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An Estimate of the Net Benefits from Prior Authorization Policies in the U.S.

Robert Popovian and Wayne Winegarden

While originally a clinical tool, prior authorization policies administered by pharmacy benefit managers (PBM) and insurers of biopharmaceuticals are now primarily designed to manage costs. Prior authorization requirements are associated with reduced drug spending (the financial benefit), but they also impose administrative costs on providers, insurance plans, and employer-sponsored plans. Prior authorizations also worsen patient adherence to their prescribed medicines, which is associated with increases in overall healthcare spending. This analysis develops a model utilizing published estimates to quantify the costs created by prior authorizations compared to the financial benefits as measured by the reduced drug spending. Based on our analysis, healthcare costs associated with prior authorizations exceed the benefits of reduced drug spending increasing total healthcare spending by $1.9 billion per year. While additional research evaluating the net benefit from prior authorization policies is necessary, our analysis indicates that prior authorization policies as an administrative tool cannot be justified based on their net financial impact on the healthcare sector.