Does prior authorization actually reduce costs?

The administrative costs of healthcare, including prior authorizations, are estimated to make up 20 to 34 percent of healthcare expenditures, according to an Aug. 4 report from the American Enterprise Institute, a public policy think tank.

In a study published by the National Bureau of Economic Research, four AEI researchers examined prior authorization restrictions in relation to prescription drug utilization and spending. 

For Medicare Part D patients in 2015, 4 percent of prescription fills required prior authorization, but those 4 percent of fills accounted for 20 percent of net drug spending. 

According to the study, prior authorization in Medicare Part D actually reduces the use of prior authorized drugs by 25 percent and reduces overall Part D spending by 3 percent. It also found that savings from prior authorization exceed the overhead costs of administration by a factor of 10. 

Few estimates exist on how much prior authorization deters care, reduces spending or impacts health, according to the study. For the study, the team looked at beneficiaries with plans that put prior authorization restrictions on medications and beneficiaries whose plans did not. 

Beneficiaries with prior authorization restrictions were 26.8 percent less likely to fill a prescription for that drug. Of patients who shifted away from medications due to prior authorization, 46.2 percent chose a therapeutic substitute, while 53.8 percent chose to take no drug at all. 

The study also compared spending reductions due to prior authorization with the administrative cost of prior authorization requests and request rejection rates. The results show administrative costs of the status quo use of prior authorization are smaller than their spending reductions, suggesting that prior authorization restrictions are worth the administrative costs. 

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