More Prior Authorizations Coming – And Correcting Errors

Today I want to provide some clarifications to a couple of things I recently read. Now, I must say that correcting others is often viewed negatively, but it is important. The rapid spread of misinformation in our day and age is ubiquitous, and it does not take long for one person’s opinion to become considered the absolute truth.

You may have read last week’s RACmonitor article from David Glaser wherein he discussed “incident to” services. As he pointed out, the actual federal regulation allows “incident to” to be used for established patients with new problems, yet some thought leaders and even the Medicare contractors, for some reason, claim that it is not allowed for these new problems. So, which is right?

Well, I have to think that the federal regulation is the definitive source of truth, no matter how many Internet sources claim otherwise. Now, since the audits are conducted by the same Medicare contractors who are used as a source for the false statement, you may have a battle ahead to fight a denial, but a good lawyer and a federal judge should know that not everything you read on the Internet is true.

So that leads to my corrections, which admittedly are not nearly as controversial. First, the official journal of the Case Management Society of America recently had a fabulous article about advances in gene therapy and the role of case managers. But what needs correction is their discussion about cost management. In that section, the authors state that gene therapy pricing is subject to markup. They state that an actual markup of a small percentage, such as 5 percent, is acceptable, but an “arbitrary markup” based on chargemaster rates lacks justification.

And that is absolutely wrong. The Medicare payment structure has its basis in the chargemaster system. The Centers for Medicare & Medicaid Services (CMS) fully expects hospitals to set their chargemaster rates based on the hospital’s actual cost to acquire the treatment and their cost-to-charge ratio. If hospitals don’t do that, they will get drastically underpaid for the treatment. Gene therapy that costs $3.5 million has to be priced around $10 million on the chargemaster, or the hospital will be paid significantly less than $3.5 million. And losing millions of dollars each time you administer a treatment is not a formula for success.

The other clarification worth noting is less impactful, but also worth a mention. In a discussion on the three-day payment window, an article focused on how outpatient hospital services such as ED visits, observation services, or outpatient procedures within three calendar days of inpatient admission go on the inpatient claim. And that is correct, but not complete. Other outpatient services that the patient receives at the hospital or a hospital-owned entity beyond those are also included.

If a patient sees a hospital-employed physician two days prior to admission for a pre-operative evaluation, the facility fee for that office visit goes on the inpatient claim. If a patient comes to the hospital to have pre-op labs or imaging in the three days prior to an inpatient surgery, those services go on the inpatient claim. And in both cases, the “from” date on the claim is the date of those services, not the date of their arrival at the hospital for their surgery. This is really a nuance for the billing staff, but I want to be sure what is read on the Internet is complete.

Finally, last Friday CMS released some details of a new prior authorization program for six states. It is a bit disheartening that while they have been touting their efforts to improve and reduce the prior authorization process used by Medicare Advantage (MA) plans, they then went and introduced a new prior authorization program for traditional Medicare for 15 different procedures that will affect about 20 percent of beneficiaries nationwide.

And to make matters worse, this process will mimic the Recovery Audit Contractor (RAC) program, with contractors paid based on financial savings by Medicare, which means more denials gets them more money and requires the use of artificial intelligence (AI) and other advanced technologies to review claims. Noting that this would speed up and simplify the process for providers, they also state that denials can only be issued by an actual human being.

Now, before you panic, this will only be applicable to the states of Arizona, New Jersey, Ohio, Oklahoma, Texas, and Washington, and it will be effective January 2026, so there is a plenty of time for the details to emerge and hospitals to adjust their processes. I have already submitted 15 questions to CMS to try to gain some clarity.

So, keep listening to Monitor Mondays and reading RACmonitor, as it is certain that I will be talking a lot more about it.

Programming note:

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