prior authorization, but that approach creates the risk of providing services for which no payments will be received. In the commercial market, denials of claims can lead to large bills for the affected patients, which is an important reason the practice continues to generate controversy, and might do so in Medicare.
Prior authorization has been common for many years in commercial insurance, including Medicare Advantage (MA) plans, but less so in Medicare FFS owing to certain statutory restrictions and an expectation that the traditional program will be run as an open network with payments made to all properly credentialed clinicians and facilities with few questions asked.
In the relatively small number of market segments for which prior authorization has been implemented in Medicare FFS, the track record has been mostly positive. Starting in 2022, CMS initiated a prior authorization protocol for the purchase of orthoses, or braces, which had been recommended by physicians for certain joint problems experienced by some Medicare beneficiaries. In the first three months of calendar 2022, Medicare spent $33.5 million on these products. After prior authorization was instituted starting in April 2022, spending fell, to $24.6 million in the second quarter of the calendar year, and then kept dropping, to just $8.8 million in the third quarter of 2023. The potential for prior authorization to screen out unnecessary spending is an important reason the Government Accountability Office (GAO) has supported its use in Medicare FFS under some circumstances.
The Trump administration is prioritizing the elimination of wasteful and unnecessary spending in the major health programs, and so the wider use of prior authorization is a natural choice as it has the potential to cut spending without cutting benefits.
The CMMI demonstration, called the Wasteful and Inappropriate Services Reduction Model, or WISeR, will be conducted in Arizona, New Jersey, Ohio, Oklahoma, Texas, and Washington state. CMS will choose private sector companies with records of successful implementation of prior authorization protocols. The expectation is that companies with experience in the commercial insurance market will be the leading candidates for delivering on the objectives CMS has established for the test. The model’s announcement specified a targeted list of 17 services which are susceptible to excessive use. The program will be divided into two three-year contract periods.
Perhaps the most controversial aspect of the model is the plan for paying the private sector technology companies. They will earn a fee based on avoided costs, which gives them a strong incentive to screen out claims that fall short of the clinical criteria established for the various targeted services.
Because WISeR is a demonstration program, it will need to be evaluated to determine how well it works in delivering cost savings without harming patient care. The data collected from the affected jurisdictions will be compared to control groups operating under the program’s standard rules.
Predictably, the announcement of WISeR generated some political opposition in Congress. Forty House Democrats have sent a letter to CMS urging cancellation of it based on the view that it is reckless to give for-profit companies so much potential power in FFS. They urge CMS to focus instead on curbing excessive payments in MA.
Their argument is unlikely to prove persuasive with administration officials. The advent of powerful new artificial intelligence (AI) tools is expected to transform many industries by improving their productivity. Administering Medicare is an immense undertaking, and it is reasonable for CMS to test whether better technology can help the agency more accurately identify claims that should not be paid. With the federal government running large annual budget deficits, it is important to pursue every possible avenue of responsible economizing.
WISeR is also only a test. If it falls short on key metrics of performance, it can be cancelled. But there is reason to be optimistic it will improve Medicare FFS rather than harm it.