The process known as prior authorization (PA) serves as a requirement from health insurers, ensuring that a medical service is deemed necessary and covered before a procedure, test, or medication is provided. This step is a form of utilization management, designed to control costs and ensure appropriate care, but it has created a significant administrative hurdle for medical practices. The complexity and time involved in this process often lead to confusion about who is responsible for the administrative cost. This article examines whether healthcare providers can legally pass this administrative expense directly to the patient.
The Administrative Burden of Prior Authorization
Healthcare providers face substantial labor costs associated with securing approval from insurers for prescribed services. The process is time-consuming, requiring staff to spend hours compiling clinical documentation. Practices must engage in repeated communications—phone calls, faxes, or electronic submissions—to different insurance companies, each with unique requirements.
These administrative activities divert staff time away from direct patient care, creating a significant overhead expense for medical practices. A medical practice may submit around 45 prior authorization requests per physician each week, with staff spending roughly 14 hours weekly on PA-related tasks. The total administrative costs related to prior authorization across the U.S. healthcare system are estimated to be in the billions of dollars annually.
The rules for authorization vary widely, often changing from plan to plan within the same insurance carrier. This financial strain and administrative burden create a strong incentive for providers to seek ways to recover these costs. However, the ability to bill the patient for this work is determined by the provider’s contractual relationship with the patient’s health plan.
Contractual Rules Governing Administrative Fees
For patients seeing an in-network provider, the general answer to whether they can be charged for prior authorization is no. When a doctor or medical group agrees to join an insurer’s network, they sign a contract that governs all billing practices for covered services. These contracts contain provisions, often referred to as “hold harmless” clauses, that prevent the provider from billing the patient for any costs beyond the designated co-payments, co-insurance, and deductibles.
The prior authorization process is considered an inherent administrative cost of the service being provided, which is bundled into the overall fee paid by the insurer. Since the administrative work is necessary to receive payment for the covered service, the provider is prohibited from charging the patient an additional fee for this step. Charging an in-network patient for this administrative work is considered a violation of the provider’s contract with the health plan.
If an in-network provider attempts to bill a patient for a PA fee, the patient’s insurance company will advise that the charge is impermissible under the terms of the contract. The insurer’s payment to the provider is understood to cover the entire cost of delivering the approved service, including the necessary administrative overhead. Any fee charged by a provider for work that is already covered by the insurer’s payment is prohibited by state and federal regulations.
Specific Situations Where Patients May Be Billed
Despite the general prohibition for in-network care, there are specific scenarios where a prior authorization charge may be permissible.
Out-of-Network Providers
The contractual limitations on billing the patient do not apply when a patient receives care from an out-of-network provider. An out-of-network doctor has no contract with the patient’s insurer, meaning they are not bound by the same billing restrictions. They may charge for administrative work, including the effort involved in obtaining or appealing a prior authorization.
Non-Covered Services
An exception occurs when the underlying medical service itself is explicitly non-covered or determined to be not medically necessary by the insurer. If the prior authorization work is performed for a service that the health plan does not cover, the patient may be responsible for the full cost of the service. This responsibility also includes the administrative effort to seek approval. In such cases, the patient is often advised beforehand that the service is not covered and they will be financially responsible.
Self-Pay Patients
Patients who opt to pay for their care entirely out-of-pocket, known as self-pay patients, are not using their insurance coverage for the service. If a self-pay patient asks the provider to submit a prior authorization request for documentation or other purposes, the provider may charge an administrative fee. This request falls outside the usual insurer-provider relationship.
How to Handle a Prior Authorization Charge
If a patient receives a bill specifically for a prior authorization fee, they should verify the provider’s network status with the insurance company. If the provider is listed as in-network, the charge is likely a violation of the provider-insurer contract.
The patient should immediately contact the customer service or member services department of their health insurance plan. The representative can confirm if the provider is contractually permitted to bill for administrative tasks. If the charge is improper, the insurer will often intervene on the patient’s behalf to have the bill rescinded.
Patients must keep a detailed record of all communications, including the names of the representatives, dates, and reference numbers. If the insurer confirms the charge is not allowed, formally dispute the bill directly with the provider’s billing department.
This formal dispute should reference the specific communication from the insurance company that prohibits the charge. Should the provider refuse to drop the fee, the patient can file a complaint with their state’s Department of Insurance or the equivalent regulatory body for further investigation.