What is Utilization Management in Healthcare? Process, Types, and Benefits

The modern-day healthcare system faces great challenges while ensuring efficient patient and revenue management in an era dominated by artificial intelligence and intuitive automation. Despite the innovations in healthcare billing technology, managing effective patient care while maintaining a steady revenue is a major hurdle for many healthcare practitioners and organizations. With complicated reimbursement models and an increasing number of claim denials, utilization management has become an unavoidable aspect in healthcare billing.

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With growing healthcare complexities, the function of utilization management is not just restricted to checking for medical necessities. When aligned with RCM systems and enhanced by artificial intelligence, utilization management helps in delivering quality care and improving financial performance. In this article, we explore what utilization management is, its relevance in today’s healthcare system, and how it enhances patient and financial management.

What is Utilization Management?

Utilization Management refers to a set of administrative and clinical processes that help healthcare facilities understand the medical necessity of certain medical services. These protocols ensure that appropriate healthcare services are delivered at the right time and place. Regulatory bodies evaluate their outcomes to assess why a medical service was rendered, its level of necessity, and cost-effectiveness before it is administered. These protocols are in place to ensure appropriate utilization of resources, which, in turn helps in managing costs and ensuring that excellent care is provided to patients.

The main goal of utilization management is to ensure that patients receive:

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1. The right care
2. At the right time
3. In the right setting
4. At the right cost

At its core, utilization management ensures;

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1. Containment of rising healthcare costs by reviewing the need for a medical process before treatment and
2. Satisfactory delivery of care.

Utilization management helps organizations achieve these goals by ensuring a thorough review of medical services through the continuum of care.

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How Utilization Management Works?

Utilization management is carried out through a series of three independent review processes that must communicate with each other to progress to the next stage. These stages ensure that medical services are medically necessary, cost-effective, and aligned with established clinical guidelines before, during, and after care is delivered.

The first stage is prospective review, which takes place before a treatment, procedure, or hospital admission occurs. During this phase, insurance providers assess whether the proposed service is medically necessary and covered under the patient’s health plan. This step often includes prior authorization and helps prevent unnecessary procedures and unexpected claim denials.

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Prospective Review (Prior authorization): This process occurs right before a medical service begins. The outcome of this exercise helps medical teams to decide whether the considered treatment method is within their budget. The motive behind conducting this review is to understand where cost-cutting can be done and take proactive steps to work on an economical solution while not compromising on patient care. This process helps organizations save on unnecessary expenses, allowing them to redirect the funds to more pressing requirements.

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Concurrent Review: In this phase, administrators evaluate the quality and need of ongoing medical services. For example, if a patient is currently admitted to the hospital, all the medical services provided to them during the length of their stay are evaluated during this phase to understand whether they align with the hospital’s financial and caregiving goals.  The motive of this review process is to manage a patient's length of stay, understand gaps in caregiving, and manage a smooth and appropriate transition to the next level of care.

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Retrospective Review:

This is the last phase in the utilization management process. During this review, care patterns and outcomes are evaluated to improve medical services and optimize for future treatments. 

Key Components of an Effective Utilization Management Cycle

Utilization management forms the basis for effectively billing a reimbursement and enhances chances of fair remuneration. We discuss some of the driving factors that lay the foundation for effective utilization management.

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1. Medical necessity criteria: Professionals in the current healthcare industry must strategize to include treatments that align with the medical necessity criteria – a set of rules established to ensure that medical treatments are reasonably recommended, are affordable, and have a proven track record for curing patients.
2. Accurate clinical documentation: In healthcare, documentation is of prime importance. In modern healthcare, medical records play a very important role, especially for utilization management. Accurately documented medical records help administrators evaluate and assess the medical necessity and justify why certain medical services are prescribed.
3. Standardized authorization workflows: Streamlined workflows that define pre-authorizations are key to the smooth running of several healthcare functions. Utilization management is no exception. When medical services are pre-authorized, insurance payers find it easy to understand the medical necessity of any service. Hence, reimbursements are approved in time. Utilization management ensures this functionality occurs without hiccups, contributing to the overall financial success of the organization.
4. Robust Appeals Management Mechanism: Even with strong utilization management, hard denials still happen. Hence, it is important to have an appeals management system that is integrated within the UM system. This way, claim denials are reviewed and re-sent for evaluation at the earliest, ensuring timely re-assessment and quick resolution.  
5. Combined Efforts of UM and RCM teams: When two important healthcare functions communicate, it paves the way for effective healthcare delivery. RCM and UM are two very important functions that ensure timely care delivery and reimbursements. Both are interdependent. Close collaboration ensures that authorization status, medical necessity decisions, and documentation flow seamlessly into coding, billing, and claims submission.

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Utilization Management Process: A Step-by-Step Explanation 

Clinical Evaluation & Documentation

As we mentioned earlier in the article, when the medical services received by patients are documented accurately, it paves the way for efficient utilization management. Accurate documentation helps providers assess the medical necessity of certain procedures. Physicians evaluate:

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1. Diagnosis and severity of the illness.
2. Proposed treatment or procedure
3. Expected length of stay
4. Supporting clinical evidence

Verification of Eligibility & Prior Authorization

This point helps administrators assess the financial aspects of a patient’s treatment. The next step is to verify:

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1. Whether a patient is eligible to receive the prescribed treatment.
2. How much individual insurance policies cover.
3. Pre-authorization requirements.
4. Payer-specific medical necessity criteria.

Special services like advanced imaging, inpatient admissions, elective surgeries, etc. need appropriate prior authorization. Failure to obtain one can lead to hard denials.

Utilization Review

At this point, medical experts, mostly nurses or physicians, evaluate a patient’s insurance details and medical requirements, and come up with plausible treatment options. They also evaluate the medical services to ensure that the prescribed treatments meet the patient eligibility criteria. They compare documentation with –

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1. Evidence-based guidelines
2. Payer medical properties
3. National standards of care

The next phase in this process is heavily dependent on the outcome of this phase. The outcome of utilization reviews helps organizations decide what actions to take ahead.

Utilization reviews can result in approvals, slight modifications in the documentation, a query or a denial accompanied by an appeal.

Concurrent UM

Once a medical service is reviewed and approved, teams assess ongoing services like the length of a hospital stay, the treatments provided during the stay and patient care. This step is crucial in avoiding unnecessarily long stays and medical treatments, contributing to a positive financial health of the organization.

Retrospective Review & Appeals

This phase happens post a patient’s hospital visit and includes:

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1. Post-payment audits
2. Compliance checks.
3. Performance evaluation
4. Improvement initiatives

How Utilization Management Supports Revenue Cycle Management

Utilization management and RCM are intertwined in several ways. An inefficient utilization management system can result in:

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1. Revenue loss due to inadequate evaluation of resources used for medical services.
2. Increased numbers of hard denials due to improper authorization and pending appeals.
3. Delayed reimbursements.
4. Lost or underpaid revenue

RCM contributes to an organization's financial well-being. The system ensures timely documentation and coding checks to prevent claim denials. However, utilization management supports these functions. When UM systems are underutilized and employ inadequate practices, it affects the revenue flow, thus highlighting its importance in enhancing the efficiency of RCM systems. RapidClaims makes use of AI and healthcare analytics to accommodate the results of utilization management and deliver effective revenue management.

Conclusion

Utilization management is not just another administrative function. With the growing complexities, healthcare in the modern era must be streamlined to deliver the best results. When RCM is supported by an efficient and effective utilization management system, it can work wonders for an organization’s revenue flow. Effective review of medical services and related resources at every phase of treatment is essential to avoid unnecessary expenses and ensure optimum results.

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FAQs

How does utilization management affect revenue cycle management (RCM)?

Utilization management includes processes in which important reviews are conducted before, during and after treatments. The outcomes of these processes contribute to decision-making and planning revenue flows of healthcare organizations. When medical services are reviewed and resources are accounted for, revenue drain reduces. Utilization management ensures optimum efficiency through foolproof review workflows, making it easier for RCM systems to collect payment-related information at the time of billing and claims submission.

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Why is prior authorization needed for revenue protection?

Prior authorizations allow organizations to understand how much remuneration they can receive for any given treatment. This is useful for special medical services like advanced diagnostics and imaging, which are costly procedures.

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How does utilization management improve first-pass claim acceptance rates?

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By validating medical necessity, authorization requirements, and payer rules upfront, utilization management ensures that claims are submitted correctly the first time. This improves first-pass claim acceptance rates, reduces appeals, and accelerates cash flow.

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