2.4 Prior authorization & coordination of benefits

Before many services are rendered, payers require the provider to demonstrate that the care is appropriate and covered. These utilization-management steps protect the payer from unnecessary costs and protect the practice from denials—if the CBCS misses them, the claim is denied and the charge often cannot be passed to the patient.

Referrals, Authorizations, and Medical Necessity

Referral vs. prior authorization

• A referral is a written recommendation from a primary care physician (PCP) directing a patient to a specialist. Referrals are central to HMO and POS plans, where specialist care without a PCP referral is denied.
• Prior authorization (precertification, preauthorization, or predetermination) is the payer's advance approval of a specific service, procedure, medication, or admission. The provider submits clinical documentation, and the payer issues an authorization number that must be recorded and reported on the claim. Common triggers include inpatient admissions, advanced imaging (MRI/CT), surgeries, DME, and high-cost drugs.

The distinction matters: a referral comes from the PCP, while an authorization comes from the payer. Obtaining prior authorization is not a guarantee of payment—the claim must still meet all other requirements—but failing to obtain it when required is an almost automatic denial.

Medical necessity

Payers only cover services that are medically necessary—appropriate for the diagnosis and consistent with accepted standards of care. Medical necessity is demonstrated by linking the correct ICD-10-CM diagnosis code to the CPT/HCPCS procedure code so the claim shows why the service was needed; a mismatch is a frequent cause of denial. When a service may not be covered under Medicare, the provider has the patient sign an Advance Beneficiary Notice (ABN), acknowledging the patient may be financially responsible. Payers publish coverage rules through national and local coverage determinations (NCDs and LCDs).

If a service was performed emergently without time to obtain authorization, some payers allow a retroactive (retro) authorization within a set window; otherwise the denial stands. Tracking authorization expiration dates and visit limits—for example, a referral good for only three visits—is part of the CBCS's ongoing follow-up duties.

Coordination of Benefits (COB)

When a patient is covered by more than one health plan, coordination of benefits (COB) is the set of rules that decides which plan pays first (the primary) and which pays second (the secondary). COB prevents duplicate payment: total reimbursement cannot exceed 100% of the allowed charge. The primary plan pays as if it were the only coverage; the claim, along with the primary's remittance advice, then goes to the secondary, which may pay part or all of the remaining balance up to its allowed amount.

Example of the money flow: a $200 allowed office charge is billed to the primary, which pays $160 and leaves a $40 balance. Instead of billing the patient, the CBCS sends the claim and the primary's remittance to the secondary, which may cover the $40. The patient's out-of-pocket cost is reduced, and the providers are paid without total payment exceeding the allowed amount.

Common COB rules

• Own plan first: the plan on which the patient is the subscriber/employee is primary to a plan on which the patient is a dependent.
• Active vs. retired: an active employee's plan is primary to a retiree or COBRA plan covering the same person.
• Medicaid is always last (payer of last resort).
• Medicare Secondary Payer (MSP) rules can make Medicare secondary—for example, when a working-age patient has active employer group coverage.
• Workers' compensation pays first for job-related injuries.

The Birthday Rule

For a dependent child covered by both parents' plans, the birthday rule determines primary coverage: the plan of the parent whose birthday falls earlier in the calendar year (month and day, not the year of birth) is primary. If both parents share the same birthday, the plan in effect longer is primary. When parents are divorced, a court order or custody arrangement usually overrides the birthday rule.

Example: the mother's birthday is March 10 and the father's is September 22. The mother's plan is primary for the child because March comes before September—regardless of which parent is older.

Putting It Together

The CBCS workflow ties these concepts together: at registration, verify all coverage and determine the correct order of benefits; confirm whether a referral or prior authorization is needed and obtain the number; ensure diagnosis and procedure codes support medical necessity; bill the primary payer first; and, after the primary's remittance advice posts, submit the balance to the secondary. Handling authorization and coordination of benefits correctly up front is one of the highest-impact ways the CBCS prevents denials and speeds reimbursement.