Deborah Keller, RN, BSN, CMCN, CPHQ

Chief Operating Officer

My first recollection of hearing the term “utilization management” was in the 1980s.  I was a Licensed Practical Nurse working the 3-11 shift on a medical surgical floor in a local hospital.  One of our doctors had just made rounds and had written an order that I was struggling with.  It read something like, “May increase IV fluids to 125cc/hour if needed to meet UM.”  Despite the stereotypically atrocious handwriting, I could interpret everything in the order other than the “UM” part.  There were no lab values or medications called UM, there were no tests named UM that I knew of.  There was no one working there with the initials UM.  I was stumped.

After conferring with the other four nurses working that shift, we eventually guessed that it was an abbreviation for “utilization management.” That’s what the two nurses who made rounds late every afternoon and spent what seemed to be hours taking all the charts for some unknown purpose.  They responsible for the orange stickers on the front of the charts that told doctors that they had to discharge a patient on such and such date because there was no medical reason for them to be in the hospital.

Now the order made sense.  It also seemed perfectly reasonable (at the time) that since the doctor obviously knew the patient needed to be in the hospital, this order to assure they could stay was completely appropriate.  My, how times have changed.  How did we get from there to here?

Depending on who you ask, utilization management started in the 1930s, 1940s, 1950s, 1960s, 1970s, or the 1980s.  It is a matter of definition.  In the 1930’s, fewer than 10% of the U.S. population had any form of third-party involvement in paying for healthcare services.  Simply put, the patient paid the provider of the care directly.  This began to shift as the cost of health care drove community-based organizations, churches, and employers to establish risk pools to raise buying power and spread some of the cost.  For example, the birth of “The Blues” began in 1929, when Baylor Hospital in Texas provided teachers with prepaid inpatient care as part of the employment package.  These early coverage pools were the birthing ground for health management organizations (HMOs).  The utilization management practices by the coverage pools and early HMOs tended to be limited to retrospective reviews of inpatient stays, often with the review process consisting of contacting the physician directly and asking for an attestation that the care was necessary.

That level of utilization management was predominant until 1965, which saw the introduction of Medicare and Medicaid as major third-party payers and an increase in the number of employers offering health insurance.  Within three years of the rollout of the Medicare and Medicaid programs, actual cost was outpacing projected costs by nearly 30%.  National health expenditures grew from 7.4% of GDP to 8.6% between 1970 and 1977.  In 1972, the Social Security Amendment was passed to address the looming problem.  This law mandated the establishment of Professional Standards Review Organizations (PSRO) as regionally based organizations that review the treatment patterns of hospitals and physicians.  It mandated that PSROs conduct concurrent review with prior authorization and retrospective review as optional processes.  Ironically, physicians practicing in the region were often reviewers within the PSROs.  Ultimately, the PSROs did not result in lowering utilization or cost.

In 1973, the U.S. Congress passed the Health Maintenance Organization (HMO) Act, which led to the rapid expansion in HMO coverage through federal grants, by superseding state laws restricting HMOs, and by creating the “dual choice” requirement which required employers with twenty-five or more employees to offer either a group model or IPA-model HMO.  The HMO Act also established minimum benefit package standards, allowed insurers to require referrals from primary care physicians for specialty services, established prior authorization requirements for services, and provided the right to make retrospective coverage determinations.  Many see this HMO Act as the birth of managed care and utilization management as we think of it today.

With the success of the early HMO models, other types of managed care plans emerged in the 1980’s such as preferred provider organizations (PPO).  PPOs allowed specialty services to be obtained without a primary care provider referral and sought savings through network contracts.  While PPOs had the ability to leverage prior authorization as a cost-saving strategy, most did not heavily leverage prior authorization to control cost.  However, much like HMOs, PPO plans heavily reviewed inpatient services that could be provided in an outpatient setting and thus faced the same oppositions as their earlier predecessor.  While the processes for prior authorization, hospital stay review, and second opinions were being developed, the medical community provided stiff opposition.  It became increasingly common to hear the terms “gate-keeping” and “cook book medicine”, as well as to see lawsuits by covered members against their insurers.

In the 80’s, payers including HMOs, PPOs, and traditional health plans began relying heavily on evidence-based guidelines as their basis for coverage denials.  Across the United States physicians and nurses, myself included were abruptly handed huge books of guidelines and wished luck.  The luckier physicians and nurses had employers who provided extensive training on how to interpret and use the huge books.  While the path to early adoption varied, everyone in the medical world knew that we had crossed a threshold we didn’t quite understand but we knew we could never go back.

Interactions between healthcare providers and insurance companies, once limited to the transactions of confirming a member’s coverage and the processing of claims suddenly became frequent and tedious.  Utilization management processes were paper intensive and heavily reliant upon fax machines.  Insurance companies began hiring small armies of registered nurses to support reviews for prior authorization, hospital stays, retrospective claims, and appeals.  Seeking ways to contain operational costs and maintain regulatory compliance, insurers began purchasing managed care software designed to support utilization management processes.  This new software was meant to replace the need for stacks of paper, sticky notes, and archaic spreadsheet files.  However, utilization review nurses where not the only users of this UM software.

The 1980’s saw the widespread adoption of case management as a utilization management tool.  In the earliest iterations of case management, registered nurses were assigned to members with expensive conditions such as sick newborns, catastrophic injuries, and the emergence of transplant members.  These members were most often identified by large dollar claims due to the lack of modern data mining capabilities.  Case management was heavily focused on care coordination between providers and managing the member’s care up to the lifetime insurance coverage limit.

For those of us who have been in the industry since the eighties, while there were certainly some changes in managed care between the nineties through the 2000’s, including the pendulum shift of heavy utilization management to light utilization management and back again; the most significant change came in 2010 with the passage of the Affordable Care Act.  The shift from a fee-for-service model to a quality model has been a seismic one.  Through the lens of utilization management, it’s clear that payers of all types are operating under much tighter regulatory burdens in order to reduce the risk of barriers to care for their members.  For a period, there was a sense that utilization management practices such as prior authorization, hospital stay review, and retrospective review would simply fade away.  The reasoning was that quality metrics would enforce better care and provider-based organizations would take on a greater role in cost containment including controlling utilization.  While both things are happening, the practice of utilization management by managed care organizations (MCOs) has not faded away, it is evolving.

With the emergence of big data, MCOs can analyze enormous amounts of claims, utilization, and outcomes data.  This capability is being leveraged across MCO operations, driving decisions about how to use utilization management processes more effectively.  It now takes minutes, and not months, to analyze the return on investment of a prior authorization on a single procedure code.   With the power of insight into their own data, MCOs can identify cost outliers and adjust utilization management processes to improve them.  Conversely, they can also identify areas that would pose minimal risk by loosening prior authorization requirements.  Providers who are “good stewards” can be rewarded with automated approvals.

While we have made significant gains, there is still work needed to get utilization management processes to where they need to be.  One example is the process to review medical and procedural codes and establish which ones should require prior authorization.   This is an exhaustive process that many have no idea how to even start.  The solutions to help with the analysis process are extremely expensive and don’t remove enough of the human burden.  Once a prior authorization grid is established on paper, the work to incorporate them into an efficient workflow within managed care software is considerable.  A final issue is the need for more transparent communication to the provider about what does and does not require a prior authorization.  Sadly, prior authorization documents posted on websites and fax blasts to providers are not visible enough.

I am frequently asked if I think utilization management will go away.  I don’t.  I believe that the sentinel effect of the process is real and necessary.  I also believe that those of us on the software solutions industry must continue to challenge ourselves not just to develop tools to complete workflows, but to develop tools that empower both payers and providers, and most importantly, patients.