Referral or Prior Authorization: Knowing the Difference Matters!

Approval from Insurance companies for medical procedures

From the doctor’s office to the medical billing department, it is important to understand the difference between a prior authorization and a referral. A common assumption is that these terms are interchangeable. However, for medical billing purposes, this is not the case. Individually, authorizations and referrals can have a major impact on reimbursement from an insurance payer. It is essential to know which of these the insurance company requires, who is responsible for obtaining them, and how to handle denials when these are absent.

A referral is issued by the doctor

What is a Referral?

Akin to an official recommendation, referrals are made from one physician to another. The patient is usually responsible for obtaining the original referral from their doctor.  Following the request, the physician may simply write a script for treatment that references a specific doctor, such as a specialist.

However, some insurance payers require referrals to be more formal than a script. In these cases, the referring doctor’s office would request a referral from the insurance 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 insurance company before a procedure takes place. This request is made by the provider rendering the procedure. Many insurance companies require an 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.

It is important to note that a prior authorization is not a promise to pay on the claim. This is simply the first step in the insurance carrier’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 include this information, especially for ASCs. All procedures require a call to the insurance company until you gain experience in recognizing what requires an authorization. As a medical billing company, AMPM maintains a spreadsheet of insurances that require prior authorizations and which procedures require them. We also download insurance company policies on a monthly basis to make sure that nothing has changed.

In addition, please note that insurance company guidelines for retro-authorizations vary by place of service. Carriers have broader guidelines for emergency surgeries versus elective, scheduled encounters.

Insurance authorization approval

How to Handle Denials

At AMPM, we understand that handling a denial quickly and efficiently is key. If a claim is submitted to an insurance payer without the authorization or referral that they require, it will be denied. Acting fast in these situations is critical.

When an insurance company denies for a missing referral, it is important to find out if they will accept one received after the fact. If so, there may be a limit for how long after the date of service the referral can be received. Therefore, the referring physician will need to contact the insurance company to see if a retroactive referral is possible.

In the case of a missing prior authorization, the rendering provider will need to obtain a retro-authorization from the carrier if possible. As with absent referrals, not all insurance companies allow this. Retro-authorizations will also be subject to time limits, which is why it is important to act on the denial as soon as it is received. Unfortunately, if the carrier does not allow this, the claim must be adjusted off, as it was the responsibility of the provider to obtain the authorization.

Avoiding these unfavorable outcomes starts with education; understanding the difference between these two terms and what they mean for the life of a claim, knowing what insurance carriers require ahead of time, and submitting claims with all necessary support the first time around. 

Disclaimer: The materials contained on this website are provided for informational purposes only and do not constitute legal or other professional advice on any subject matter. Advanced Medical Practice Management does not accept any responsibility for any loss which may arise from reliance on information contained on this site.