Insurance Pre-Authorization & Referrals

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Individuals or doctors must obtain pre-authorization from insurance companies before a medical procedure. In this lesson, you will learn about the pre-authorization and referral processes.

What Are Insurance Pre-Authorizations and Referrals?

Let's meet Cindy who has just visited her doctor. She was given a prescription as well as a requisition for a medical procedure. Her doctor advised Cindy that she will have to check with Cindy's insurance company to ensure that it will pay for the procedure. This is the first time that Cindy has used her health insurance policy, and she isn't sure how the process works. Let's see if we can help Cindy with this problem.


Insurance companies require pre-authorizations or prior approvals as a cost-saving measure to ensure that patients aren't undergoing unnecessary and costly tests. Pre-authorizations are reviews completed by an insurance company to ensure that the treatment plan or drug prescribed to a patient is medically necessary in the circumstances.

Let's assume that Cindy's doctor wants to send her for a particular medical procedure. Prior to approving the procedure, Cindy's doctor will have to explain why she thinks the procedure is medically necessary for Cindy. Her insurance company will complete its own review to verify that the procedure is medically necessary before Cindy undergoes it.

The process also verifies if Cindy is covered for this type of procedure under the terms of her health insurance plan. If Cindy and her doctor do not receive approval from the insurance company before the procedure, then it could deny the claim and not pay for the cost of the procedure.

An insurance company would also require prior authorization if Cindy's doctor suggests a surgical procedure. In this situation, Cindy's doctor would have to contact her insurance company and explain why she believes the surgical procedure is necessary.

Pre-approval is sometimes used when a doctor prescribes costly prescription drugs. The insurance company could suggest that Cindy try another medication first before approving the cost of a more expensive drug or it may suggest that Cindy use a generic brand instead of the non-generic one that her doctor prescribed. The pre-approval process could also identify any potential dangerous drug interactions that Cindy may experience as a result of her doctor prescribing a particular medication.

Not all services require pre-authorization from an insurance company. For example, Cindy would not have to obtain prior approval in order to visit her family doctor or if she requires emergency care at a hospital.

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