Are More Prior Authorization and Readmission Denials in Our Future?

Last week, the Centers for Medicare & Medicaid Services (CMS) released its 2026 Budget Request and Justification to Congress, asking for $2.288 billion. I will not summarize the 194 pages for you, but will note a few highlights.

In this report, CMS notes that it “will shift its strategy from hiring overly expensive vendors to retraining and upgrading its workforce and recruiting skilled employees to meet evolving needs and achieve CMS’ goals.” So, it sounds like CMS is serious about hiring 2,000 coders to audit Medicare Advantage (MA) Hierarchical Condition Category (HCC) coding, rather outsourcing the audit work.

But more of interest to me was the section on the prior authorization program. As we know, CMS does require prior authorization on a small number of services, including eight procedures, such as cervical spine fusion, blepharoplasty, and a long list of durable medical equipment (DME) products, such as power mobility devices, orthoses, and lower limb prosthetics. And in this report, CMS bragged how these programs have reduced spending for those services by up to 50 percent.

That is actually a pretty impressive result. In the DME area, I suspect that much of the reduction was due to reducing the amount of fraud – as fraudsters who set up fake companies, buy social security numbers on the Internet, and then flood CMS with claims likely shifted their fraudulent claims to DME items that do not require prior authorization.

On the surgical side, I suspect that much of this was due to the reduction in the number of patients who asked their plastic surgeon if there was any way to get Medicare to pay for their tummy tuck or eyelid lift. As CMS touts this success, I do wonder if they will start increasing the number of procedures requiring prior authorization. And if I have to look at the bright side of this, it does remind hospitals of the importance of getting the notes documenting the medical necessity prior to any surgical procedure – so if there is an audit, their payment will not be recouped.

Speaking of recoupment, we have written a lot about readmissions. And I could go on and on about how it is a terrible measure of hospital quality. But what I want to alert you about is a tactic adopted by one payer that others may be using. This is a Michigan payer that has both Medicare Advantage and Managed Medicaid services in the state. What they did was (as many other payers do) take provisions from these governmental plans and twist them to meet their own needs.

The payer has set as a policy that if a Medicare Advantage patient is readmitted within 30 days to any hospital for a reason in any way related to the first admission, they will pay the second hospital the full DRG and then recoup that amount from the first hospital. To justify this, they claim to be following the CMS Quality Improvement Organization (QIO) Manual. Of course, they are not a QIO, and in addition, the relevant QIO Manual section discusses readmissions within 30 days that are caused by incomplete or substandard care at the first hospital. But on the other hand, Michigan Medicaid does only recoup payment for readmissions that are related, regardless of the quality of care at the first hospital (but they use a 15-day timeframe).

So, this payer has taken the longer 30-day timeframe from CMS and the more liberal ability to relate admissions to each other from Michigan Medicaid and created their own policy to maximize their ability to not pay hospitals. Just shameful behavior.

Please go warn your finance team to watch for these recoupments and fight them.

Programming note: This live to Monitor Mondays with Chuck Buck, 10 Eastern, when Dr. Ronald Hirsch makes his Monday Rounds, sponsored by R1 Physician Advisory Services.