Types of Authorizations in Medical Billing: A Complete Guide

Proper authorization is a crucial process in medical billing. The health insurance companies might need their providers to get the proper authorization before covering some treatment procedures or medicines. Missing or incorrect authorizations can result in delayed reimbursement or claim denials, which may cost the patient extra money.

In this guide, you will learn about medical billing authorization, various types of authorization in medical billing, and why it is too important to ignore.

What is Authorization in Medical Billing?

In medical billing, authorization is the approval obtained by the healthcare practitioner from the patient’s insurance company before providing a specific service or treatment. It means that the insurer will determine whether the service must be rendered necessary and thus would pay for it.

Even though authorization does not ensure payment, it increases the chances that claims won’t be denied.

Types of Authorizations in Medical Billing

Healthcare organizations often encounter various types of insurance authorizations depending on the services they provide.

1. Prior Authorization (Pre-Authorization)

“Prior authorization” is another term used for “pre-authorization” or “pre-certification,” which is the most common form of authorization in medical billing. Prior authorization is when the insurer needs permission from the provider before providing particular medical care, medical devices, prescription drugs, and procedures to the patient.

The provider is required to submit documents that include clinical documents, physicians’ notes, diagnosis codes, etc., before receiving an authorization number. The authorization number will be used by the provider when submitting claims.

Prior authorization is generally required in the following situations:

Advanced imaging (MRI, CT scan)
Elective surgery
Specialty drug therapy
Durable medical equipment
Outpatient procedures

2. Referral Authorization

Referral authorization is normally sought from HMO insurance plans before a patient can be seen by specialists. In such cases, a referral must be obtained from the patient’s PCP before seeing the specialist.

The referral serves as authorization from the insurance plan, allowing the patient to see the specialist. The referral authorization process is meant to ensure proper patient care, avoid unnecessary appointments with specialists, and reduce healthcare costs.

Referral authorization is usually required for:

Cardiology
Orthopedics
Dermatology
Neurology
Physical therapy
Behavioral health services

3. Inpatient Authorization

Inpatient approval becomes mandatory if the patient has been admitted to the hospital for any treatment that requires an overnight stay. However, before admitting the patient to the hospital for any inpatient treatment, the insurance company must ensure that inpatient treatment is necessary by evaluating the patient’s condition.

In cases of longer hospital stays, insurers may still review the patient’s health to ensure that inpatient care remains medically necessary.

It is commonly required for:

Planned surgeries
Hospital admissions
Rehabilitation facilities
Skilled nursing facilities
Behavioral health inpatient care

4. Outpatient Authorization

Unlike inpatient authorization, outpatient authorization is applicable to healthcare services that do not necessitate the hospitalization of the patient within a health facility. Outpatient services also need an insurance authorization due to their costliness or need for expensive and specialized equipment. Healthcare professionals usually determine whether insurance authorization is needed prior to the provision of the service by confirming insurance coverage. This is because there are different requirements for insurance authorization from different payers.

It is generally required in the following situations:

Colonoscopy
Endoscopy
Infusion therapy
Pain management procedures
Cataract surgery
Same-day surgical procedures

5. Concurrent Authorization

Concurrent authorization occurs during the time in which the patient is undergoing treatment. Unlike prior authorization, where treatment approval occurs before the start of the treatment, concurrent authorization involves the continuous evaluation of the patient’s condition to see whether continued treatment is necessary or not.

The healthcare professionals will continue updating the medical files with regard to the patient’s treatment progress, doctors’ notes, treatment plans, and other relevant information that will be helpful in deciding whether the treatment should be extended or not.

Examples include:

Extended hospital stays
Rehabilitation centers
Skilled nursing facilities
Behavioral health admissions
Long-term inpatient care

6. Retroactive Authorization

In retrospective authorization, the request comes after the delivery of the services. This form of authorization is only used in special cases where it would not be practical to seek prior authorization, for example, during medical emergencies.

The patient’s physician will need to provide comprehensive medical documents indicating why authorization could not be sought prior to delivering the services. The health insurance company will then assess the matter and proceed accordingly.

The scenarios in which retroactive authorization may be needed are:

Emergency medical treatment
Urgent hospital admissions
Unexpected complications during surgery
Time-sensitive medical procedures
Situations where prior authorization was not feasible

7. Specialty Authorization

Specialty authorization means the preauthorization given by insurance firms for services rendered by specialist physicians. Unlike ordinary physician visits, specialty services may involve more complicated tests or procedures than general medical care, which makes insurers insist on more scrutiny before covering the service.

Insurers use specialty authorization to ensure that the procedure is not only clinically necessary but also that it was done by a specialist who is enrolled with the payer.

Examples are:

Cardiology procedures (e.g., stress tests, angiography)
Orthopedic surgeries and joint replacements
Neurology services (EEG or MRI evaluation)
Dermatology procedures (e.g., biopsies, laser treatments)
Oncology treatments and chemotherapy plans
Gastroenterology procedures like endoscopy or colonoscopy
Pain management injections and advanced therapies

Authorizations in Medical Billing Workflow

The authorization process is typically carried out in this order:

Checking the patient’s insurance benefits.
Confirming whether authorization is necessary.
Submitting the authorization request along with clinical documentation.
The insurance company reviews the request.
Approving, rejecting, or requesting more information.
Providing the service when authorization has been granted (if necessary).
Filing the insurance claim using the authorized information.

Common Authorization Mistakes to Avoid

Mistakes during the process of authorization include the lack of prior authorization before the implementation of the service, incorrect entry of patient data, and the use of incorrect CPT codes or procedure codes.

Claims may be rejected due to an expired authorization or a mismatch between the requested authorization and the service performed. Lack of consideration for insurer-specific details can also be a reason behind rejections.

Submitting the request late, absence of adequate clinical documentation, or failure to monitor the pending authorization process are also common problems. It is also reported that authorization is obtained for a certain doctor or facility, but the service is provided by another one.

Wrapping Up

Authorizations in medical billing are critical in streamlining the payment process as well as preventing the denial of claims. No matter what kind of authorization, be it pre, referral, inpatient, or retroactive authorization, all have their own importance regarding proving medical necessity and payer compliance.

Don’t let any claim denial or loss of revenue happen just because of flaws in the authorization process.

Need someone who can help you manage your authorizations? Contact our billing team and avoid claim denials.

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Frequently Asked Questions (FAQs)

Is authorization the same as insurance approval?

No. Authorization is the pre-approval of service, but it does not necessarily guarantee payment.

What will happen if there is no authorization?

A claim could be denied, and the patient/provider might end up paying.

Who is responsible for obtaining authorization?

The healthcare provider/billing department is responsible, depending on the facility’s policy.

Is prior authorization always needed?

No. It depends on the insurance company, the procedures, and the payer policies.

Can emergencies waive prior authorization?

Yes. However, it is usually done after the treatment or procedure is done through retroactive authorization.

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