What is authorization in medical billing? Complete Guide

Medical billing is a crucial part of the healthcare industry. One essential aspect of this process is authorization. But what exactly does authorization mean in medical billing? Why is it important? How does it impact patients and healthcare providers? In this comprehensive guide, we will explore everything you need to know about authorization in medical billing.

Also read:- What is secondary insurance in medical billing?

Understanding Authorization in Medical Billing

Authorization in medical billing means getting permission from a health insurance company before providing certain medical services, treatments, or medicines. This approval confirms that the treatment is necessary and covered by the patient’s insurance plan. The process helps avoid unnecessary treatments, control costs, and ensure that the healthcare provider gets paid by the insurance company.

Importance of Authorization in Medical Billing

Authorization is a crucial part of medical billing, ensuring that medical services are necessary and covered by insurance. Here’s why it matters:

• Confirms Coverage: Verifies that the patient’s insurance plan includes the required treatment.
• Prevents Claim Denials: Reduces the chances of rejected claims, ensuring healthcare providers get paid.
• Controls Healthcare Costs: Stops unnecessary or overpriced treatments, keeping medical expenses reasonable.
• Improves Patient Care: Ensures that patients receive only essential and effective treatments.
• Speeds Up Payment Process: Helps healthcare providers receive timely reimbursements without delays.

This process protects both patients and providers by ensuring treatments are approved, necessary, and financially covered.

How Does the Authorization in Medical Billing Work?

The authorization procedure consists of a number of processes that are carefully coordinated between the patient, the insurance company, and the office of the healthcare professional.

Step 1: Submission of Request

The permission request starts the procedure. This request is usually made to the insurance company by the healthcare professional before the suggested treatments are delivered. The specifics of the suggested care, such as the necessary procedures or therapies, diagnostic codes, and any relevant patient data should be included in the request.

Step 2: Review by Insurance Provider

After receiving the request, the insurance company will examine it to assess medical necessity. This entails verifying that the requested treatments are appropriate for the diagnosis and satisfy the insurance company’s care requirements by comparing them to the patient’s coverage plan and maybe reviewing clinical guidelines or the patient’s medical history.

Step 3: Approval or Denial

The insurance company will either approve or refuse the permission after analyzing the request. Your patient can proceed with their treatment if the request is granted. You and your patient are informed of reasons for the refusal if it is rejected. If you think the service is medically required or if the evaluation process was flawed, you have the right to appeal the decision.

Step 4: Documenting Authorization Properly

In order for the treatment to be correctly invoiced when it is finished, you must record the insurer’s permission in the patient’s medical records. To speed up correct processing and payment, you must also provide the authorization code or reference number on the insurance claim.

Types of Authorizations in Medical Billing

There are different types of authorization in medical billing, each serving a specific purpose. Let’s look at the most common ones.

1. Pre-authorization (Prior Authorization)

Pre-authorization, also known as prior authorization, is when a healthcare provider gets approval from the insurance company before performing a medical service. This is required for costly treatments, surgeries, imaging tests, and prescription medications. It ensures that the service is necessary and covered under the patient’s insurance plan.

Common services requiring pre-authorization:

• MRI and CT scans

• Surgeries

• Specialty medications

• Physical therapy

• Certain laboratory tests

2. Concurrent Authorization

Concurrent authorization is needed when a patient is already receiving treatment, such as being in the hospital or undergoing long-term therapy. This ensures that the patient continues receiving necessary care while staying covered by insurance.

Examples of concurrent authorization:

• Extended hospital stays

• Ongoing chemotherapy or radiation therapy

• Long-term rehabilitation services

3. Retroactive Authorization

Retroactive authorization is when approval is obtained after the medical service has been provided. This usually happens in emergency situations where prior approval was not possible.

Examples of retroactive authorization:

• Emergency surgeries

• Urgent hospital admissions

• Immediate life-saving treatments

Each type of authorization plays a key role in making sure patients receive necessary care while healthcare providers get properly reimbursed.

4. Specialty Authorization

Specialty authorization is required for treatments or procedures by specialists that go beyond primary care. It ensures the service is necessary and covered by insurance, helping control costs while providing proper care.

Situations requiring specialty authorization:

• Specialist visits – Cardiologists, dermatologists, oncologists

• Advanced diagnostics – MRIs, CT scans, genetic testing

• Surgeries & procedures – Orthopedic or fertility treatments

• Therapies – Physical, occupational, or speech therapy

• High-cost medications – Cancer, arthritis, or rare disease drugs

Failure to get authorization may result in denied claims and unexpected costs.

5. Referral Authorization

A referral is a written order from a primary care physician (PCP) for a patient to see a specialist or receive medical services. Insurers confirm referrals to ensure they align with coverage.

Services needing referrals and prior authorization:

• Specialist consultations

• Surgeries & diagnostic tests

• Hospital admissions & urgent care visits

• Out-of-network provider visits

Health Maintenance Organizations (HMOs) require in-network referrals, while Point of Service (POS) plans allow out-of-network referrals by a PCP.