Charging patients for prior authorizations is legally permissible in limited circumstances, but payer contract restrictions, federal rules, and state laws make it risky for most practices. Read on to understand the key compliance considerations, financial tradeoffs, and patient relationship risks you need to weigh before implementing this policy.
What are prior authorizations, and why do they create administrative burden?
Prior authorizations are health insurance requirements to obtain approval prior to delivering a specific service, procedure, medication, or test. Prior authorizations create administrative burden because they require providers to submit clinical documentation to the payer and then wait for the payer to approve, deny, or request more information.
What makes this process particularly challenging is that each payer often has different prior authorization requirements.
In addition, practices must:
- Track status,
- Coordinate with referring providers,
- Manage peer-to-peer reviews, and
- Access multiple portals.
Each of these steps can cause revenue cycle bottlenecks that negatively impact patients and providers alike.
Some good news is that there are efforts underway at the federal level to foster a more expeditious, transparent, and reliable process for both drug and non-drug items and services.
In addition, the American Medical Association (AMA) continues to advocate on behalf of providers to reduce the overall volume of prior authorization requests, increase transparency, promote automation, and ensure timely patient care.
Can doctors charge patients for prior authorizations?
In some cases, doctors may charge patients for prior authorizations; however, it ultimately depends on many factors, including:
- Payer contracts. Many commercial payer contracts explicitly prohibit billing patients for admin services that healthcare providers perform. For Medicare patients, physicians generally cannot charge separately for administrative tasks that are considered part of routine practice overhead.
- State laws. Some states have consumer protection laws that restrict or regulate administrative fees.
- Practice policies. Some practices may forbid charging patients for prior authorizations as a matter of policy.
When it comes to charging patients for prior authorizations, there’s no ‘safe’ payer list. Physicians should absolutely consult a healthcare attorney before charging patients for prior authorizations.
When could you consider charging for prior authorizations?
Physicians could consider charging patients for prior authorizations when they:
- Encounter limited commercial exceptions in which health insurers are silent on administrative fees
- Frequently treat and bill out-of-network patients (Note: State balance billing laws still apply)
- Leverage a concierge model or frequently treat and bill direct-pay patients (Note: Practices must clearly disclose these fees)
Again, in all of these cases, legal/contract review is critical. If a practice decides to proceed with charging patients for prior authorizations, an attorney can help design a compliant, defensible policy — including proper disclosures, consent language, and consistent application.
What are some pros and cons of charging patients for prior authorizations?
Charging patients for prior authorizations has both pros and cons. Consider the following:
| Pros | Cons |
| Offsets administrative costs | Adds front-end workload that may offset financial incentive and revenue gains |
| Reduces unnecessary requests | May introduce new compliance risk and potential contract violations |
| Raises patient awareness of the extensive time and resources associated with prior authorizations | Potentially erodes patient trust and loyalty |
| Encourages internal efficiency when workflows are optimized | May delay or deter care, especially for high-cost or chronic conditions requiring frequent approvals |
What are some legal and compliance considerations by payer and state?
Legal and compliance considerations for charging patients for prior authorizations will vary by payer and state. Here’s where to find relevant information for your unique circumstances:
- Federal and state program rules. Look for routine practice expenses, prohibitions on additional patient charges, limits on what can be billed outside allowed amounts, and limits on unexpected charges and patient financial liability in certain scenarios.
- Internal resources. Consult your legal team or healthcare attorney.
- Payer contracts and provider manuals. Look for balance billing clauses, administrative fee restrictions, hold harmless provisions, and definitions of covered services.
- State Department of Insurance and Legislature. Look for state-specific balance billing rules, consumer protection guidance, and provider billing requirements.
How does charging for prior authorizations impact patient relationships?
Charging for prior authorizations does impact patient relationships. More specifically, it has the potential to create confusion, frustration, and even suspicion about motives.
Over time, this can erode trust, increase resistance to recommended care, and make patients more likely to delay or forgo services. Practices can mitigate risk by ensuring full transparency upfront:
- Clearly communicating any fees in advance,
- Obtaining patient consent, and
- Applying policies consistently while verifying compliance with payer contracts and state laws.
Revenue impact: Is charging for prior authorizations worth it?
The answer depends largely on:
- How charging for prior authorizations is presented to patients,
- Whether there are patients to whom it could apply, and
- Whether the practice commits to collecting this money consistently.
At a minimum, the revenue from charging for prior authorizations is likely unpredictable due to fluctuations by specialty, payer mix, and seasonality.
How to communicate prior authorization fees to patients
Here are several best practice strategies to communicate prior authorization fees to patients:
Create a written policy
Be sure to include:
- Why the policy exists,
- Services and scenarios to which it applies,
- A clear statement that fees are subject to payer contract and legal limitations,
- When fees may be waived,
- When fees are collected, and
- What happens if the prior authorization is denied, withdrawn, or not pursued.
Provide staff training
Ensure front-end teams can explain the fees calmly and confidently when charging patients for prior authorizations.
Require patient signature or electronic acknowledgment
Consider incorporating the following statement into the patient financial responsibility form: “Your insurance requires prior authorization for certain services. Our practice may charge a $___ administrative fee for this process when permitted by your insurance plan. This fee is not covered by insurance and is separate from your medical care. By signing below, you acknowledge and agree to this fee.”
Key takeaways for your practice
Here are three takeaways when thinking about charging for prior authorizations:
- There’s no universal approach to charging patients for prior authorizations. Payer contracts, federal rules, and state laws often restrict or prohibit these fees, making legal and compliance review essential before proceeding.
- There are pros and cons to charging patients for prior authorizations. The financial upside is limited and unpredictable, while the risks — compliance exposure, operational complexity, and increased patient friction — can quickly outweigh any incremental revenue.
- Success depends on transparency and consistency. When charging patients for prior authorizations, medical practices must have clear policies, upfront communication, and documented patient consent to minimize risk and protect trust.
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