The rising cost of healthcare is perhaps one of the biggest issues in the world today.
For far too many people, life-saving treatment is getting further out of reach. On the flipside, hospitals are also struggling to manage their costs and stay profitable.
The answer to this dilemma is utilization management (UM). With UM, hospitals can manage their resources much more effectively while helping patients get their claims approved by their insurance providers.This article will answer the question, “what is utilization management?” as well as how it’s applied to modern healthcare.
What is Utilization Management in Healthcare?
In healthcare, utilization management is the techniques and policies for evaluating the necessity of medical treatments and services on a case-to-case basis.
The typical utilization management process flow looks like this:
It all starts with a proposed treatment or procedure. A nurse or physician will evaluate a patient’s healthcare plan to see if it can cover the proposed procedure. They will also assess if the treatment is indeed necessary and how much of it is needed. The reviewer will then submit the proposal to the healthcare plan for approval. If approved, treatment pushes through. Otherwise, the physician can appeal the decision.
Of course, not all hospitals will follow this series of steps. Some institutions might have a different approach.
The review process is perhaps the most crucial part of utilization management. There are three types available: prospective, concurrent, and retrospective. Each of these will have a different utilization review process flowchart and use cases.
The first is the prospective review, which happens before treatment starts. The goal here is to evaluate the procedure’s necessity and rule out duplicate treatments. It’s often used during routine or urgent treatment but never for emergency room (ER) cases. In many cases, insurance companies can overturn a doctor’s orders for treatment, which can cause resentment among patients and staff. A prospective review is also called prior authorization pre-service review, pre-procedure review, or a pre-admission certification.
The second type is the concurrent review, which happens if treatment is already in progress. The goal here is to monitor the patient’s progress and the resources used during treatment. This is important because insurance companies can still deny coverage later on. Reviewers may also stop treatment prematurely or discharge a patient earlier than planned.
A concurrent review consists of three major areas. First, discharge planning lays out the criteria for the patient to complete treatment and leave the healthcare facility. Next, care coordination assesses the patient’s care if multiple providers are involved. Finally, care transition looks at the process of transferring patients from one facility to another.
The third type is a retrospective review. As the name suggests, this review is performed after the treatment is completed. It focuses on the effectiveness and appropriateness of the treatment, which can be used in various situations.
For example, doctors can use the findings of a retrospective review to determine if they can be given to similar patients. Hospitals can also use findings as leverage when negotiating contracts with insurance companies.
But the most important use of retrospective reviews is in terms of claims. For instance, you can use the results to check if the reimbursements on the procedure are accurate. It can also be used to challenge the denial of claims.We’ve so far given a picture of what utilization management is in a healthcare setting. Before we move further, let’s provide a more formal definition of the term.
What is the Utilization Management Definition?
According to the book Controlling Costs and Changing Patient Care? The Role of Utilization Management, the definition of utilization management is:
A set of techniques used by or on behalf of purchasers of health care benefits to manage health care costs by influencing patient care decision-making through case-by-case assessments of the appropriateness of care prior to its provision.
Note the term case-by-case assessments. That means utilization management practitioners must evaluate each patient case to see if it’s necessary to perform medical procedures and services per a health insurance plan. Often, reviewers use evidence-based guidelines in their analysis.
The responsibility of reviewing cases often falls to a registered nurse (RN) with a utilization management background, sometimes in partnership with a physician adviser. If they cannot resolve an issue independently, they can escalate it further to a UM manager.Using this definition, you can deduce any utilization management program’s goals. Let’s talk about these in the next section.
The Goals of Utilization Management
The goal of utilization management is three-fold.
One is that it helps lower costs. Utilization management is crucial due to the rising costs of healthcare. The procedure helps hospital management evaluate every procedure done on patients, before and after, to check if it’s efficient and necessary. It can also benefit insurance companies, as it allows them to approve only legitimate claims.
The second goal of utilization management is better patient care. Utilization management can help verify if a procedure has an impact on the patient’s health. These findings can then be used to inform the decision-making of similar treatment in the future. This is especially useful for assessing new or experimental medical treatments.The third goal of utilization management is to reduce the denial of claims. UM reviews can gather data from procedures, giving healthcare providers insights to back up their claims.
Challenges of Utilization Management
Of course, utilization management isn’t without its challenges. One of the risks of UM is that it can create animosity and resentment between patients, healthcare providers, and insurance companies.
For example, if the insurance provider rejects treatment, the burden of paying it falls on the patient. This can happen after treatment has been done, at which the patient will have no choice but to cover the often high hospital bill.
Utilization management also tends to favor safer and more cost-effective treatments. If a patient requires an experimental procedure, getting the insurance company to approve it will take more legwork. At worse, the patient will have to bear the treatment cost.
The insurer’s guidelines might also not be doctors’ primary concern when giving care. At worst, they can conflict with each other. Of course, the doctor will prioritize health over costs in these cases, but that might create tension later on when claims are denied, and patients need to shoulder the cost of treatment.
Utilization management can also be a massive burden to staff. Instead of just delivering care, nurses need to do review and analysis tasks. This can also introduce delays in decision-making, which is unsuitable in life-or-death situations. In fact, staff might even resist utilization management procedures, which they might see as unnecessary red tape imposed by insurance companies.
Implementing a utilization management program can be challenging and time-consuming. It will require an overhaul of hospital procedures and policies. It can’t be done overnight, and certainly without buy-in from everyone, from management to nurses. Staff must realize the value of utilization management if they are to commit their effort to do it.
To develop a utilization management program, hospitals must consider several things. For example, they must consider the consequences of involving third-party insurance companies in healthcare decisions. This is challenging since the two entities have drastically different aims; for utilization management to work, they must reach a compromise.
Hospitals must also clearly define the roles and responsibilities of providers, patients, and members of the UM Committee. They must also have policies in place to tackle any complaints and disagreements that are guaranteed to surface.
Utilization management must be considered in every hospital’s treatment and service, including both primary and tertiary care. This can be incredibly difficult, as some specialties require a different perspective during the review process.
Utilization management also needs approval from several state and federal agencies, including Medicare. In addition, you’ll need to integrate with various insurance companies and conform to their rules and regulations.And in the end, utilization management might not effectively lower costs. Studies have shown that the effort and time spent doing UM isn’t worth the minimal result it gives. Of course, it still depends on the hospital’s operation and costs.
What are the Basic Three Components of Utilization Management?
Proper utilization management is composed of three distinct components.
The first component is step therapy. The concept here is that patients should always try a lower-cost but effective treatment first. If it does not produce the intended outcome, then the patient can switch or step up to a higher-tier drug or procedure.
Step therapy is crucial because it ensures that patients will always get the most economical treatment for their condition. It also helps make treatments safer by not trying a more expensive or experimental procedure or drug as a default.
The second component is a prior authorization. This is where a healthcare plan or insurance provider requires prior approval before covering claims for a treatment or procedure. This component of utilization management can help make treatments safer for the patients, as it prevents drug misuse or overdose. For various reasons, some doctors might also prefer a drug that’s not in the best interest of the patient’s health; prior authorizations avoid these occurrences.
The last component is quantity limits. This sets the amount of drug a patient can get for a period. Quantity limits are essential for both safety and economic reasons. It guarantees that patients only consume the proper dosage. At the same time, it helps the hospital reduce waste.
Utilization Management Examples
After thoroughly discussing utilization management, let’s end this article with an example.
But first, let’s talk about some more review methods.
A continued stay review evaluates whether every day that a patient is in the hospital is necessary for their recovery. This is important because stays are huge cost drains for the patient and the hospital. Moreover, patients might be withholding their room from another patient who needs it more. This was quite apparent during the COVID-19 pandemic, where there was a shortage of hospital beds worldwide.
Going hand in hand with a continued stay review is the discharge planning. This method lays out how a patient will transition from one level of care to another (for example, when the patient needs to move from an ICU bed to a regular room after a procedure). From a utilization perspective, discharge planning ensures that the patient gets the proper level of care they need while regulating the hospital’s resources.
A second opinion is a review gathered from another doctor or physician stating whether a treatment or procedure is necessary to perform. This review is required to eliminate biases or mistaken diagnoses. As such, it’s often done or required for high-cost procedures, such as complex surgeries.
Now, let’s look at a utilization management example.
Let’s say a patient got admitted to the ER due to a car accident. The utilization management reviewer (a nurse) check’s on the patient’s health information and condition to determine the appropriate treatment.
For example, the nurse’s protocols might tell her to transfer the patient to a trauma center instead of the hospital’s ICU. This might be the decision if the patient’s injuries are severe. Otherwise, the patient might be transferred to a regular hospital room for recovery if the condition is not urgent or life-threatening.
The nurse will do this initial review but might consult with the patient’s physicians and healthcare providers. They might inform the nurse that the patient should be rightfully in the ICU due to additional information that the reviewer might not know.
Once the utilization management reviewer has finalized the patient’s treatment plan, they would then coordinate with the insurance company. The insurer would then deny or approve the treatment plan. Often, they would add conditions for approval, such as a set number of days for hospitalization.
The utilization management reviewer then regularly checks up on the patient using a concurrent or retrospective review procedure. This helps determine if the treatment plan suggested by the insurance company is still suitable. If not, the reviewer might recommend an alternative procedure for approval.Once the patient is discharged, the reviewer can submit their findings to the utilization management team for analysis. This can be used in internal meetings to improve the operations and diagnosis of doctors.
How Eden Health Can Help
Eden Health is a direct-to-employer platform that gives employees quality healthcare in the palm of their hands. With a mobile app, they can book appointments, contact an insurance provider, and access healthcare services.To learn more about how you can enhance your corporate wellness programs or request a free demo, visit our website today.
This blog is intended to be informational in nature. The information and other content provided in this blog, or in any linked materials, are not intended and should not be construed as medical advice, nor is the information a substitute for professional medical expertise or treatment.
If you have any questions or concerns, please talk to your Care Team or other healthcare provider. Never disregard professional medical advice or delay in seeking it because of something you have read on this blog or in any linked materials.
