What is a critical component of a managed care plan designed to control costs?

Prior authorization is a critical component of a managed care plan designed to control costs because it requires healthcare providers to obtain approval from the insurance company before delivering certain services or medications. This process helps ensure that only medically necessary and appropriate services are provided, which can prevent excessive or unnecessary procedures that could drive up costs. By implementing prior authorization, managed care plans aim to manage and reduce expenses while also maintaining the quality of care for patients.

This mechanism allows the insurance company to review the medical necessity of proposed treatments or tests before they are conducted, which can lead to better utilization of healthcare resources and overall financial management of the plan. It serves as a gatekeeping function, ensuring that costs are contained while also encouraging physicians to consider cost-effective alternatives in treatment approaches.