Operations Reference

Prior Authorization (Pre-Certification)

Prior authorization (PA) is a requirement that a provider obtain approval from the health plan before delivering certain medical services or prescribing certain drugs. The plan reviews the request to confirm the service or drug is medically necessary and covered under the member's plan.

Why Plans Use Prior Authorization

Health plans use PA to:

• Verify that a proposed treatment is medically appropriate for the member's condition.
• Encourage use of lower-cost, evidence-based alternatives when they exist (e.g., generic drugs, outpatient procedures vs. inpatient).
• Prevent unnecessary or duplicate services.
• Control costs and manage utilization.

The Prior Authorization Flow

Request: The provider submits a PA request to the plan, typically including diagnosis, procedure code, clinical notes, or drug name and dosage. Requests may be submitted electronically or by phone.

Review: The plan's utilization review team or clinical staff evaluates whether the service meets the medical necessity standard and is a covered benefit under the member's specific plan.

Determination: The plan issues an approval (PA granted) or denial (PA denied). Some plans may issue a "conditional approval" for a limited number of visits or a time period.

Medical Necessity vs. Benefit Exclusion

It is important to understand the difference:

• Medical Necessity Denial: The service is covered under the plan, but the plan believes it is not medically necessary for this member at this time (e.g., a specialist visit when the member's condition can be managed by their primary care doctor).
• Benefit Exclusion: The service is not covered under the plan at all, regardless of medical necessity. Examples include cosmetic procedures, certain fertility treatments, or services explicitly listed as excluded in the plan document.

This distinction matters for appeals: a medical necessity denial is more likely to be overturned on appeal if new clinical evidence is presented, whereas a benefit exclusion typically cannot be appealed (the service simply is not a covered benefit).

Approval ≠ Payment Guarantee

Critical: Approval of a prior authorization does not guarantee payment. The plan may later deny the claim if, for example, the member's coverage has terminated, the service was provided in a manner not authorized (wrong dosage, wrong number of visits), or there is evidence the service was not actually medically necessary. Prior authorization only confirms that the plan has authorized review; the claim must still be adjudicated.

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Claims & Adjudication

A claim is a request for payment submitted by a provider to the health plan for services rendered or supplies dispensed to a member.

Claim Submission

The provider (hospital, doctor, pharmacy, lab, etc.) submits a claim to the plan either electronically (via standard EDI formats like 837) or by paper. The claim includes member identification, provider identification, date of service, procedure or drug codes, and billed amount.

Adjudication Process

Adjudication is the plan's systematic review of a claim. The plan checks:

• Is the member enrolled on the date of service?
• Is the service covered under this member's specific plan design?
• Has the deductible been met?
• Does the provider bill within the plan's allowed amount or fee schedule?
• Is the service subject to copay, coinsurance, or out-of-pocket limits?
• Is there coordination of benefits with another payer?
• Does this service duplicate or conflict with another recent claim?

The plan then calculates the member's out-of-pocket responsibility and the plan's payment amount, and the claim is either paid or denied.

Explanation of Benefits (EOB) vs. a Bill

EOB: A document mailed or available online from the health plan to the member, explaining how a claim was processed. It shows what the provider billed, what the plan allowed, what the plan paid, and what the member owes. The EOB is for the member's understanding; it is not a bill.

Bill: An invoice from the provider to the member for the member's out-of-pocket portion (copay, coinsurance, or any balance if the provider wrote off the difference). Providers send bills to members; plans send EOBs.

Denials & Remittance

If a claim is denied, the plan issues a remittance advice (RA) to the provider explaining why (e.g., "Not medically necessary," "Not a covered service," "Member not enrolled," "Duplicate claim"). The member also receives an EOB with the denial reason.

Reasons for denial include:

• Service not covered under the member's plan.
• Prior authorization required but not obtained.
• Service coded incorrectly or does not align with the member's diagnosis.
• Provider is out-of-network and out-of-network benefits not available for this service.
• Member's coverage terminated on the date of service.

Coordination of Benefits (COB)

When a member has insurance coverage from more than one payer, the plans coordinate benefits to avoid overpayment. Coordination of benefits is especially common among:

• Dual Eligible members (enrolled in both Medicare and Medicaid): Medicare is typically the primary payer, and Medicaid pays secondary, covering certain gaps.
• Members with employer group health and individual Medicare/Medicaid: The plans follow rules to determine which pays first.
• Spouses or dependents on multiple employer plans.

The primary plan pays according to its benefit rules, and the secondary plan pays any remaining amount up to its own benefit (never exceeding what the provider billed). This is called "COB subrogation."

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Grievances vs. Appeals

These are distinct processes, and it is essential to know which one applies to a member's concern.

Grievance

A grievance is a complaint about quality of care, service, or access (not about a coverage or payment decision). Examples:

• Long wait times at a provider's office.
• Rudeness by a customer-service representative.
• Difficulty scheduling an appointment.
• Complaint about a provider's clinical practice or bedside manner.
• Complaint about delay in processing a claim.

The plan investigates and responds; the member does not have the right to a formal multi-level review, but many plans offer escalation if the member is dissatisfied with the initial response.

Appeal

An appeal is a formal challenge to an adverse determination — a plan decision to deny, limit, delay, or reduce a benefit. Examples:

• Plan denied coverage for a drug or procedure.
• Plan approved a service at a lower level than requested.
• Plan terminated coverage or a plan membership.
• Plan denied a claim for payment.

Appeals have multiple levels and are governed by federal regulation and state law. A member can file an appeal if they disagree with a coverage decision.

Appeal Levels & Expedited Review

The standard appeal process typically includes:

• Level 1 (Initial Appeal): The member or provider requests reconsideration. The plan reviews the original decision and may reverse it or uphold it.
• Level 2 (Appeal of Appeal): If the member disagrees with the Level 1 decision, they may appeal again to a higher level within the plan or to an independent external reviewer.
• Expedited Appeal: For urgent situations (e.g., emergency care, imminent threat to health, ongoing treatment that could be jeopardized by delay), the member or provider can request an expedited or "fast-track" appeal. The plan must respond within a shorter timeframe than the standard appeal.

Do not state specific day-count deadlines as fact in operations — appeal timeframes are set by the program (Medicare Advantage, Medicaid, employer plan) and vary by state and plan design. Always refer to the official plan document, CMS.gov, or the applicable state Medicaid agency for exact deadlines.

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Pharmacy & Formulary

Pharmacy operations center on the plan's drug coverage, called the formulary.

Formulary (Drug List)

A formulary is the list of prescription drugs covered by the health plan. Plans typically update formularies annually. A drug may appear on the formulary with restrictions or conditions.

Tiered Cost-Sharing

Most plans organize drugs into tiers, each with a different member copay:

• Tier 1 (Preferred Generic): Lowest copay, typically generic drugs.
• Tier 2 (Preferred Brand): Higher copay, brand-name drugs preferred by the plan.
• Tier 3 (Non-Preferred Brand): Even higher copay, brand drugs not preferred or without a generic equivalent.
• Tier 4 or 5 (Specialty Drugs): Highest copay or coinsurance (percentage of cost), used for expensive drugs like biologics or drugs for rare conditions.

The plan uses tiering to encourage members to choose lower-cost alternatives and to manage overall pharmacy spending.

Step Therapy

Step therapy (also called "fail-first" or "step-down therapy") requires a member to try a lower-cost or first-line drug before the plan covers a higher-cost alternative. For example, a member may need to try and fail a less expensive blood pressure medication before the plan covers a more expensive one.

Quantity Limits & Prior Authorization

Plans may limit the quantity of a drug dispensed per prescription (e.g., no more than a 30-day supply) or per month. For certain drugs, a prior authorization from the member's doctor is required before the pharmacy can dispense it.

Formulary Exception / Coverage Determination

If a member needs a drug that is not on the formulary, or needs more than the plan allows, the member or provider can request a formulary exception or coverage determination. This is similar to a prior authorization for drugs. The plan reviews the request and may approve the drug off-formulary or allow a higher quantity if clinically appropriate.

Generic vs. Brand

Plans generally encourage the use of generic drugs because they are chemically equivalent to brand-name drugs and cost less. Members often pay a lower copay for generics. Exceptions are rare and usually require a documented reason (e.g., member has an allergy to an inactive ingredient in the generic formulation).

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Provider Networks & Referrals

The provider network is the set of doctors, hospitals, pharmacies, and other healthcare providers under contract with the health plan. Members can typically access in-network providers at lower out-of-pocket costs.

In-Network vs. Out-of-Network

• In-Network: Provider has a contract with the plan; members typically pay a copay (fixed amount) and plan pays the remaining allowable amount.
• Out-of-Network: Provider does not have a contract; members typically pay coinsurance (percentage of cost) and any balance above the plan's allowed amount. Some plans do not cover out-of-network care at all (except emergency).

Credentialing

Credentialing is the process by which a plan verifies that a provider is licensed, trained, and meets the plan's quality standards before including them in the network. This is an operational and compliance function. Plans credential providers during onboarding and periodically re-credential existing providers.

Referrals by Plan Type

The need for a referral (a primary care provider's authorization to see a specialist) depends on the plan type:

• HMO (Health Maintenance Organization): Most HMOs require a referral from the primary care provider (PCP) before seeing a specialist or visiting an out-of-network provider (except emergency).
• PPO (Preferred Provider Organization): Referrals are typically not required; members can see specialists directly, though in-network specialists have lower out-of-pocket costs.
• POS (Point of Service): Referral requirements vary by plan; some require referrals for out-of-network care only.

In Medicaid managed care (similar to HMO), many plans also require referrals. In Medicare Advantage, some plans (MA-HMOs) require referrals, while others (MA-PPOs) do not.

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Transportation (Non-Emergency Medical Transportation)

Non-emergency medical transportation (NEMT) is a common benefit in Medicaid plans and, in some cases, a supplemental benefit in Medicare Advantage. NEMT covers transportation for members to medical appointments when they cannot arrange it themselves.

Typical NEMT Coverage

• Covers rides to and from provider appointments, dialysis, chemotherapy, or other medically necessary services.
• Usually limited to in-network providers (or nearest available provider).
• Member may need to call in advance to schedule a ride.
• Some plans cover mileage reimbursement instead of arranging a ride directly.
• NEMT is often provided by contracted vendors (medical taxi services, volunteer driver programs, or public transit subsidies).

Medicaid vs. Medicare Advantage NEMT

In Medicaid, NEMT is often a mandatory benefit (state-specific). In Medicare Advantage, supplemental transportation is optional and varies widely by plan; members should check their plan documents or call member services to confirm availability.

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Supplemental Benefits

Supplemental benefits are services and extras that go beyond the standard covered services and are offered by some (not all) plans. They are commonly seen in Medicare Advantage but are also available in some Medicaid plans.

Common Medicare Advantage Supplemental Benefits

• Dental: Routine cleanings, exams, fillings, and sometimes more extensive work (varies widely by plan).
• Vision: Eye exams, eyeglasses, contact lenses, or other vision services.
• Hearing: Hearing exams and hearing aid coverage.
• OTC Allowance: A yearly allowance for over-the-counter drugs and health items (vitamins, pain relievers, bandages, etc.).
• Fitness / Wellness: Gym memberships, fitness classes, or wellness programs.
• Meal Benefit or Food Assistance: In some plans, especially those serving low-income members, supplemental coverage for meals post-hospitalization or food prescriptions.
• Telehealth & Remote Monitoring: Virtual visits or remote patient monitoring devices.
• Caregiver Support or Adult Day Care: Benefits to support informal caregivers or respite care.

Variation by Plan

Supplemental benefits vary dramatically by plan and region. A plan in one region may offer extensive dental; another in a different state may not. Members should review their plan's benefit summary or call member services to confirm what supplementals are available in their specific plan.

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Member Services & Common Contact-Center Inquiries

Member services teams field a wide variety of calls and requests. Below are the most common reasons members contact the plan:

• ID Card Replacement: Member lost or damaged their insurance ID card and needs a replacement.
• Find a Provider: Member needs to search the plan's network to find an in-network doctor, dentist, hospital, or specialist in their area.
• Check Claim Status: Member wants to know if a claim has been received, is in process, or has been paid/denied.
• Benefit Questions: General questions about what is covered under their plan (copay amounts, deductible, coverage for a specific service).
• Prior Authorization Status: Provider or member checking on the status of a pending PA request.
• Pharmacy Issues: Questions about drug coverage, formulary status, step therapy, or a specific prescription.
• Appeal or Grievance Filing: Member requesting help submitting an appeal of a denied service or filing a complaint about quality/service.
• Change Primary Care Provider: Member requesting to change their assigned or chosen PCP (HMO/Medicaid plans).
• Transportation (NEMT) Scheduling: Member requesting or scheduling a non-emergency medical transportation ride.
• Enrollment / Disenrollment: Questions about enrollment period, plan changes, or requests to disenroll.
• Billing / Out-of-Pocket Costs: Member asking about their deductible, out-of-pocket maximum, or total remaining liability.

Member services is often the first point of contact for understanding coverage and navigating the appeals or grievance process.

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Quick Glossary: Operational Terms