What does the term "prior authorization" refer to?

The term "prior authorization" refers to the requirement for approval from an insurance company before a prescription medication will be covered. This process is often put in place for certain medications that are high cost, potentially misused, or not typically covered under standard insurance policies. When a healthcare provider prescribes a medication that requires prior authorization, they must submit a request to the insurer, including justification for why that particular medication is necessary for the patient's treatment. Only after the insurer approves this request will the pharmacy process the medication claim and the patient receive coverage for the medication.

This system is designed to ensure that the prescribed treatment is medically necessary and to control healthcare costs, as insurance companies seek to minimize unnecessary expenditures on medications. It can be a significant part of pharmacy billing and reimbursement practices, as delays in obtaining prior authorization can affect patient access to necessary treatments.