What Is Prior Authorization in Medical Billing? Process, Requirements & Common Denials

What Is Prior Authorization in Medical Billing? Process, Requirements & Common Denials

Prior authorization is one of the most important processes in healthcare Revenue Cycle Management.

Before certain medical services, procedures, medications, or treatments are provided, an insurance payer may require the healthcare provider to obtain approval. If the required authorization is not obtained—or if the service performed does not match the authorization—the resulting claim may be delayed or denied.

For medical billers, authorization specialists, AR representatives, front-office teams, and other RCM professionals, understanding prior authorization is essential.

This guide explains what prior authorization means, how the process works, what information may be required, common authorization-related denials, and how healthcare organizations can reduce avoidable claim problems.

What Is Prior Authorization?

Prior authorization is a process in which a healthcare provider requests approval from an insurance payer before providing certain services to a patient.

It may also be called:

• Preauthorization
• Precertification
• Prior approval
• Preapproval

The terminology varies between insurance companies, but the basic concept is similar.

The payer reviews the requested service and determines whether it meets the patient's benefit requirements and the payer's coverage or medical necessity criteria.

If approved, the payer may issue an authorization number or reference number along with specific conditions.

Why Do Insurance Companies Require Prior Authorization?

Insurance companies use prior authorization to determine whether certain services meet their coverage requirements before they are performed.

Depending on the payer and health plan, authorization requirements may help the payer evaluate factors such as:

• Whether the service is covered under the patient's plan
• Whether the requested treatment meets medical necessity criteria
• Whether another treatment should be attempted first
• Whether the requested service is appropriate for the patient's condition
• Whether the provider or facility meets network requirements
• Whether the requested number of visits or units is allowed

Prior authorization requirements vary significantly between payers and insurance plans.

A service requiring authorization for one patient may not require it for another patient with a different insurance plan.

What Types of Services May Require Prior Authorization?

Authorization requirements depend on the payer, plan, provider contract, and type of service.

Services that commonly may require authorization include:

• MRI and CT scans
• Surgical procedures
• Physical therapy
• Occupational therapy
• Certain behavioral health services
• Durable medical equipment
• Home health services
• Specialty medications
• Certain injections or infusions
• Sleep studies
• Rehabilitation services
• Some specialist procedures
• Certain diagnostic tests
• Hospital admissions
• Selected outpatient procedures

Billing and authorization teams should never assume that a service either does or does not require authorization.

The requirement should be verified for the specific patient's insurance plan.

Prior Authorization vs. Eligibility Verification

Prior authorization and eligibility verification are related, but they are not the same process.

Eligibility Verification

Eligibility verification determines whether the patient's insurance coverage is active and provides information about benefits.

It may include:

• Coverage status
• Effective date
• Termination date
• Copayment
• Deductible
• Coinsurance
• Network status
• Covered benefits
• Authorization requirements

Prior Authorization

Prior authorization goes a step further.

It involves obtaining payer approval for a specific service, procedure, treatment, or course of care when the payer requires it.

A patient can therefore be fully eligible for insurance coverage while a particular service still requires authorization.

Prior Authorization vs. Referral

A referral is also different from prior authorization.

A referral may be required when a patient's health plan requires the primary care physician to direct the patient to another provider, such as a specialist.

For example:

A patient may need a referral from a primary care physician before seeing a cardiologist.

Prior authorization, on the other hand, generally involves obtaining payer approval for a specific service.

In some situations, a patient may require:

Eligibility + Referral + Prior Authorization

before the service is performed.

RCM teams should verify each requirement separately.

The Prior Authorization Process Step by Step

Although payer workflows differ, the general authorization process often follows several stages.

Step 1: Verify Patient Eligibility

Before requesting authorization, confirm that the patient's insurance coverage is active for the expected date of service.

Verify important information such as:

• Patient name
• Date of birth
• Member ID
• Group number
• Effective date
• Plan type
• Primary or secondary coverage
• Provider network status

If the wrong insurance information is used, the authorization may be submitted to the wrong payer.

Step 2: Determine Whether Authorization Is Required

The authorization team should determine whether the proposed service requires prior approval.

This may be checked through:

• Payer portal
• Insurance website
• Electronic eligibility response
• Provider manual
• Payer telephone support
• Authorization vendor
• Practice management system

Important information may include:

• CPT or HCPCS code
• Diagnosis
• Place of service
• Rendering provider
• Facility
• Number of visits
• Requested units
• Planned date of service

Authorization requirements should ideally be verified before the patient receives the service.

Step 3: Gather the Required Information

If authorization is required, the team collects the information requested by the payer.

This may include:

• Patient demographics
• Insurance information
• Ordering provider
• Rendering provider
• Facility information
• NPI
• Tax identification information when required
• CPT/HCPCS codes
• ICD-10 diagnosis codes
• Requested dates of service
• Number of visits or units
• Clinical notes
• Medical history
• Test results
• Previous treatments
• Letter of medical necessity

The exact requirements depend on the service and payer.

Incomplete information can delay the authorization decision.

Step 4: Submit the Authorization Request

Authorization requests may be submitted through different channels.

Common methods include:

• Payer portal
• Electronic authorization system
• Fax
• Telephone
• Third-party utilization management vendor

After submission, the authorization specialist should record important information such as:

• Submission date
• Reference number
• Authorization request number
• Payer
• Procedure requested
• Requested dates
• Current status

Good documentation is extremely important for later follow-up.

Step 5: Payer Reviews the Request

The payer reviews the submitted information.

The request may be:

• Approved
• Denied
• Pended
• Returned for additional information
• Partially approved

A pending authorization may require additional clinical documentation before the payer makes a final decision.

Authorization teams should monitor pending requests rather than assuming the payer will automatically complete them.

Step 6: Record the Approval Details

When authorization is approved, the team should document all approval information carefully.

Important details may include:

• Authorization number
• Approved CPT/HCPCS codes
• Approved provider
• Approved facility
• Start date
• End date
• Number of visits
• Number of units
• Approved service
• Payer reference information

A general note saying only "Authorization approved" may not be sufficient.

The billing team needs to know exactly what was approved.

Step 7: Confirm the Service Matches the Authorization

Before the service is performed, confirm that the actual planned treatment matches the approval.

For example, verify that:

Authorized CPT code = service being performed

and that:

Date of service falls within authorized dates

Also check the approved provider, facility, units, and number of visits.

Changes in the treatment plan may require the authorization to be updated.

Step 8: Include Authorization Information on the Claim

When required, the authorization or certification information should be included correctly on the claim.

The claim should also match the conditions of the approval.

A payer may deny a claim if the authorization was approved for one service but the provider billed a different service.

Example of a Prior Authorization Workflow

Consider a patient scheduled for an MRI.

The process might look like:

Patient scheduled for MRI
↓
Insurance eligibility verified
↓
Payer confirms MRI requires authorization
↓
Provider documentation and diagnosis collected
↓
Authorization request submitted
↓
Payer reviews medical necessity
↓
Authorization approved
↓
Authorization number and approved dates recorded
↓
MRI performed within approved period
↓
Claim submitted with correct information
↓
Payer processes the claim

If any of these steps are missed, reimbursement may be affected.

Does Prior Authorization Guarantee Payment?

No.

This is one of the most important concepts for billing professionals to understand.

An approved authorization generally indicates that the payer approved the requested service under its authorization process, but it does not necessarily guarantee final payment.

The claim may still be affected by issues such as:

• Patient eligibility changes
• Benefit limitations
• Coding errors
• Duplicate services
• Provider network status
• Incorrect claim information
• Coordination of benefits
• Medical billing rules
• Contractual requirements

Therefore:

Authorization approval ≠ guaranteed payment

The claim must still meet the payer's billing and coverage requirements.

Common Prior Authorization Denials

Authorization-related denials can occur for several different reasons.

Understanding the exact reason is important before taking corrective action.

1. No Authorization Obtained

One of the most common problems occurs when a service requiring authorization is performed without prior approval.

Possible causes include:

• Requirement was not checked
• Staff assumed authorization was not required
• Insurance changed
• Procedure changed
• Authorization workflow was missed

What to Do

Determine whether the payer permits:

• Retrospective authorization
• Reconsideration
• Appeal
• Medical necessity review

Policies vary widely between payers.

If retrospective authorization is not permitted, reimbursement may be difficult to recover.

2. Authorization Expired

Authorization approvals frequently have defined effective dates.

For example:

Approved: June 1–June 30

If the service occurs on July 5, the authorization may no longer be valid.

Prevention

Always verify:

• Authorization start date
• Expiration date
• Scheduled date of service

If the patient's appointment is rescheduled, check whether the authorization also needs to be extended.

3. CPT Code Does Not Match the Authorization

A payer may authorize one procedure but receive a claim for another.

For example:

Authorized: CPT A
Billed: CPT B

This can result from:

• Procedure changes
• Incorrect authorization request
• Coding changes
• Data-entry errors

How to Resolve It

Review the provider documentation, authorization record, and claim.

If the actual service changed, determine whether the payer allows the authorization to be modified.

Never change claim coding solely to match an authorization when the medical record does not support that code.

4. Wrong Provider or Facility

Some authorization approvals are specific to a particular provider or facility.

The claim may be denied if the service was performed by a different:

• Rendering provider
• Group
• Facility
• Location

Prevention

Verify the provider and facility details before the service occurs.

If the patient changes providers or locations, determine whether the authorization must be updated.

5. Authorized Visits or Units Exceeded

Certain services may be approved for a limited number of visits or units.

For example:

Approved: 10 therapy visits

If the provider submits claims beyond the approved number, additional services may be denied.

Prevention

Track utilization throughout the authorization period.

Do not wait until all approved visits have already been used before requesting additional authorization.

6. Service Performed Outside Authorized Dates

Even when an authorization number exists, the service may be denied if the date of service falls outside the approved period.

Authorization specialists should verify that the actual appointment date remains within the authorization window.

7. Medical Necessity Criteria Not Met

A payer may deny an authorization request because the submitted clinical information does not demonstrate that the service meets its medical necessity requirements.

Possible causes include:

• Insufficient documentation
• Diagnosis does not support requested service
• Conservative treatment requirements not met
• Missing test results
• Payer clinical criteria not satisfied

Possible Next Steps

Depending on payer rules, the provider may:

• Submit additional documentation
• Request reconsideration
• Request peer-to-peer review
• File an appeal

The medical provider should be involved when clinical justification is required.

8. Authorization Number Missing or Incorrect

Sometimes authorization was obtained correctly, but the claim is processed incorrectly because the authorization information was:

• Missing
• Entered incorrectly
• Attached to the wrong account
• Associated with the wrong service

How to Resolve It

Verify the authorization record and payer instructions.

A corrected claim, reconsideration, or payer reprocessing request may be appropriate depending on the payer.

9. Insurance Changed Before the Service

A patient may have one insurance plan when the appointment is scheduled and another on the actual date of service.

An authorization from the previous payer generally does not automatically apply to the new insurance plan.

This is why eligibility should be rechecked close to the date of service.

10. Authorization Approved for the Wrong Service

Incorrect information may be submitted during the authorization request.

Examples include:

• Wrong procedure
• Wrong side or site
• Wrong number of units
• Wrong provider
• Wrong facility

The authorization team should verify approval details immediately after receiving the payer's decision.

Finding an error before treatment is much easier than correcting it after a claim denial.

How an AR Representative Should Work an Authorization Denial

Authorization denials often reach the AR team after the claim has already been processed.

An AR representative should first identify exactly what happened.

Review:

• ERA or EOB
• CARC/RARC information
• Authorization record
• Claim
• Eligibility
• Date of service
• CPT/HCPCS codes
• Provider
• Facility
• Clinical documentation when appropriate
• Authorization notes

Then determine whether:

• Authorization actually existed
• Authorization was valid on the date of service
• The billed service matched the approval
• Units or visits were available
• Claim information was entered correctly
• Reconsideration or appeal is allowed

If you want to understand AR responsibilities in greater detail, read:

What Is an AR Representative in Medical Billing? Duties, Skills & Career Path

Prior Authorization and Medical Billing Denials

Authorization is one of many possible causes of denied claims.

Other common denial categories include:

• Eligibility
• Timely filing
• Duplicate claims
• Medical necessity
• Coordination of benefits
• Coding issues
• Bundling
• Provider enrollment
• Non-covered services

For a broader explanation, read:

Top Medical Billing Denials: Common Causes, Codes & How to Resolve Them

Add the internal link to your published denial article here.

How to Prevent Prior Authorization Denials

Many authorization denials can be reduced through strong processes before the service occurs.

Healthcare organizations should focus on:

Verify eligibility early

Do not rely solely on insurance information collected months earlier.

Check authorization requirements for each service

Requirements differ by payer and plan.

Submit complete information

Missing clinical or provider information can delay the decision.

Track pending requests

Authorization requests should not disappear into an unmonitored queue.

Record approval details completely

Store more than just the authorization number.

Monitor expiration dates

Authorization periods should be visible to scheduling and billing teams.

Track visits and units

This is particularly important for therapy and recurring services.

Reverify when services change

A change in procedure may require an updated authorization.

Recheck insurance before service

Patients can change plans between scheduling and treatment.

Maintain clear documentation

Authorization notes should allow another team member to understand exactly what happened.

What Information Should Be Documented in Authorization Notes?

Good authorization documentation may include:

• Date eligibility was checked
• Payer name
• Representative name when applicable
• Reference number
• Procedure requested
• Diagnosis
• Submission date
• Current status
• Authorization number
• Approved dates
• Approved visits or units
• Provider
• Facility
• Follow-up date
• Additional documentation requested
• Final decision

Strong notes are especially valuable when an AR representative needs to investigate a denial weeks or months later.

What Does an Authorization Specialist Do?

An Authorization Specialist is responsible for helping ensure required approvals are obtained before healthcare services are provided.

Typical responsibilities may include:

• Verifying insurance coverage
• Identifying authorization requirements
• Reviewing scheduled procedures
• Submitting authorization requests
• Collecting clinical documentation
• Following up on pending requests
• Communicating with payer representatives
• Recording authorization numbers
• Monitoring authorization expiration
• Tracking approved visits or units
• Coordinating with providers and scheduling teams
• Handling denied authorization requests

The role requires attention to detail because small mistakes can have significant reimbursement consequences.

Skills Needed for Prior Authorization Work

Important skills may include:

• Understanding insurance benefits
• Knowledge of CPT and ICD-10 terminology
• Familiarity with payer portals
• Medical terminology
• Attention to detail
• Documentation skills
• Communication
• Time management
• Follow-up skills
• Understanding medical necessity concepts
• Basic knowledge of claim denials
• Ability to interpret payer requirements

Authorization experience can also provide a strong foundation for other RCM roles.

Is Prior Authorization a Good Career Path in Medical Billing?

Prior authorization can be a valuable entry or specialization within Revenue Cycle Management.

Authorization professionals interact with several parts of the revenue cycle, including:

Eligibility → Scheduling → Providers → Coding → Claims → Denials → AR

This exposure can help professionals progress toward roles such as:

• Senior Authorization Specialist
• Insurance Verification Specialist
• Denial Specialist
• AR Representative
• Quality Analyst
• Team Lead
• RCM Supervisor

If you are beginning your RCM career, read:

How to Start a Career in Medical Billing: A Step-by-Step Guide for Beginners

Where Prior Authorization Fits in the Medical Billing Process

Prior authorization generally occurs toward the beginning of the revenue cycle, before the service is performed.

A simplified workflow looks like:

Patient Scheduling
↓
Eligibility Verification
↓
Prior Authorization / Referral
↓
Patient Receives Service
↓
Provider Documentation
↓
Medical Coding
↓
Charge Entry
↓
Claim Submission
↓
Payer Adjudication
↓
Payment Posting
↓
Denial Management / AR Follow-Up

Understanding how authorization connects with later billing stages makes it easier to identify why certain claims are denied.

For the complete workflow, read:

Medical Billing Process Explained: A Complete Step-by-Step Guide

Common Prior Authorization Mistakes

Some of the most avoidable authorization problems include:

• Assuming authorization is not required
• Verifying requirements too late
• Using outdated insurance information
• Failing to follow up on pending requests
• Recording only the authorization number
• Ignoring approved date ranges
• Failing to track authorized units
• Not updating authorization after procedure changes
• Using the wrong provider or facility
• Failing to communicate approval details to billing staff

These mistakes can lead to preventable denials and additional AR workload.

Prior Authorization Best Practices for RCM Teams

A strong authorization workflow should be proactive rather than reactive.

The team should ideally know before the service:

• Is insurance active?
• Is authorization required?
• What procedure is being performed?
• Which provider will perform it?
• Where will it be performed?
• How many visits or units are required?
• What dates are approved?
• What clinical information does the payer require?

The more issues resolved before treatment, the fewer authorization-related problems reach the AR department.

Final Thoughts

Prior authorization is much more than obtaining an approval number.

It is a coordinated process involving insurance eligibility, payer requirements, medical necessity, provider information, procedure codes, approved dates, units, documentation, and follow-up.

An authorization error made before a service is performed can later become a difficult claim denial.

For that reason, successful healthcare organizations treat prior authorization as an important part of Revenue Cycle Management rather than a simple administrative task.

For medical billing and RCM professionals, understanding prior authorization can improve claim accuracy, reduce avoidable denials, strengthen AR performance, and create opportunities to move into more advanced revenue cycle roles.

If you are looking to begin or advance your RCM career, explore the latest medical billing, authorization, AR, coding, and Revenue Cycle Management jobs on BillingJobs.online.