What happens when the insurer can say no? Assessing prior authorization as a tool to prevent high-risk prescriptions and to lower costs

Insurers are increasingly requiring physicians to obtain prior authorization before prescribing drugs that are costly or have high abuse potential. These prior authorization requirements have the potential to reduce risky prescriptions and to lower prescription drug costs, but little is known about their ability to do either. This study estimates the effect of a prior authorization requirement for certain costly and abuse-prone drugs on prescription drug use and costs for work-related injuries in Texas. The findings indicate that the prior authorization requirement reduces the likelihood that claimants receive non-preferred drugs as well as insurers' spending on non-preferred drugs. While there is some substitution to preferred drugs, I do not find evidence of large increases in spending on preferred drugs. The estimated effects on average total pharmacy spending are imprecise, though there is suggestive evidence that the prior authorization requirement reduces the likelihood that a claim has high prescription drug costs. The results provide strong evidence that the prior authorization requirement drastically reduces the likelihood that patients receive combinations of drugs that have contributed disproportionately to the rise in prescription drug overdoses. Despite the success of prior authorization in lowering spending on non-preferred drugs and in reducing high-risk prescriptions, I find little evidence that prior authorization has disproportionately large effects on the most dangerous prescription drug use and only weak, suggestive evidence that it has larger effects on prescription drug use that likely arises because physicians are not fully informed, suggesting that prior authorization requirements do not necessarily target the riskiest drug use.