How Does Utilization Review Contain Costs?

In the fast-evolving realm of healthcare, the priorities of third-party administrators (TPAs) and insurers lie in maintaining state compliance and managing costs efficiently. One key component in achieving these objectives is the adept handling of utilization review (UR) processes.

At its core, UR is crucial to managing bed days at a hospital. When a patient requires care, the hospital must seek payment approval from the patient’s insurance provider, such as Aetna or Cigna, on their behalf. The number of days approved for care is at the discretion of the insurance company.

The Insurance Approval Process

The determination of the number of days allowed is based on clinical criteria. Utilization nurses or case management nurses physically review the doctors’ notes for the patient and assess the potential medical needs. This information is then reported back to the insurance company for approval.

Examples of different approval durations include 3 days for pneumonia, 2 days for cellulitis infection, and 5 days for scoliosis surgery. However, predicting how these surgeries or health conditions will affect the patient can be challenging.

You’re not a fortune teller and neither are Utilization nurses. What if, for example, a patient develops pulmonary edema on the last day of their approved hospital stay? Discharge is not an option at this point and this is why retrospective reviews exist.

In such cases, the UR nurse must contact the insurance company and advocate for an extension of 1 or 2 days for the patient. However, there are instances where the hospital fails to manage this process effectively. Sometimes, patients end up staying longer than approved, resulting in the hospital billing the patient for the additional days not covered by insurance.

1. Prospective Review: This type of review happens before a medical service is provided. For example, if you need to have surgery, the insurance company might review your case to determine if the surgery is necessary and if it meets the criteria for coverage. It’s like checking the macros of a meal to make sure you’re getting what you need in terms of nutrition.
2. Concurrent Review: This review occurs while you’re receiving medical care. If you’re in the hospital, for instance, the insurance company might review your treatment plan to ensure it’s the right course of action. UR nurses ideally should review cases as the patient is admitted up until discharge but staffing is usually limited.
3. Retrospective Review: This type of review happens after the medical service has been provided. The insurance company will look back at the treatment to see if it was necessary and appropriate. It’s similar to checking your credit card statement monthly to verify all charges are correct and within your budget.

This highlights the critical role of Utilization Management (UM) in ensuring compliance and cost control. UM focuses on the length of stay (LOS) denied, while CM’s value is determined by readmission rates. Both UM and CM work together to ensure patients receive the necessary services for a safe and timely discharge.

UR’s Impact on Revenue

Utilization Management is crucial for accurate bill coding and cost containment. By reviewing for medical necessity, UM ensures patients receive the right care at the right time. Additionally, UM plays a vital role in revenue cycle management by ensuring accurate coding and appropriate reimbursement.

To mitigate risks and ensure appropriate reimbursement, UM must collaborate closely with the finance department. This collaboration bridges the gap between clinical requirements and financial considerations, ultimately reducing revenue loss.

UM plays a vital role in controlling healthcare costs by identifying and addressing overutilization, underutilization, and misuse of healthcare services. By ensuring that resources are used efficiently, UM helps reduce unnecessary spending while maintaining quality care.

The decision-making processes in utilization management involve numerous tasks. The reviewer collects information from the service provider about the symptoms, required tests, test results, diagnosis, and required treatment. The UR nurse then compares the information to specific criteria to find support for the care request.

The criteria are set by corporations like the MCG Health Network that have care guidelines for all hospital subsections such as ambulatory care, home care, behavioral health care, chronic care, and more

The President of MCG states, “Each year, MCG editors identify the most important clinical evidence and use it to refine and expand care guidance[…] Evidence-based standards of medical necessity and best practice care are constantly evolving. Having the latest research and data at their fingertips helps healthcare professionals improve patient care while managing costs.” His statement accurately sums up the objective of utilization management and its use of clinical guidelines to make decisions.

If some aspects of the case do not meet certain standards, she may refer the case to a physician to verify medical necessity. Because doctors may appeal a denial of payment for tests and services, utilization management staff must have a standard process for handling these appeals.

Reducing Underpayment

Underpayment in healthcare can have several negative effects, including compromised patient care, increased financial strain on providers, and overall reduced quality of healthcare services. Utilization management (UM) plays a crucial role in addressing these issues by ensuring appropriate use of healthcare resources, improving cost-effectiveness, and enhancing the overall quality of care.

There is a debate as to whether Medicare underpays hospitals. The American Hospital Association (AHA) has long claimed that Medicare payment rates reimburse below the cost of care for many services. When healthcare providers are underpaid they are forced to cut corners, reduce quality of care, or upcharge private insurance companies. Due to the potential for misuse, insurers are encouraged to confirm medical necessity for all services.

A 2019 AHA survey found that Medicare reimbursement was $53.9 billion lower than actual costs. According to the AHA, private insurance payments average 144.8 percent of cost, while payments from Medicare average 86.8 percent of cost. The truth is hospitals have to make their revenues somewhere and if Medicare is underpaying by over 20% commercial insurers like Aetna or Cigna are going to take the hit. From here it’s a domino effect, that causes a hike in premiums and further medicare restrictions.

The study also revealed that two-thirds of hospitals received payments from Medicare that were less than cost.

Is It Medicare’s Fault?

In contrast to the above statements, a RAND study found that in places with only one hospital, prices were 15% higher than in areas with more competition. This suggests that hospitals in more secluded or rural areas might be charging more to private insurers just because they can, not because they need to make up for lower Medicare payments. However, thisraises the question that high-priced hospitals may be operating inefficiently since revenues would stay comparable.

Tracking Denials and Approvals

In conclusion, effective UR processes are essential for TPAs and insurers to adhere to state compliance requirements, control costs, and ensure appropriate care. UR departments play a crucial role in finance, admissions, and case management departments.

Need help meeting state compliance while reducing unnecessary costs? Contact our Utilization Management Contact today.