Hospital Utilization Management Can Reduce Denials, Improve Care

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Hospital Utilization Management Can Reduce Denials, Improve Care

Utilization management in healthcare is commonly thought of as a strategy that payers employ to control resource use within physician offices and hospitals to keep healthcare costs down. However, hospital utilization management programs are also an essential part of a provider organization’s revenue cycle, helping to prevent unnecessary costs and claim denials.

According to the Healthcare Financial Management Association (HFMA), healthcare utilization management is the “integration of utilization review, risk management, and quality assurance into management in order to ensure the judicious use of the facility's resources and high-quality care.”

Comprehensive hospital utilization review and management are key to preventing denials and lodging successful requests for appeals.

Medicare and Medicaid use Recovery Audit Contractors (RACs) to review claims and detect improper reimbursement for incorrectly coded services, non-covered services, and duplicate services.

RACs can deny claims and recover improper reimbursement by reviewing medical records to determine if healthcare utilization was appropriate.

The average number of medical record requests and denials from Medicare RACs is on the rise, the American Hospital Association (AHA) reported.

Hospitals reported receiving an average of 1504 medical records requests by the end of 2016, up from 1424 in the first quarter of 2014. 

Utilization management and review can prevent hospitals from receiving retrospective claim denials and being forced to relinquish money already received.

Hospital utilization management programs will also become increasingly important as organizations take on value-based reimbursement models. Prior authorizations and medical record reviews are key for providers who are at risk for over- or underutilization.

Implementing a strong utilization management program to verify that patients are receiving the right care at the right time will ensure that hospitals are delivering appropriate, cost-efficient care.


Hospital utilization management encompasses all activities that a hospital performs to ensure care is appropriate and necessary.

Stakeholders often use the term “utilization review” interchangeably with “utilization management.” However, utilization review is just one of the processes included in hospital utilization management programs.

Whereas utilization management is the integration of all activities, utilization review is “the process where organizations determine whether health care is medically necessary for a patient or an insured individual,” explained URAC, formerly known as the Utilization Review Accreditation Commission.

"Utilization management is the integration of utilization review, risk management, and quality assurance into management in order to ensure the judicious use of the facility's resources and high-quality care."

Utilization review contains three types of assessments: prospective, concurrent, and retrospective.

A prospective review assesses the need for healthcare services before the service is performed. Providers must often submit prior authorizations to health plans under this utilization review process to ensure the most appropriate services are being rendered.

For concurrent reviews, services are reviewed during the hospitalization or care episode. The review encompasses case management activities, such as care coordination, discharge planning, and care transitioning, and primarily focuses on the appropriateness of length of stay and initial discharge plans.

Retrospective review is the process of assessing appropriateness of procedures, settings, and timings after the services have been rendered. Hospitals typically have a specialized nurse or claims expert perform retrospective reviews to ensure claim submissions contain complete, correct billing codes for services provided.

Health plans and public payers also use retrospective review to ensure accurate reimbursement. Hospitals may see a claim denial because a retrospective review showed that a claim was not properly billed or the patient did not undergo the most appropriate course of treatment.

Utilization management should include the three types of review to ensure all care delivered is appropriate. Hospitals should also develop a program with detailed procedures, policies, and staff responsibilities to implement truly effective utilization management strategies.


CMS provides a basic template for creating a hospital utilization management program as part of the Medicare and Medicaid Conditions of Participation.

The federal agency mandates that any hospital receiving Medicaid or Medicare reimbursement must implement “a utilization review plan that provides for review of services furnished by the institution and by members of the medical staff to patients entitled to benefits under the Medicare and Medicaid programs.”

A hospital utilization review plan should outline the responsibilities and authorities of all staff members performing utilization review activities. The plan must also detail the procedures for evaluating the medical necessity of admissions, extended stays, and professional services, as well as reviews of the appropriateness of care settings.

Utilization review can be conducted on a sample basis, CMS added.

However, hospitals that receive reimbursement under the Inpatient Prospective Payment System (IPPS) must also conduct utilization reviews for duration of stays in outlier cases with extended lengths of stay. For professional services, the hospitals must conduct reviews for outlier cases with excessively high healthcare costs.

The utilization review committee is another key component of the required utilization management program. CMS requires that hospitals designate at least two practitioners to carry out utilization review responsibilities. At least two of the committee members must also be doctors of medicine or osteopathy.

Hospitals are increasingly turning to physician advisors to fill this role and spearhead utilization management programs.

Physician advisors are providers with specific experience in reimbursement and health policies. They act as liaisons between clinical and non-clinical staff to support utilization review, clinical documentation improvement, and claim denials management, explained Juliet B. Ugarte Hopkins, MD, CHCQM-PHYADV, physician advisor at ProHealth Care in Wisconsin.

“At the end of the day, we're talking about medical necessity, which we are finding is something that in many instances cases requires a physician advisor of some sort to make the final determination,” she said.

Physicians may not have medical necessity guidelines at the forefront of their thoughts when delivering care, and case managers may not be equipped with policies from all contracted payers to make the best judgment on medical necessity.

“You need to have a physician who’s looking at it with that eye of case management and utilization, which is not something that all practicing physicians have, nor should they because their focus should be on the medicine,” Ugarte Hopkins said.

In addition to physicians, case managers and nurses are staples of the utilization management program team. Utilization review is typically part of case management, which is primarily a nurse’s responsibility at hospitals.

However, case managers do not necessarily need a medical degree.  Care managers and care coordinators are still key utilization management staff because they help patients to navigate the healthcare system in a manner that results in high-quality, cost-efficient care.

“You need to have a physician who’s looking at it with that eye of case management and utilization."

Hospitals can either form their own utilization review committees or outsource the task to a local medical society or an approved organization, such as an accredited Utilization and Quality Control Quality Improvement Organization. Neighboring hospitals can also pool their resources to create a shared utilization review committee.

Utilization review committees are responsible for making the final judgment on medical necessity for services in question.

CMS requires that at least two members of the committees make the determination unless the admitting provider agrees that services were medically unnecessary or the provider fails to argue their case for treatment. In those cases, only one utilization review committee member is required for making the judgment. 

Medicare and Medicaid conditions of participation emphasize that a non-physician may not make a final determination on whether a patient’s stay is medically necessary or appropriate.


Hospitals only have to review a sample of patient cases to comply with CMS regulations, but utilization management “should run seven days a week, 365 days a year,” suggested Ralph Wuebker, MD, MBA, former Chief Medical Officer (CMO) of consulting firm Executive Health Resources and current CMO of Optum360.

Concurrent utilization reviews and case management should occur for all medical cases placed in hospital beds, he explained. All cases that do not pass the criteria for appropriate utilization should be referred to a physician advisor.

Physician advisors should then review the case, discuss the situation with the admitting physician, and make recommendations based on national-level and hospital-level utilization review standards.

Once the physician advisor makes a recommendation, the treating physician may change the order, if appropriate.

The concurrent utilization review process should be documented at every step either in the patient’s chart or using a utilization review platform. Demonstrating a consistent utilization management process for every patient will help hospitals appeal claim denials based on medical necessity.

A comprehensive utilization management strategy can help hospitals achieve a higher success rate during the appeals process. 

Despite flagging more claims as improper payments, hospitals told the AHA that 62 percent of Medicare RAC denial appeals were overturned in favor of the provider by the end of 2016.

Preventing claims denials and medical necessity reviews hinges on good clinical documentation – and good documentation requires intervention from clinical documentation improvement (CDI) specialists. CDI specialists can identify if physicians failed to document key activities that caused a case manager to flag the service as medically unnecessary.

CDI specialists can regularly reinforce strategies for properly documenting patient cases, which will prevent medical necessity questions and denials.

“If the patient needs to be in the hospital, emphasize why in the chart,” said David Schechter, MD, in Family Practice Management. “If the patient’s status is ‘observation’ or ‘24-hour stay’ rather than ‘admission,’ make that clear; it will matter to some insurers.”

“If the patient is unstable, specify how. Document the patient’s acute needs (e.g., ‘unable to stand or walk to the bathroom,’ ‘still febrile,’ ‘vomiting every four hours despite IV Compazine’) rather than simply stating that the patient has acute needs. Emphasize in the progress note any abnormal physical exam findings, vital signs or lab values.”

Clinical documentation should be able to answer a series of basic questions from utilization reviewers, including:

  • Are the patient’s vital signs stable?
  • Has the provider made a diagnosis?
  • Has a treatment plan been started and modified, if appropriate?
  • What acute needs are present? Can lower care levels address these needs?
  • Has the provider considered alternatives to hospitalization? Why are alternative care settings not appropriate?

Hospitals can be proactive by ensuring clinical documentation supports the course of treatment, making it easier for utilization reviewers and payers to make a final decision about appropriateness.

Hospital utilization management programs should also target inpatient admissions for reviews. Inpatient admissions are a major reason for claim denials and RAC audits because they are big-ticket services.

“If the patient needs to be in the hospital, emphasize why in the chart."

The average national cost per inpatient stay was $11,259 in 2015, according to the most recent data from the Healthcare Cost and Utilization Project. As a result, hospital care accounted for the largest component of overall healthcare spending.

Payers are looking to reduce inpatient hospital costs by scrutinizing the medical necessity of inpatient stays more than other hospital services. The most commonly cited reason for a complex denial from Medicare RACs was inpatient coding error, the AHA reported. About 56 percent of all complex denials by the third quarter of 2016 stemmed from an inpatient stay.

Medicare RACs are also paid based on a percentage of the improper payments identified. This incentivizes auditors to focus on claims tied to higher reimbursement rates, such as those with inpatient services listed.

Utilization management is not a new concept for hospitals or health systems. CMS requires hospitals to implement utilization review plans and develop committees to address resource use and medical necessity.

However, hospital utilization management has significantly evolved since CMS started to require utilization review. As reimbursement rates drop and value-based reimbursement takes hold, ensuring that the right care is provided at the right time will be key to maximizing reimbursement.

Hospital utilization management programs are critical to helping providers deliver high-quality, cost-efficient care, resulting in decreased claim denials and healthcare costs.