Understanding Difference Between Referral and Prior Authorization

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Most providers’ office considers referral and prior authorization as one and the same and use them interchangeably. However, for medical billing purposes, this is not the case. You need to understand the difference between a referral and prior authorization to avoid claim denials. If you haven’t taken referral and prior authorization well in advance then it’s really difficult to recover reimbursements. Most payers won’t entertain appeals for such denials. So, it’s really important to understand the difference between a prior authorization and a referral. It is essential to know which payer requires such approval, which procedures need such approval, who is responsible for obtaining them, and how to handle denials when these are absent. 

What is a Referral?

A referral is an order from primary care provider (PCP) to see a specialist or receive certain medical services from other providers. Some health plans, like Point of Service (POS) plans, require referrals to see specialists. PCP helps make the decision about whether specialist services are necessary for the patient. The patient is usually responsible for obtaining the original referral from their primary care provider. Following the request, the provider may simply write a script for treatment that references a specific physician, such as a specialist. However, some payers require referrals to be more formal than a script. In these cases, the referring physician’s office would request a referral from the payer. The patient would then receive a referral number which would be required for submitting the claim.

What is a Prior Authorization?

An authorization, also known as a pre-approval or pre-certification, is a formal request made to the payer before a procedure takes place. Other types of health plans, including Health Maintenance Organizations (HMOs) and others, may require prior authorization for some services. Prior authorization is approval from the health plan before any patient gets a service or fills a prescription. The health plan reviews medical records from providers and decides whether the service or prescription drug meets the plan’s rules for medical necessity. This request is made by the provider rendering the procedure. Many payers require authorization for certain procedures. They will also deny or approve the procedure based on several factors. In addition, the authorization may stipulate certain restrictions. These may include specific procedure codes or a limited date range for the procedure to take place.

A health plan gives prior authorization when a service is medically necessary. If a patient needs special treatment, service, or medical equipment, either patient or provider needs to get approval from the health plan. Without it, a health plan may not pay any of the costs. It is important to note that prior authorization is not a promise to pay the claim. This is simply the first step in the payer’s consideration of the claim. An authorization is a confirmation that the approved procedure can go forward with certain criteria having been met. Be aware that not all insurance verification tools or software can identify the need for prior authorization. The best way is to call the payer until you gain experience in recognizing what requires authorization. Also, note that insurance company guidelines for retro-authorizations vary by place of service. Payers have broader guidelines for emergency surgeries versus elective, scheduled encounters.

For Emergency Services

In an emergency, a health plan can’t require prior authorization before a patient goes to the emergency department. Though, patients may still have to pay some of the costs of emergency services depending on their plan. For instance, they may have to pay a co-pay or part of the costs if they haven’t met the deductible. When it’s not an emergency, even patients also can check the payer’s website or documents, or call the plan, to find out if a service they need requires a referral or prior authorization.

As discussed earlier, denials due to referral and prior authorization are difficult to appeal and get paid. Some payers may entertain retro-authorizations, but it doesn’t guarantee reimbursement every time. To avoid financial losses, you have to set a process to identify referral and prior authorization requirements well in advance. As a medical billing company, MedicalBillersandCoders (MBC) maintains a spreadsheet of payers that require prior authorizations and which procedures require them. We also download payer reimbursement policies on a monthly basis to make sure that nothing has changed. To know more about our eligibility and prior authorization services, contact us at info@medicalbillersandcoders.com / 888-357-3226