Medicare Advantage Prior Authorization Denial and Denial of Payment


Last month, the U.S. Department of Health and Human Services’ Office of the Inspector (“OIG”) released a report that investigated prior authorization denials and denials of payment by Medicare Advantage Organizations (“MAOs”). “) (The report “). While the report found that the “vast majority” of pre-authorizations and payment requests were approved, the report focused on finding that AAMs “sometimes” denied pre-authorization and payment requests. who followed Medicare coverage rules, saying denials delayed or denied beneficiaries access to medically necessary services.

The report is another example of the OIG fanning the fire of critics of MAOs by ignoring overwhelming evidence that MAOs provide access to medically necessary services and also downplayed program requirements and guidance from the Centers for Medicare and Medicaid. Services (“CMS”), which AAMs must comply with.

The OIG report

The study randomly selected 250 denials of pre-authorization requests and 250 denials of payment issued by 15 of the largest AAMs between June 1 and 7, 2019. The final study was based on 247 pre-authorizations and 183 cases of payment once ineligible cases are excluded. Health care coding experts reviewed the records of all cases, and physician examiners reviewed the medical records of a subset of cases.

The report included four key findings.

  1. Thirteen percent of denied prior authorization requests met Medicare coverage rules.

According to the report, these services likely would have been approved under Medicare’s original coverage rules. There were two common reasons for these refusals. First, MAOs rejected claims by applying MAO clinical criteria that are not required by Medicare. Second, AAMs refused requests when providers did not respond to requests for “unnecessary” documentation (eg, additional test results). According to the report, in some cases, AAMs found that a request for prior authorization was not sufficiently documented to be approved, even when the recipients’ clinical record was sufficient to substantiate the medical necessity of the services.

  1. Eighteen percent of denials were for claims that met Medicare coverage rules and MAO billing rules.

The denial of payment requests delayed or prevented payments for services that providers had already provided. According to the report, the majority of these payment denials were caused by human error during manual claims processing reviews or by inaccurate programming of claims processing systems.

  1. Three of the most prominent service types among denials that met Medicare coverage rules were: imaging services (eg, MRIs and CT scans), stays in post-acute care facilities, and injections.

Regarding refusals of imaging services, the report indicates that AAMs often state that a more basic imaging service or conservative treatment should be performed first. Denials of transfers to post-acute care facilities, such as inpatient rehabilitation facilities or skilled nursing facilities, were because the claimed intensive therapy or skilled care was not necessary and that lower level of care, such as home health services, would suffice . According to the report, the panel of physicians engaged by the OIG found that in these cases, patients would have received a higher standard of care and that the alternative services offered by MAOs were clinically insufficient.

  1. Some pre-authorization denials and claim denials that met Medicare coverage rules and MAO billing rules were later reversed.

Most overrides of prior authorization request denials have occurred because recipients or their providers have appealed. Payment request denials were later reversed when physicians presented evidence that the AAM should have approved payment, such as a previous approval, or caused the AAM to acknowledge system or manual errors.

The report included recommendations for CMS, which administers the Medicare Advantage program: CMS should issue new guidelines on the appropriate use of MAO clinical criteria in medical necessity examinations that are not included in Medicare’s coverage rules. The Medicare Managed Care Handbook states that MAO’s internal policies for medical necessity determinations must use “coverage criteria that are no more restrictive than state and local Medicare coverage policies.”[1] However, the CMS did not shed light on the types of clinical criteria that would be considered “more restrictive”. According to the report, additional guidance would help ensure that beneficiaries receive all medically necessary and covered services, as well as promote MAO compliance with Medicare coverage rules.[2]

The report cites only one obligation placed on AAMs with respect to medical necessity determinations, failing to mention that AAMs must:

  • Must have policies and procedures, i.e., coverage rules, practice guidelines, payment policies, and usage management, that determine individual medical need (42 CFR §422.112 (a)(6)(ii)).

  • Must employ a licensed medical practitioner as the medical director responsible for ensuring the clinical accuracy of all organizational decisions and reviews involving medical necessity.

  • If the AAM expects to make a partially or fully adverse decision of medical necessity based on the initial review of the claim, the organization’s decision must be reviewed by a physician or other appropriate healthcare professional possessing sufficient medical and other expertise, including knowledge of Medicare coverage criteria, before the AAM makes the organization determination decision.

  • Must make decisions based on: (1) the medical necessity of services covered by the plan – including emergency, urgent care, and post-stabilization – based on internal policies (including non-restrictive coverage criteria that original state and local Medicare coverage policies) reviewed and approved by the Medical Director; (2) if applicable, involvement of the organization’s medical director pursuant to 42 CFR §422.562(a)(4); and (3) registrant’s medical history (eg, diagnoses, conditions, functional status), physician’s recommendations, and clinical notes.

  • Must accept and process appeals in accordance with the rules set forth in 42 CFR Part 422, Subpart M, and Chapter 13 of the Medicare Managed Care Manual.[3]

Another recommendation from the report is that CMS should also update its audit protocols to address the issues identified in the report. For example, auditors could examine whether AAMs have requested unnecessary documents. Audits can target specific service types with a history of inappropriate denials, including the three identified in the report. Additionally, the CMS should consider additional enforcement actions for MAOs with an inappropriate denial of payment pattern.

Finally, the report recommends that CMS instruct AAMs to review their processes for manual review and system programming errors. AAMs may also be responsible for providing additional training to staff on the documentation that must be verified before a denial is issued and the level of documentation required.

While CMS concurred with the report’s recommendations, CMS also noted that “the overall Medicare Advantage claim denial rate cited by the OIG for 2018 (9.5%) is comparable to Medicare’s original denial rate in during the same period”. (emphasis added)

Industry Response

In an article published on April 29, 2022, American Health Insurance Plans (“AHIPs”) blasted the report, saying that “[w]When looked at properly, data actually tells a compelling story of value and access. AHIP noted that the OIG’s sample was “extraordinarily small”, reviewing 247 prior authorization requests for a week in June 2019, and raising concerns with only 33 of them.

The article also highlighted the role of prior authorization as an “important tool for patient safety, cost reduction, and waste prevention.”

One thing the report and the AHIP agree on is that Medicare Advantage is very popular with Medicare beneficiaries. The report noted that in 2021, 42% or 26.4 million Medicare beneficiaries were enrolled in a Medicare Advantage plan, and that 51% of all Medicare beneficiaries will be enrolled in Medicare Advantage by 2030.[4]

Arushi Pandya, a lawyer in the firm’s Dallas office, is the author of this article.


[1] CMS, Medicare Managed Care Manual, ch. 4, s. 10.16.

[2] The Medicare Managed Care Manual also tells AAMs that “[m]Provider medical records may also be used by AAMs to [a]prior determinations of coverage…”[m]medical necessity”. Identifier. to Sec.10.5.4.

[3] Identifier. dried up. 10.16.

[4] Medicare Advantage in 2021: Enrollment Update and Key Trends | KFF.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 125

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Elaine R. Knight