Utilization management (UM) is the structured process health insurance companies use to evaluate if a recommended medical service is truly necessary, appropriate, and delivered efficiently. This systematic review is a standard practice across the healthcare industry, balancing the delivery of appropriate patient care with the financial sustainability of the insurance plan. The process assesses proposed treatments against established clinical standards before, during, or after a patient receives care. UM seeks to ensure that health plan funds are used for services that provide a demonstrated clinical benefit.
Defining Utilization Management and Its Core Goals
Utilization management serves two main, interconnected purposes: cost control and quality assurance. Insurers use UM to prevent unnecessary spending on procedures, tests, and medications that may not be clinically justified or have a less costly, equally effective alternative. This financial oversight helps manage overall healthcare costs, which influences premiums and out-of-pocket expenses for members.
The second objective is ensuring the delivery of high-quality care. UM processes confirm that a patient receives treatment aligned with current evidence-based clinical guidelines and best practices. By reviewing care, UM aims to reduce the risk of inappropriate procedures, contributing to better patient outcomes. This system relies on clinical professionals, often nurses or physicians employed by the insurer, who review the patient’s case against established criteria to make a coverage determination.
The Three Phases of Utilization Review
The UM process is categorized into three distinct phases based on when the review of the service takes place.
Prospective Review
This review occurs before a service is delivered, such as requiring approval for an elective surgery or a high-cost specialty drug. This pre-service assessment, often called prior authorization, aims to prevent unnecessary utilization before the expense is incurred. If the requested service does not meet the insurer’s medical necessity criteria, coverage may be denied at this stage.
Concurrent Review
This phase takes place while a patient is actively receiving care, most commonly during a hospital stay. Reviewers monitor the patient’s progress and the necessity of continued care to ensure the length of stay or the level of treatment remains appropriate. This review helps manage the patient’s transition of care and ensures that resources are used effectively.
Retrospective Review
This review is conducted after the medical service has been delivered and the claim for payment has been submitted. The insurer examines the patient’s medical records and billing codes to verify that the care provided was medically necessary and appropriate based on the documentation. Although the service has already occurred, the insurer may still deny payment if the documentation fails to support the medical necessity of the treatment.
Common Mechanisms Patients Encounter
The most frequent patient interaction with utilization management is through Prior Authorization, also known as pre-certification. This mechanism requires the patient’s provider to submit a formal request and clinical documentation before certain high-cost procedures, advanced imaging, or specialty medications can be covered. Failure to obtain this approval before the service is rendered can result in the patient being responsible for the entire cost.
UM also dictates the use of Referral Requirements, which control access to specialized care within a network. In many managed care plans, a primary care physician must issue a formal referral for the patient to see a specialist. This administrative check ensures the specialist visit is justified. This process acts as a gatekeeper function, confirming that the patient’s condition warrants specialized attention before the insurer covers the cost of the specialist’s services.
All UM decisions are measured against Medical Necessity Criteria, which are the evidence-based clinical guidelines used by the insurer. Insurers often license standardized criteria sets, such as InterQual or Milliman Care Guidelines (MCG), which provide objective benchmarks for treatment appropriateness. These criteria are used as a first-level screening tool by utilization review nurses to assess if the patient’s symptoms, diagnosis, and medical history align with the necessity for the requested service. If the request does not satisfy these criteria, the case is typically referred to a physician for further clinical review.
Patient Recourse and the Appeals Process
When a utilization management decision results in a denial of coverage, patients have the right to challenge this adverse benefit determination through a formal appeals process.
Internal Review
The first step is the Internal Review, where the patient or provider appeals the decision directly to the insurance company. The insurer’s review team, often including a different medical professional, re-examines the clinical documentation and medical necessity criteria. Many plans also offer a “peer-to-peer” discussion, allowing the ordering physician to speak directly with the insurer’s medical director to provide additional clinical context for the request.
External Review
If the insurer upholds its denial after the internal review, the patient can then pursue an External Review. This process involves an independent review organization (IRO) or a state-level entity not affiliated with the insurance company. Federal regulations, established under the Affordable Care Act (ACA), guarantee consumers the right to this independent review for denials based on medical judgment or experimental treatment.
For both levels of appeal, submitting comprehensive medical documentation is important, as the decision hinges on whether the clinical information supports the medical necessity criteria. Standard external reviews are typically decided within 45 days, though expedited reviews for urgent cases can be completed in as little as 72 hours. The insurer must accept the final decision made by the independent external reviewer.