Prior Authorization: Stop Overbilling Early

Overbilling is one of the biggest frustrations in claims handling, especially when the extra costs could have been avoided. That’s where strong prior authorization, also known as prospective utilization review, makes a real difference. By reviewing and approving treatment before it’s delivered, prior authorization helps claims teams manage costs, ensure treatments are medically necessary, and reduce the risk of medical fraud.

Why Prior Authorization Matters

Prior authorization, or prospective utilization review, is the process of reviewing and approving medical treatment before it’s performed. It ensures that care aligns with evidence-based guidelines and is appropriate for the injury, condition, or stage of recovery. For claims professionals, it’s a way to set expectations early, creating clear boundaries for what’s authorized and medically necessary.

According to the Coalition Against Insurance Fraud (CAIF), overbilling is one of the most common schemes used in medical fraud.

This often includes excessive treatment, unbundling of procedures, or billing for services that lack proper documentation or medical justification, especially in high-frequency areas like Workers’ Compensation and auto injury.

Once treatment is delivered, it’s far more difficult, and often more costly, to dispute overbilling. Prior authorization gives claims teams a chance to intervene early, ensuring that treatment plans are reasonable, medically necessary, and cost-effective.

Real-World Results: Pre-Authorized vs. Post-Facto Treatment

When it comes to containing medical costs and preventing fraud, timing matters. These real examples show the difference between treatment managed through prior authorization versus cases reviewed only after billing, when the damage is already done.

Prior Authorization Examples

1. CMS’s Targeted Probe and Educate Program

The Centers for Medicare & Medicaid Services (CMS) launched the Targeted Probe and Educate (TPE) program to proactively review provider claims before payment is issued. This initiative was designed to identify outliers, reduce overbilling, and ensure services met medical necessity guidelines.

CMS reported significant reductions in billing errors and fewer appeals, especially among high-risk specialties like physical therapy and DME. TPE demonstrated that early review curbs excessive services, improves compliance, and prevents medical fraud.

2. States With Strong Prior Authorization

In California and Texas, where utilization review and prior authorization are required for many medical services, claims data often shows:

• Lower average medical costs per claim
• Fewer unnecessary procedures
• Reduced treatment disputes and litigation

Post-Facto Treatment Examples

1. CMS Before TPE

Before CMS implemented TPE, the agency lost billions to medical fraud schemes where prior authorization wasn’t consistently enforced. One of the largest cases—Operation Brace Yourself—involved over $1.2 billion in false claims from telemedicine companies and DME providers for services never provided or medically unnecessary.

The lack of upfront review allowed bad actors to flood the system with illegitimate charges, only caught through post-payment investigations.

2. CAIF Studies

The Coalition Against Insurance Fraud has documented numerous cases where clinics and therapy networks were billed for hundreds or even thousands of visits, without prior authorization or clinical justification.

In one example, a multi-state therapy group was caught billing insurers for inflated treatment plans that had no medical basis. The aftermath included:

• Claim denials
• Multi-million-dollar reimbursements sought/paid in error
• Exclusion from provider networks

These schemes were only identified after payment, leading to resource-draining audits and litigation.

How Adjusters Benefit from Prior Authorization

While prior authorization is sometimes seen as just another administrative step, it’s a critical tool for claims teams looking to stay ahead of inflated costs and unnecessary treatment. When implemented effectively, it delivers measurable benefits:

• Visibility: You know exactly what care is planned and approved—before the bills roll in.
• Documentation: Creates a strong, defensible record of medical necessity and clinical justification.
• Leverage: When disputes arise, you have clear approval records backing your payment decisions.
• Efficiency: Streamlines claim workflows and reduces the need for time-consuming post-payment audits.
• Medical Fraud Prevention: Stops overbilling at the source—before it becomes a problem.

According to the Coalition Against Insurance Fraud, early oversight through prior authorization helps disrupt patterns of abuse like upcoding, unbundling, and excessive treatment. A little structure on the front end can prevent a lot of cleanup on the back end.

Required in Some States, Best Practice in All

Many states require prior authorization for certain services, particularly in Workers’ Compensation.

Example:

California Labor Code, Section 4610 mandates utilization review for all non-emergency treatments, and noncompliance can trigger penalties or force payment of unauthorized care.

Even in states where it’s not mandated, prior authorization is increasingly viewed as an industry best practice—not just for medical cost containment, but to demonstrate good-faith claims handling and ensure appropriate patient care.

For claims adjusters, staying compliant with prior authorization regulations isn’t just about playing by the rules. It’s about protecting the claim from avoidable exposure.

Prevention is Cheaper than Correction

In claims management, it’s almost always cheaper and more effective to prevent inflated costs than to clean up after them. Prior authorization gives claims teams the ability to do just that. By approving medically necessary care up front, you reduce the risk of overbilling, speed up claim resolution, and ensure that injured parties get medically necessary treatment without excessive or unnecessary services.

Fraud schemes evolve. Medical costs continue to rise. And regulatory oversight is only getting tighter. In that environment, strong utilization review isn’t just a compliance box to check—it’s a smart, strategic investment in the health of your claims.

Want to stop overbilling before it starts? Talk to us today. 

Check out our sources:

• Coalition Against Insurance Fraud. Health Insurance Fraud. insurancefraud.org
• Centers for Medicare & Medicaid Services, Office of Inspector General Reports (2019-2021)
• National Council on Compensation Insurance. Research Briefs. (2020)
• U.S. Department of Labor. Workers’ Compensation Initiatives. dol.gov