Referral Management and Authorization

This is the fifth article in the Medical Management "Signature Series" by Managed Care Resources, Inc. -- articles on topics in managed care written by experts in the field. The author of this article is Esther Morales.

"Referral management" is often the most onerous of all managed care processes for both physicians and for members. It is perceived as a bureaucratic, paper-shuffling exercise, which pits the physician, the member, and the member's family against the "Insurance Company."

Referral management is the process by which primary care physicians (PCPs) determine if they need to refer a member either to a specialist or for services to be performed outside the PCP's office (diagnostic tests, outpatient surgery, home health car, etc.). If a referral is necessary, the PCP also needs to decide to whom the referral is made, for how long, and for what services.

Scope of Practice

Does a member need a referral to a specialist or for services outside the PCP's office? This is determined by the scope of practice of the PCP. Internal medicine physicians and family practitioners have different training and expertise, with family practitioners more comfortable, in general, performing office-based minor surgical procedures and diagnostic procedures (stitches, sigmoidoscopies, etc.). The scope of the PCP's practice is also based on the medical group's expectations and the on-going training provided by the group for the PCP. If the PCP has the training, expertise and expectation to perform certain tests and procedures, then there is no need to issue a referral for their performance.

Referral Guidelines

Many medical groups have developed their own internal referral guidelines, sometimes in cooperation with their specialists. These guidelines are for common, non-life threatening diagnoses, and describe the test, therapies, and/or treatments a PCP should perform prior to referring a member to a specialist. Everyone in a capitated environment (both PCPs and specialists) should have incentives to ensure that the referral specialists spend their time only with appropriate referrals, thus guaranteeing adequate access for capitated members. If the specialists are also capitated, then they may well insist on implementing referral guidelines.

There are also proprietary referral guidelines, such as those developed by Milliman and Robertson1, an actuarial company which has developed managed care guidelines for acute inpatient hospitalizations, skilled nursing stays, and home health care, as well as primary care. Milliman and Robertson referral guidelines are consensus-based, literature-driven protocols, developed, refined and tested by physicians from all over the country, and are purchased and utilized by many health plans and medical groups. Frequently the medical management recommended by these guidelines resolves the illness and eliminates the necessity for specialist referral. Referral guidelines can be viewed as educational checklists for the PCP --to ensure that the most appropriate and least invasive work-up/treatment is performed prior to referral. On the other hand, the guidelines can be viewed as intrusive, "cookbook medicine," which tend to eliminate physician expertise, intuition and autonomy.

Problems with Guidelines

If all the PCPs in the medical group would utilize the same referral guidelines for all their members, there would be no need to "manage" the referral process, because the PCPs would themselves be doing the managing. This consensus would eliminate the need for any additional medical or insurance oversight of referrals. However, many PCPs do not want to utilize the guidelines, especially for members they feel to be exceptions (of course guidelines are designed to deal with exceptions, so this should not be a legitimate concern for the well-informed PCP).

Also, alas, many PCPs do not want to be seen as the "enforcer" in their relationship with their patients. If a patient demands a referral to a specialist, but the referral is not medically indicated, some PCPs want the "Medical Group" or the "Insurance Company" to be the one to deny the request. These PCPs feel that by refusing patients' requests, they run the risk of destroying their physician-patient relationships. This is even more problematic when the physician believes that a certain treatment or therapy is medically indicated, but it is not a benefit covered by the insurance company. For this reason, the medical group or insurance company usually ends up being the entity which manages non-appropriate (not meeting guidelines) and non-covered referral requests, and the referral/denial determination is removed from the control of the PCP.

Referral Authorization

If a referral is necessary, how does the PCP determine to whom the referral is to be issued? Most of the referrals will be to specialists within the PCP's own medical group, and will not require any differentiation or knowledge about the member's insurance coverage. However, some types of referrals require familiarity with the specifics of the various insurances. For example, one insurance company may utilize ABC Home Health Care, while another uses only XYZ Home Health Care; or one specific insurer may utilize "centers of excellence" for cardiovascular surgery, while another has an agreement with the cardiovascular surgeons at the PCP's hospital. These contracting details of "preferred" and contracted networks by the many different insurers are often so complicated that the ordinary PCP needs cheat sheets, office-based computers, and administrative personnel and/or management companies to sort out the requirements. This serves to exacerbate the PCP's frustration with the referral process, because this complicated system necessitates administrative assistance and oversight to ensure that the preferred network of specialists and vendors is utilized. PCs feel these are non-value added medical care costs.


Service Authorization

When a referral is appropriate, covered, and issued to the "preferred" provider, how does the PCP decide the number of visits to authorize, and for which services? For some types of referrals this is obvious: For example, members with end-stage renal disease will need prescribed periodic dialysis for the rest of their lives. But in the majority of cases this decision is not so obvious. If a member needs to be issued a referral to a surgeon, and the PCP assumes that the surgeon will decide, after running tests and examining the member, that a surgical procedure is in fact necessary, what should the PCP authorize? He or she could immediately issue all the referrals necessary for the examination, the surgical procedure, and all other required services as part of the initial referral. Or simply authorize the member's initial referral to the surgeon, and then issue any necessary additional referrals later, after consultation with the surgeon. A decision made in this situation may be very different from the decision the PCP makes when ordering home health care services. The initial referral determination regarding the number of visits and types of services to authorize may depend upon the relationship between the PCP and the specialist or vendor, and/or the requirements of the medical group.

From a member perspective, the member should not have to be responsible for making the referral process work. Members should not have to make additional trips to pick up or deliver referrals, and everything ordered by someone in authority should be paid for. However, making this complicated referral management process efficient and "seamless" for the member requires the following:

  • PCP support for/utilization of referral guidelines.
  • Specialist/vendor support for/utilization of referral guidelines.
  • PCP/office staff knowledge of preferred specialists/vendors.
  • PCP/office staff accessibility to preferred specialists/vendors, and vice-versa.
  • PCP/office staff accessibility to different benefit guidelines for different insurers.
  • PCP training in patient management and effective communication skills.
  • PCP authority to issue global referrals (i.e., all services associated with a surgical procedure, total OB care, etc.).
  • Automatic payment of certain types of referrals (i.e., all referrals to "preferred" specialists, certain emergency room diagnoses, etc.).
  • Referral and claims systems which communicate correctly to each other, ensuring that all appropriate claims are paid.
  • Referral-based information, by PCP, specialist, and patient diagnosis, of the types and number of referrals issued.

The current micro management of the referral process is an indication that efficient referral systems are not yet widely in place. In the meantime, member complaints about these processes have created the growth of "open-access" insurance products, and network variations, like fee-for-service PCPs and capitated specialists. Developing efficient referral management processes that are effective, and not onerous to physicians and members, is the next medical management managed care challenge.

This article was written by Esther Morales. Esther has over 15 years experience in managed care and utilization management. She is the Associate Executive Director for Utilization Management for a 600,000 member managed care organization in the Chicago area. Prior to her working for the HMO she was part of a senior team of consultants for a large "Big 6" consulting company. She has written numerous articles about utilization management and regularly speaks at national meetings.

For more information on Managed Care and Quality Management please contact us at (630) 325-6543 or by email at .

We hope that you will join us as we explore all of the elements of medical management in the coming months. In addition, we are offering a "Signature Series" on "Managed Care Contracting". We hope that the two series combined will lessen the mystery of managed care and help level the playing field between providers and payers.

Ira H. Rosenberg

Ira H. Rosenberg

President, Managed Care Resources, Inc.


1. Milliman & Robertson, Healthcare Management GuidelinesTM. Proprietary guidelines which can be purchased by contacting Milliman & Robertson, Inc., 1301 Fifth Avenue, Suite 3800, Seattle, WA 98101-2605. Fax: 206-623-9751. Healthcare Management GuidelinesTM are also available on-line, by utilizing the HMGTM on-line software.

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