Audit Highlights Medicaid MCOs’ High Rates of Prior Authorization Denials

A federal audit of Medicaid managed care organizations (MCOs) found that one out of every eight requests for the prior authorization of services in 2019 was denied, and that most state Medicaid agencies did not routinely review the appropriateness of a sample of MCO denials.

The July 2023 report from the Office of Inspector General at the U.S. Department of Health & Human Services noted that among the 115 MCOs in its review, 12 had prior authorization denial rates greater than 25 percent — twice the overall rate. The absence of robust mechanisms for oversight of MCO decisions on prior authorization requests presents a limitation that can allow inappropriate denials to go undetected in Medicaid managed care, the report said.

The OIG report said three factors raise concerns that some people enrolled in Medicaid managed care may not be receiving all medically necessary health care services intended to be covered:

(1) the high number and rates of denied prior authorization requests,
(2) the limited oversight of prior authorization denials in most states, and
(3) the limited access to external medical reviews.

As Medicaid managed care enrollment continues to grow, MCOs play an increasingly important role in ensuring that people with Medicaid have access to medically necessary, covered services. The report notes that in recent years, allegations have surfaced that some MCOs inappropriately delayed or denied care for thousands of people enrolled in Medicaid, including patients who needed treatment for cancer and cardiac conditions, elderly patients, and patients with disabilities who needed in-home care and medical devices. Ensuring access to appropriate care for people in Medicaid managed care is a priority for OIG. In addition, OIG received a congressional request to evaluate whether MCOs are providing medically necessary health care services to their enrollees.

OIG selected the seven MCO parent companies with the largest number of people enrolled in comprehensive, risk-based MCOs across all states. These 7 parent companies operated 115 MCOs in 37 states, which enrolled a total of 29.8 million people in 2019. OIG collected data from the selected parent companies about prior authorization denials and related appeals for each MCO they operated. It also surveyed state Medicaid agency officials from the 37 States to examine selected aspects of state oversight of MCO prior authorization denials and appeals, along with state processes for external medical reviews and fair hearings.

The report notes that although the appeals process is intended to act as a potential remedy to correct inappropriate denials, several factors may inhibit its usefulness for this purpose in Medicaid managed care. Most state Medicaid agencies reported that they do not have a mechanism for patients and providers to submit a prior authorization denial to an external medical reviewer independent of the MCO. Although all state Medicaid agencies are required to offer state fair hearings as an appeal option, these administrative hearings may be difficult to navigate and burdensome on Medicaid patients. OIG found that Medicaid enrollees appealed only a small portion of prior authorization denials to either their MCOs or to state fair hearings.

In contrast to state oversight of prior authorization denials in Medicaid managed care, in Medicare Advantage, CMS's oversight of denials by private health plans is more robust. For example, each year CMS reviews the appropriateness of a sample of prior authorization denials and requires health plans to report data on denials and appeals. Further, Medicare Advantage enrollees have access to automatic, external medical reviews of denials that plans uphold at the first level of appeal. These differences in oversight and access to external medical reviews between the two programs raise concerns about health equity and access to care for Medicaid managed care enrollees, the report states.

The report recommends that CMS:
(1) require states to review the appropriateness of a sample of MCO prior authorization denials regularly,
(2) require states to collect data on MCO prior authorization decisions,
(3) issue guidance to states on the use of MCO prior authorization data for oversight,
(4) require states to implement automatic external medical reviews of upheld MCO prior authorization denials, and
(5) work with states on actions to identify and address MCOs that may be issuing inappropriate prior authorization denials.

In its response, CMS did not indicate whether it concurred with the first four recommendations; CMS concurred with the fifth recommendation.