There’s a little known category of medical horror story. The patient survives, but a paperwork tsunami flood bystanders. An obscure administrative burden siphons medical dollars on top of the 34% of medical costs already lost to administration and insurance. Beyond health insurer in-house administration costs and profits, beyond time and trouble insurers demand from medical providers and pharmacies, a new category of red tape has grown unnoticed for over a decade. 

I’ll start with a minor personal encounter, because it illustrates this hidden cost category perfectly. My nurse prescribed an expensive continuous glucose monitor (CGM). It constantly records blood sugar, and allows diabetics to manage their diabetes more effectively than conventional meters. As you have probably guessed, the insurer refused the prescription. 

The nurse turned to the CGM manufacturer; it has an entire department devoted to aiding medical providers in properly submitting CGM prescriptions to insurers. In my case, the manufacturer was able to get a preliminary approval, but in a category their special department was not able to handle. So they turned to a subcontractor.

That subcontractor, who neither makes, distributes or insures this product, maintains a department specializing in navigating authorizations for this one brand of CGM within the specific payment category the manufacturer found too complex. (An extensive subcontracting industry processes much of America’s healthcare paperwork, though the bulk of their customers are healthcare providers and health insurers rather than drug and equipment manufacturers. Its inspiring to know that life and death healthcare decisions are contracted to the lowest bidder.) 

The particular low bidding subcontractor under discussion obtained a referral to an insurer-approved distributor. The insurer required the distributor to submit a special form of paperwork, properly filled out by the provider. Fortunately that distributor had a dedicated department devoted entirely to guiding doctors through this specific form of paper work for CGM approvals.

This might seem like a happy ending, and it is – for me. But, it took three separate departments unconnected to medical providers, pharmacies or insurers to gain this approval. All three departments specialize in CGMs; two specialize in getting a single CGM brand past insurance company restrictions. 

This Kafkaesque practice turns out to be well-established. Many pharmaceutical and equipment manufacturers – and sometimes large distributors – maintain special departments that exclusively help patients and providers get prior authorization (PA) approval for expensive drugs and equipment. Some manufacturers and distributors maintain these departments in-house. Some subcontract. Some do both.

According to Nora Tsivgas, Head of Sales and Marketing at Formulary Insights, every manufacturer of specialty drugs and specialty equipment has to provide assistance to providers and patients to gain insurer approval. “Specialty drugs” is a pharma term for the most expensive types of medicine, new therapies that require repeated pricey purchases for chronic conditions. Neither prescribers of specialty items, their subcontractors, nor their patients can navigate insurer red tape for those items without manufacturer help. That includes large medical networks like HCA, Ascension, and Providence, who have their own specialized departments for filing insurance claims. 

Tsivgas gives an extreme example: a pharmaceutical manufacturer maintained a program prescribers could call for help in gaining insurer approval. Processing each request cost the manufacturer about $7,500, mostly in labor costs for employees filling out forms and navigating insurer computer and phone system. Since only half these prescriptions were ultimately approved, the manufacturer spent $15,000 per prescription they successfully shepherded through the approval process. Most manufacturer PA programs cost far less to run. But the average price is still daunting – hundreds of dollars per prescription at minimum, often thousands. The need for PA programs, according to Tsivgas has grown beyond just the specialty sector to certain other costly medical items. 

The cost of PA for expensive therapies shows why even the biggest providers and their subcontractors need help that manufacturers and distributors pay for: providers earn no revenue from the sale of expensive therapies for home use. If the cost to a medical practice for prescription approval is hundreds or thousands of dollars, that is a big loss from its viewpoint. Even openhearted small providers who sometimes donate time can’t afford to pay for the privilege of helping by spending huge sums per patient fighting insurers. They must depend upon those who profit from selling expensive therapies to bear the cost of obtaining insurer approvals for those prescriptions.

Unsurprisingly, this bureaucratic subsector is a side-effect of the conflict between two parasitical aspects of medicine. I’d call it a grift-off, except there is nothing petty about the conflicting confidence games – and we are caught in the middle. 

The discoverers of insulin in 1923 sold their patent to the University of Toronto for one dollar, because they wanted everyone who needed it to have access. Pharmaceutical manufacturers today, whose research is heavily taxpayer-subsidized, use their patent monopolies to reap outrageous profits on their newest and most effective drugs. Their prices bear no relations to research and manufacturing costs. Economist refer to this as “monopoly rent.”

Insurers would prefer not to pay for any care at all. The insurance term for paying treatment costs is “medical loss.” Insurers especially don’t want to pay for hyper-expensive long term therapies; they put barriers in place for the highest priced drugs and equipment that doctors and other providers can’t cross. 

Manufacturers, and sometimes distributors, wanting to reap their hyper-profits spend what it takes to bust through these barriers. Marvel supervillain billionaire Norman Osborn battles DC supervillain billionare Lex Luthor!

 Supervillain or not, its clear that providers and patients can’t navigate insurer obstacles to the most expensive care without manufacturer assistance. The value of this help is so apparent that Sheva Sanders, a leading senior attorney specializing in pharmaceutical law, warns manufacturers not to publicize PA programs too aggressively. Otherwise the high dollar value of the help these programs offer providers may be classified as kickbacks, and lead to prosecution!

At the same time this sector helps guide prescribers through the approval process, it also reinforces the industry practice of charging prices high enough to require PA services. Sadly, in the battle between supervillain health insurers and supervillain manufacturers, we the patients and providers are the main losers.

Prior authorizations are nothing new, traceable at least to the mid seventies, and possibly to soon after the establishment of Medicaid in 1965. But they grew to point of being a major burden on medical provider only in the late 90s and early 2000s, and have grown at an accelerating rate ever since. 

Third party paid PA programs account for only a fraction of the huge costs private health insurers, outrageous pricing and purchaser fragmentation impose. PA’s themselves represent only about 2% of healthcare administration, though they are the single most common type of medical transaction. Manufacturer and distributer PA programs constitute a tiny sliver of that 2%. Size, though, is not the issue. Medical red tape infecting an entire new subsector is a dangerous symptom. When a patient is as cancer ridden as our healthcare system, even a small previously unnoticed tumor is not good news.

Annotated References:

Himmelstein, David U. and Terry Campbell and Steffie Woolhandler. 2020. Health Care Administrative Costs in the United States and Canada, 2017. Annuals of Internal Medicne 172(2):2020 Jan 21. https://www.acpjournals.org/doi/10.7326/M19-2818?url_ver=Z39.88-2003&rfr_id=ori%3Arid%3Acrossref.org&rfr_dat=cr_pub++0pubmed& accessed 06/12/2021 

Administrative costs are 34% of US healthcare costs

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Tsivgas, Nora. 2017. Convert Prior Authorization Abandonments to RX Fulfillments and Stop Leaving Money on the Table. PharmacyLive.com:2017-09-07. https://www.pharmalive.com/convert-prior-authorization-abandonments-to-rx-fulfillments-and-stop-leaving-money-on-the-table/ Accessed 06/13/2021 

Specialty drug manufacturers generally have prior authorization programs, and the (extreme outlier) example she gave was about $7,500 per prior authorization, half of which are abandoned before completion which comes out to $15,000 per approved prescritpion.

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Tsivigas, Nora. 2021. Personal email: Friday, June 11 2:29 Pm.

Personal email from Nora Tsivgas to me in response to my query confirmed that essentially all manufacturers of branded specialty drugs need a prior authorization (PA) program, and that many pharmaceutical and equipment manufacturers outside of the specialty area have such programs as well.

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Edgepark Medical supplies is an example of a large distributor that also maintains a PA program to deal with insurers in a specialized area – in their case for CGMs. According to one Edgepark employee, many of their competitors maintain PA programs as well. 

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Sanders, Sheva and Tricia Kaufman. 2020. Alert: Is Your Prior Authorization Program Demonstrably Compliant? Stinson News and Insights: 09/22/20. https://www.stinson.com/newsroom-publications-Is-Your-Prior-Authorization-Program-Demonstrably-Compliant Accessed 06/10.2020. 

This article warns, among other dangers, against structuring PA programs in such a way that they violate anti-kickback provisions of Federal law.

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