What is utilization management?

Utilization management is a set of processes that are used by or on behalf of purchasers of health care benefits. It is used to facilitate the overall as well as case-by-case assessment of the course of the health care provider. It also manages healthcare costs, ensuring their appropriateness, and creates a value-based health care ecosystem.

The utilization management function promotes the role of planned health care services, procedures, and facilities on the health care costs management. The purpose of utilization management is cost-cutting. Several sorts of activities are tracked by the utilization management such as – patient admissions, inpatient days, Skilled Nursing Facilities (SNF), SNF inpatient days, home visits, special tests, and so on.

Utilization management, medical care
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Participants of utilization management

The health care structure does not run only because of the involvement of the patients, doctors, nurses, hospitals, and insurance companies. There are other participants in the healthcare ecosystem, some of them are enlisted below:

  • Medicare: Medicare is the country's healthcare system for people over the age of 65. People below the age of 65 who have disabilities or who have the end-stage renal disease may also be eligible for Medicare. The program assists with healthcare costs, but it does not cover all medical expenses or the majority of clinical long-term care costs of the payer.
  • Medicaid: Medicaid is a government assistance program. It assists low-income people of all ages. Patients are usually not required to pay any portion of the costs for covered medical expenses. Sometimes a small co-payment is required. Medicaid is a federal-state partnership program. It differs from one state to another. State and local governments in accordance with federal guidelines manage it.
  • National Association of Insurance Commissioners (NAIC): NAIC is the regulator and policy formulator for the insurance industry in the U.S. It provides insurance commissioners with experience, data, and analysis to help them successfully regulate the business and safeguard customers.
  • American Hospital Association: The governing body of the hospitals acts as the key facilitator behind the success of utilization management. It is a national organization that represents and assists hospitals and healthcare networks of all types.
  • Auditors: They are the prime commanders of the transparency of the working of hospitals and insurance companies. They ensure that the company complies with the rules and regulations.
  • Utilization Review Accreditation Commission (URAC): URAC is a non-profit organization that is in charge of prescribing URAC standards and accrediting various utilization programs. It contributes to the improvement of health care quality by accrediting medical care organizations.

Types of utilization management

The utilization management process is a structure of the various steps involved in the healthcare subject of any individual. The process flow is explained below:

Prospective review

A prospective review is the pre-admission examination/pre-certification of the patient in case of medical necessity. It involves deciding the course of treatment. Prior to admission, an evaluation of the medical necessity for the performance of services or scheduled procedures is done in this review. However, this may get modified during the treatment.

  • Checking the insurance cover and eligibility of the patient as per the guidelines.
  • Noting the medical conditions, medical records, and general health specifications of the patient.
  • A specific treatment course is selected based on the medical necessity.

Concurrent review

Concurrent as the word suggests is the monitoring review of the patient during the treatment as per the guidelines. The medical industry has access to a huge amount of patient data and information to aid in decision-making. Hospitals keep track of this information. A process of assessing patient care and services during a hospital stay to confirm the need for care and to seek options for clinical inpatient treatment. It usually occurs during the course of treatment between 24 hours to 72 hours of the admission of the patient to check the patient’s recovery progress. It also involves taking care of the problems if any that may lead to claim denial to the patient.

  • Continued tracking of the patient’s progress.
  • Review of patient data by the insurer. Patient data is the information of the patient related to his treatment.
  • Decision on the course of further treatment.
  • If any change in the treatment, the physician can appeal through a proper appeal process.

Retrospective review

At the last stage of the treatment, a retrospective review is performed. The review assesses the appropriateness and efficacy of the treatment after it has been completed in order to give data for future patients. This stage involves qualitative assessment of the patient’s course of treatment for further use and for the benefit of other patients as well as educating the patients about the care that needs to be taken further. This step also involves ensuring that the payment made by the payer is appropriate enough and the paperwork is done error-free. The retrospective review compares many aspects of a claim by the payer to medical records, and the difference between the actual payment and the proper payment is computed for reimbursement.

  • Review of patient’s records by the insurer.
  • The insurer may at times update their coverage criteria.
  • The insurer may also deny the payment at times to the payer where the physician or the patient has the option to appeal.

Benefits of utilization management

A properly structured utilization management program is the key success factor in the efficiency of this program. Some of the benefits of this program are:

  • This program is utilized by the patients in the form of insurance benefits, better health care amid medical necessity and reduced denial of claims. The patients will not be subject to unnecessary treatments for the sake of fees for the doctors. The patient will be well aware of the necessary appeal process while claiming.
  • The program is used by the health care service providers in case-by-case better patient-centered healthcare services, effective cost management, resourceful utilization management program, and profound evaluation of health care procedures.
  • In the case of insurance companies, utilization management programs help in better claim management and better data utilization.
  • Utilized by the doctors as the utilization management program enables a smooth flow of services without financial difficulties.

Challenges in utilization management

Utilization management is quite beneficial to different parties. However, it is still a challenge to structure this program for a wider reach and optimum efficiency. Utilization management being used as a cost-cutting approach has raised various debates as well. Physicians have been open in their criticism of utilization management, claiming that it has hampered their clinical autonomy and added to an already excessive administrative load. There are several problems in the scenario of utilization management. Following are the challenges faced:

  • The challenge of this program is the resistance on the part of health care service providers, patients, and insurance companies attributed to their needs. In addition, there is non-acceptance of the program by the healthcare service providers from whom the patient wants to undergo treatment.
  • The program may not be budget-friendly for several classes of clinical establishments and patients, the payers, or the service providers.
  • The program may have a higher rate of claim denials because it requires clear documentation of the treatment which may not either be preferred or not possible for the service provider or the patient.
  • Scarcity of the clinical options available and their ineffectiveness of the clinical tests to recognize the disease. The outdated ineffective clinical treatment processes are also not covered.
  • Adhering with the Utilization Review Accreditation Commission (URAC) is not practiced as well as the patient is unaware of the appeal process.
  • There is the ineffectiveness of the guideline reviews. Also, there is prolonged paperwork due to guidelines that may differ the priority of treatment for the patient.
  • Disagreement or discontinuance of a contract between the healthcare service provider and the insurance company.

Future scenario of utilization management

  • Excessive involvement of insurance companies in the treatment process may displease the doctors, service providers, and patients.
  • Qualified professionals in the field of technology and modern medicine will lead the healthcare sector. Therefore, the education system needs to be upgraded in order for the doctors to adapt and make use of the technology along with their expertise.
  • The emergence of artificial intelligence (AI) in the field of healthcare may render doctors irrelevant in the future.

Context and Applications

This topic is significant in the professional exams for both undergraduate and graduate courses, especially for

  • Bachelors in Business Administration (Finance)
  • Masters in Business Administration (Finance)
  • Masters in Healthcare Management

Practice Problems

Question 1: Which of the following is a review involved in utilization management? 

    1. Prospective review
    2. Introductory review
    3. Critical review
    4. None of the above

Answer: Option a

Explanation: Prospective, concurrent, and retrospective are the 3 types of reviews involved in utilization management.

Question 2: Who reviews the medical records of the patient before the claim process?

    1. Insurer
    2. Doctor
    3. Utilization Review Accreditation Commission
    4. All of the above

Answer: Option a

Explanation: The insurer does a retrospective review of the medical records before the claim process.

Question 3: When is the concurrent review performed?

    1. Between 24 and 72 hours of admission of the patient
    2. After completion of the surgery
    3. Before discharge
    4. One week after admission

Answer: Option a

Explanation: Concurrent review is performed between 24 and 72 hours of admission of the patient.

Question 4: Who governs Medicaid?

    1. Government
    2. URAC
    3. Insurance companies
    4. All of the above

Answer: Option a

Explanation: The government runs Medicaid for patients over the age of 65.

Question 5: Which of the following is not a benefit of utilization management?

    1. Lower cost
    2. Increased healthcare
    3. Increased claim denials
    4. Informed patients

Answer: Option c

Explanation: Utilization management is also effective in lowering the instances of claim denials.

Common Mistakes

The students often misunderstand utilization management as a managerial function in common terms. However, it is specifically an innovative form of insurance.

While studying utilization management, it is important to read the following topics to get a better knowledge:

  • Life insurance
  • Other insurance policies providers
  • Medical billing
  • CPT and HCPCS coding

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