PRE-AUTHORIZATION: AN EFFECTIVE MEANS OF REDUCING OVERUTILIZATION?

Purpose: Pre-authorization is often required by third-party payers to reduce overutilization of unnecessary health services. This study aims to evaluate the rates and costs of overutilization of common diagnostic imaging tests among employees of self-insured employers whose third-party payers all had pre-authorization and utilization management programs. 

Method: We examined 2-4 years of claims (January 2008 through January 2012) for 11 large self-insured employers (N_total= 223,232 employees) that required pre-authorization for spine MRI, spine CT, and knee MRI, but not for spine x-ray.  We identified overutilization of these tests by applying a commercially available claims grouper and rules engine designed for this purpose (Ingenix EBM Connect).  For each employer, we determined the overutilization rates for the imaging tests and compared these rates to overutilization rates in the literature.  We calculated the savings per employee per year (PEPY) for tests that required pre-authorization relative to overutilization costs for the same tests in the literature, as well as the potential savings (PEPY) that could result from eliminating any remaining overutilization.  Savings were calculated using both the Medicare reimbursement rate for each test and the median cost of each test from the claims of each employer.     

Result: Diagnostic tests that require pre-authorization (spine MRI, spine CT, and knee MRI) had much lower overutilization rates (4%, 1%, and 11%, respectively) than spine x-ray (23%), which did not require pre-authorization. Whereas the overutilization rate for spine x-ray was similar to that in the literature (30%), the other tests had much lower overutilization rates than in the literature (35%, 33%, and 60%, respectively).  Relative to the literature, the three tests that required pre-authorization had savings PEPY that ranged from $1.67 to $20.26 PEPY (using Medicare costs) or from $3.47 to $30.41 PEPY (using median employer costs).  Potential savings for each employer from eliminating the remaining overutilization of all four tests ranged from $0.28 to $1.35 PEPY (using Medicare costs) or from $0.45 to $2.02 PEPY (using median employer costs). 

Conclusion: Services that do not require pre-authorization have higher rates of overutilization than those that do require pre-authorization.  There is still potential to reduce overutilization across all services.  Finding additional cost-effective utilization management techniques to reduce use of unnecessary services while continuing to ensure the delivery of appropriate care requires further evaluation.