Regulating Prior Authorization

A diabetic woman in Pennsylvania reportedly went two weeks without insulin while awaiting her  insurer’s authorization for medical necessity—an administrative delay that resulted in three emergency room visits and her developing pancreatitis. Her insurer required her to obtain prior authorization before resuming the same medication it had previously approved.

Providers need payment to offer care, and patients need insurance to cover payments.

Private health insurance plans often require approval from the insurer before agreeing to pay for a doctor-ordered medication, test, or procedure—a requirement known as prior-authorization. Though private insurance companies enforce prior authorization, the intervening step is shaped by state and federal law.

State statutes can set basic procedural guardrails for plans they regulate, including timelines, necessary notices, and what steps a patient must take before care can proceed. For example, some states such as Texas and West Virginia have enacted “gold card” laws exempting a tier of health care providers based on high past approval rates from needing insurer prior authorization before providing certain care.

Recipients of Medicaid frequently face prior authorization hurdles when pursuing medical care or treatment. Medicaid is a joint federal–state public health insurance program that provides healthcare coverage for low-income people and other eligible groups, administered by states within broad federal rules and with substantial federal funding.

Although Medicaid offers a form of direct coverage, states often deliver Medicaid services through managed care organizations (MCOs). MCOs are private health plans that contract with states to provide covered services to individuals covered by Medicaid. States typically pay MCOs on a per-member basis to manage care.

The most common prior authorization requirement enforced by an MCO is a “medical necessity” determination. For example, if a doctor prescribes a specialty drug, the insurer, under a prior authorization regime, would decide whether the medication is medically necessary before the patient can go pick it up from the pharmacy. Prior authorization often determines whether medical care occurs at all, and, when it does, how quickly such care is delivered.

To address the treatment delays and denials they attribute to prior authorization, some scholars advocate legislatively enforced transparency to reveal how frequently prior authorization affects access to care. They argue such data challenges claims that managed care organizations ultimately increase care efficiency.

Other scholars contend that, although gold-card laws are a promising first step, such laws remain primarily provider‑focused rather than patient‑centered, since patients only benefit if they have access to the right provider.

In this week’s Saturday Seminar, scholars examine the regulatory landscape of prior authorization and identify barriers to patient care.

• In a West Virginia Law Reviewnote, practitioner Hannah Courtney argues that states’ increasing reliance on private contractors undermines Medicaid’s foundational purpose,  filling gaps in the private insurance market. Courtney explains that states often delegate coverage determinations to MCOs, entities designed to prioritize limiting cost and administrative efficiency. She contends that key features of these arrangements—particularly “medical necessity” determinations embedded in prior authorization regimes—have driven widespread coverage denials driven by fiscal considerations rather than patient needs. To address this lack of accountability, Courtney advocates legislation requiring MCOs and states to report denial rates and other coverage data to the federal government and make those records publicly accessible.
• In an article for the Houston Journal of Health Law & Policy, practitioner Ajita Hanel describes the human costs of limiting cost. She outlines the prior-authorization process across insurance platforms and argues that common features—such as “fail first” step‑therapy protocols requiring patients to demonstrate the ineffectiveness of initial treatments before accessing more effective options—delay necessary care and encourage risky self‑medication. Hanel also examines existing regulatory protections aimed at mitigating authorization‑related harms, including “gold card” laws designed to reduce administrative burdens on providers. Ultimately, however, she contends that these measures are insufficient to resolve the deeper conflict between limiting cost and providing care.
• In a National Health Law Program issue brief, practitioner Brit Vanneman analyzes the use of prior authorization in Medicaid and advocates for urgent reform. She argues that despite insurers’ framing of prior authorization as a meaningful cost‑control tool, it practically functions as a significant barrier to necessary—and sometimes life‑saving—care. Vanneman identifies excessive state reliance on MCOs and uneven state oversight of insurance approvals as central problems. She further explains that many coverage denials stem not from medical judgment but from administrative failures, including mismanagement and lost documentation, undermining claims that prior authorization targets only new or high‑cost treatments. Vanneman warns that algorithmic prior authorization can worsen wrongful denials, and urges limits and oversight when adopting these systems.
• In a Journal of Law-Medicine comment, practitioner Virginia Lefever highlights how the lack of a standardized “medical necessity” definition drives coverage disparities and limits access to care. Lefever notes that insurers keep denials data secret, as refusing payment to cut costs has become central to insurers’ business models, but remains controversial. She cites government data suggesting that 10 to 20 percent of insurance claims are denied. Lefever contends that reforms have been slow because most Americans are unaware of the complexity of medical-necessity rules and how often claims are denied. She calls for a federal definition of medical necessity, arguing that a standardized definition would curb insurers’ latitude to deny claims, resulting in more consistent coverage.
• In a Health Affairs article, Stanford Law’s Michelle Mello and several coauthors discuss insurers’ adoption of artificial intelligence (AI) in prior authorization reviews. Mello and her coauthors note the potential benefits of AI review, including faster authorizations, standardized inputs and determinations, and streamlined appeals. The authors contend, however, that AI review is largely unregulated and that human reviews of AI determinations may be ineffective. They warn that AI tools may only provide reviewers with data that supports the AI model’s recommendation, and that many reviewers may lack experience with AI, allowing data issues to go unchecked. The authors laud state regulations requiring robust AI recommendation review policies and urge providers and insurers to adopt more thorough and transparent review processes.
• In an Indiana Law Journal article, Indiana University’s Jennifer Olivia warns that unverified, unregulated claims-review algorithms may exacerbate bias and discrimination in healthcare. She contends that claims-review algorithms ignore individual needs, risking unsafe denials and burdensome appeals. Olivia traces the S. Food and Drug Administration’s evolving approach to regulating claims-review algorithms. She concludes that the agency can regulate algorithms as medical devices; if not, she urges Congress to grant such authority. Olivia contends that current regulations restrict the use of claims-review algorithms to merely advising medical necessity determinations at an individual-patient level. She argues that regulating algorithms as medical devices would force insurers to conduct premarket reviews—a standard step in medical device approval—steering them away from unfair practices.