A new federal prior authorization requirement has been live in Tennessee since January 19th 2026. Most surgery centers in the state are still not fully prepared for it.

Here is what it is, what it covers, and what you need to have in place.

What the Demonstration Is

CMS announced a five-year prior authorization demonstration for certain services provided in ambulatory surgical centers across 10 states, implemented in two phases beginning January 2026. Tennessee is one of them.

The timing is not coincidental. This demonstration follows CMSs’ 2020 Outpatient Prospective Payment System Final Rule, which established the same prior authorization process for the same procedures when performed in hospital outpatient departments. That rule took effect July 1, 2020. Since then, CMS observed a significant decline in spending in that setting and a corresponding shift in utilization to ASCs. This demonstration closes that gap.

The project targets procedures identified as high risk for cosmetic rather than medically necessary use, with stated goals of improving oversight and reducing exposure to fraud, waste, and abuse. 

Which States Are Enrolled and Why Tennessee Is in Scope

The 10 states included in the demonstration are California, Florida, Texas, Arizona, Ohio, Tennessee, Pennsylvania, Maryland, Georgia, and New York. 

For Tennessee specifically, ASCs must obtain prior authorization for affected services beginning on dates of service January 19th, 2026. 

Tennessee’s inclusion is significant. The state has a dense concentration of independent, physician-owned ASCs across Nashville, Brentwood, Franklin, and the surrounding metro. Many perform the exact procedure categories in scope. This is already affecting reimbursement for Medicare fee-for-service patients at centers across Middle Tennessee.

Which Procedures Are Affected

The service categories targeted by the demonstration are blepharoplasty, botulinum toxin injections, panniculectomy, rhinoplasty, and vein ablation procedures. 

These five categories cover approximately 35 to 40 specific HCPCS and CPT codes. Note that several vein ablation codes were removed from the list effective January 1, 2026. Confirm the current count against your MAC's posted code list before submitting a prior authorization request, as the applicable codes are subject to ongoing revision.

Two important scope clarifications:

First, this prior authorization process applies only to Medicare fee-for-service. It does not apply to patients enrolled in Medicare Advantage plans. Medicare Advantage patients follow their standard payer prior auth process as they always have.

Second, the demonstration does not apply to procedures performed for purely cosmetic reasons. However, if a procedure is cosmetic, you still need to issue an Advance Beneficiary Notice to inform the patient that Medicare will not cover it.

If your center performs vein ablation, botulinum toxin injections under covered diagnoses, or eyelid surgery with functional impairment documentation, you are likely in scope for a meaningful portion of your Medicare volume.

How the Process Works

Prior authorization is voluntary under this demonstration. However, if a provider elects to bypass prior authorization, applicable ASC claims will be subject to prepayment medical review. 

Bypassing the PAR process does not mean you avoid review. It means your claim is subject to prepayment review before payment is released. The 30-day clock that applies to standard PAR decisions does not apply the same way to prepayment review. Under prepayment review, Palmetto GBA must first issue an Additional Documentation Request; you have 45 days to respond, and the 30-day review clock only starts after documentation is received. The unpredictability is in the ADR cycle, not just the review itself.

Here is how the standard process works:

1. Your center submits a Prior Authorization Request to your Medicare Administrative Contractor before performing the service. Tennessee's MAC is Palmetto GBA, Jurisdiction J. Palmetto has published procedure-specific guidance documents and resources on their Medical Review and Outpatient Prior Authorization webpage.
2. PAR requests can be submitted via Palmetto GBA’s ASC Prior Authorization Request Form by mail, fax, or electronically. Tennessee providers could begin submitting PARs on January 5, 2026 - two weeks before the January 19 effective date of service.
3. The MAC issues one of three decisions: provisional affirmation, non-affirmation, or partial affirmation. Each decision comes with a Unique Tracking Number, which is valid for 120 days from the decision date. That UTN must be included on the ASC claim submitted for payment. 
4. If you receive a non-affirmation, you have unlimited opportunities to resubmit the PAR before submitting the claim. But here is the piece that catches centers off guard: claims submitted with non-affirmed procedures will be denied, and associated and related services performed in ASCs will also not be paid if the primary service subject to prior authorization is not eligible for payment. 

A non-affirmed procedure does not just affect that line item. It can pull down related services billed on the same claim.

What Documentation Is Required

This is where most centers will have problems.

CMS emphasizes that this initiative does not modify existing Medicare coverage or introduce new documentation requirements. It formalizes the review of medical necessity earlier in the claims process to help reduce denials and streamline appeals. 

That framing sounds reassuring. In practice it means your documentation needs to be complete and defensible before the service is rendered, not assembled after the fact during an appeal.

The PAR must include necessary documentation from the medical record to support medical necessity and any other relevant documents as deemed necessary by the MAC. 

For each of the five affected procedure categories, medical necessity documentation needs to establish that the procedure is not cosmetic in nature:

For blepharoplasty, documentation must establish functional impairment: drooping eyelids affecting vision, trauma-related eyelid defects, or painful muscle contraction. Photographs are strongly recommended and should represent the physical signs documented in the record.

For vein ablation, the record must support chronic venous insufficiency and demonstrate that conservative treatment failed before ablation was pursued. Palmetto GBA LCD L38720 is the governing reference.

For botulinum toxin injections, LCD L33458 outlines twelve covered conditions. Documentation needs a covered diagnosis, clinical effectiveness support noting the date of the last injection, and medical necessity justification for any guidance procedures performed.

For panniculectomy, the record must show the pannus is causing inability to walk normally, chronic pain, ulceration, or intertrigo that recurs over three months despite appropriate medical therapy. Preoperative photographs should be prepared in advance.

For rhinoplasty, the record must describe the condition, identify the cause of obstruction, and document the conservative management trialed and for how long, whether the indication is septal deviation, recurrent sinusitis, or obstructed breathing interfering with CPAP use.

Incomplete documentation will be the leading cause of delay. ASC staff and surgeons should review documentation templates, update EHR workflows, and train schedulers on the new submission process. 

The standard your documentation needs to meet is the same standard your MAC already applies in the hospital outpatient setting. If you have not looked at Palmetto GBA's LCD guidance for these procedure categories in the HOPD context, that is your starting point.

What Happens If You Get It Wrong

If you bypass the PAR process, your claim goes to prepayment review. Palmetto GBA will issue an Additional Documentation Request; you have 45 days to respond. The review clock starts after documentation is received. Your cash flow takes the hit during the entire ADR-and-review cycle.

If you submit a claim with a non-affirmed procedure, it is denied. That denial becomes an initial payment determination, which triggers appeal rights but you are now absorbing the administrative cost of the appeal process and the delay on that revenue.

Performing procedures without affirmed authorization could also create repayment or False Claims Act exposure. Centers should document decision letters and maintain audit trails for every case. 

The financial impact compounds quickly. If your center performs 15 to 20 affected procedures per month for Medicare fee-for-service patients and even a portion of those go through prepayment review or result in denials, the accounts receivable impact is material. The administrative labor required to chase those claims through review and appeal does not appear as a line item, but it shows up in your billing team's capacity and your days in AR.

How to Prepare: An Operational Checklist

Step 1: Identify your exposure. Pull your Medicare fee-for-service claims from the past 12 months filtered by the five affected procedure categories. That tells you your actual volume and which procedure types are most frequently affected at your center.

Step 2: Get familiar with Palmetto GBA's ASC PA resources. Go to Palmetto GBA's website and locate their ASC Prior Authorization section under Medical Review. They have a specific PAR form for the demonstration, guidance documents, and submission portals. Your team needs to know this workflow before the next affected case is scheduled.

Step 3: Audit your documentation templates. For each affected procedure type, confirm that your intake and clinical documentation workflows are capturing the information required to support a PAR, not just the information required to support a claim in a post-payment audit. Those are different bars.

Step 4: Assign UTN tracking ownership. Each affirmed PAR generates a UTN valid for 120 days. That UTN must appear on the claim correctly. Assign someone to track every PAR submission, UTN, expiration date, and corresponding claim. A UTN that does not make it onto the claim correctly results in a denial even if the PAR was affirmed.

Step 5: Build a submission log. Track every PAR submission date, decision date, decision type, UTN, date of service, and claim outcome. This log serves two purposes: it gives you operational visibility into your approval rate and turnaround times, and it builds the compliance record you will need if you later apply for an exemption from the demonstration requirements. CMS has indicated it will implement an exemption process for providers with demonstrated compliance histories, though the eligibility threshold has not yet been finalized.

Step 6: Map your appeal workflow. Know in advance what happens when a PAR comes back non-affirmed. Who reviews the decision letter? Who assembles the additional documentation for resubmission? What is the turnaround expectation internally? Having that process defined before you need it is the difference between a one-week resubmission and a four-week delay.

The Bigger Picture

For Tennessee surgery centers, the window to get ahead of this is now. The demonstration is live. The centers that build clean PAR workflows today will have lower denial rates, better cash flow predictability, and a compliance record that positions them for exemption from the process over time.

The centers that treat this as one more administrative burden and route around it will be managing prepayment review queues and appeals backlogs by mid-year.

ExactRx is a precision revenue cycle company that validates coding, charges, and documentation against 80,000+ payer policies before claims go out the door. We deliver a 99% first-pass approval rate across all case types. Learn more at exactrx.ai or subscribe to the Exactrx Dispatch at exactrx.beehiiv.com.