Prior Authorization: What It Is and Why It Exists

Prior Authorization (Precertification) Basics#

Definition. Prior authorization (also called precertification, preauthorization, or prior approval) is a requirement that a provider obtain approval from the health plan *before* delivering a service, ordering a test, or dispensing a drug, as a condition of payment. It is a utilization-management tool payers use to confirm a service is covered and meets medical-necessity criteria before it is rendered.

What typically requires prior authorization: advanced imaging (MRI, CT, PET), many specialty drugs and infusions, certain genetic and molecular diagnostic tests, elective surgeries, durable medical equipment, and non-emergency inpatient admissions. Requirements vary widely by payer and plan.

The mechanics. The provider submits a request with the patient's clinical information and the proposed CPT/HCPCS codes. The payer reviews it against medical-necessity criteria and either approves (issuing an authorization number, often with a date span and a unit/visit limit), denies, or "pends" for more information. The authorization number must then appear on the claim.

Consequences of getting it wrong. A service rendered without a required authorization is typically denied with CARC 197 (precertification/authorization absent), usually as a contractual obligation (CO-197) that cannot be billed to the patient. The revenue is lost unless a retroactive authorization or appeal succeeds.

Why it matters in revenue cycle management. Prior authorization sits at the very front of the revenue cycle, before any service is delivered. A failure here cascades into a downstream denial weeks later, when it is far more expensive to fix. That is why prior-auth determination and capture is a primary automation target — and why getting it right up front is the cheapest place to protect revenue.