AHM Medical Management: Utilization Review

Objectives
After completing the lesson Utilization Review, you should be able to:
Discuss some of the key issues health plans must address to develop and maintain
effective utilization review programs
Explain the importance of medical necessity, medical appropriateness, and utilization
guidelines
Describe the role of authorizations and member appeals in the utilization review process
Identify some of the ways that health plans evaluate the results of utilization review
programs
Introduction
Few Americans have unlimited access to healthcare-primarily because of the high cost-yet when
they need it, consumers want the very best care that money can buy. In addition, members and
providers often equate the "best" with the "most" or "the most expensive," even though studies
have shown that such an approach does not always lead to appropriate or even safe care.
One way that health plans seek to offer more affordable coverage is by excluding services and
supplies that are not medically necessary and appropriate. When making coverage decisions
based on the appropriate use of medical resources, health plans are sometimes confronted by the
demanding and conflicting expectations of members, employers, providers, legislators, regulators,
the courts, consumer advocates, and the media. Broadly speaking, health plans make these
decisions by performing utilization review (UR).
In this lesson, we begin with a discussion of the purpose and function of utilization review, the
process, and the types of services included in UR. Then we take a closer look at the criteria health
plans use to determine medical necessity and appropriateness, as well as the role of authorization
systems in UR. Next, we examine how the appeals process provides members with a means to
dispute UR decisions. We also address the influence of accreditation requirements and
government regulations. We end the lesson with a look at several strategic issues associated with
UR. Although our discussion addresses UR in terms of a health plan's activities, keep in mind that
some health plans delegate some or all UR activities to external organizations, such as utilization
review organizations (UROs) or provider organizations.
The Purpose of Utilization Review
Since the 1970s, when Dartmouth Medical School professor John E. Wennberg and his
colleagues began conducting studies to monitor healthcare delivery costs, researchers have
uncovered significant variations in the practice of medicine. Practice variations have been
observed between different regions of the country, different locations within a region, and even
different physicians practicing in the same area.
For example, in a 1995 Harvard Medical School study of Medicare heart-attack patients, the
likelihood of undergoing coronary angiography was 50 percent higher for hospitalized patients in
Texas than for a comparable group in New York, while the New York patients were more likely
to receive beta-blocker therapy. Over the following two-year period, a greater number of the

Texas patients suffered from angina or died. The researchers suggested that these outcomes may
have been related to the combination of invasive, possibly dangerous angiograms and the absence
of life-extending beta-blocker therapy for the Texas patients. 1
A primary reason for practice variations is the lack of scientific evidence that would give
healthcare practitioners the information they need to determine optimum treatments. According to
Wennberg, differences often arise when there is a choice between an aggressive surgical
intervention and a more conservative medical approach. Wennberg goes on to say that
"controversies arise because the natural history of the untreated or conservatively treated case is
poorly understood and well-designed clinical trials are notably absent."2
The utilization review process provides a way for health plans to determine whether care
recommendations made by providers are (1) covered under the benefit plan and (2) medically
necessary and appropriate. It is important to note, however, that UR does not actually recommend
procedures.
A primary goal of utilization review is to address practice variations by applying uniform
standards and guidelines, supported by evidence-based medicine, when available, or by
community standards of practice in the absence of evidence-based medicine. Another important
goal of UR is to support cost-effective care, based on the health plan's medical policy, the
contract with the purchaser, and the member's medical needs.
Health plans also maintain UR programs to comply with regulatory requirements. Early
regulations often directed HMOs to implement procedures for compiling, evaluating, and
reporting utilization of healthcare services. These requirements, which usually subjected a health
plan's UR procedures to review and approval by the state insurance and/or health department,
continue to apply today. In addition, with the rise of managed healthcare, UR regulations now
include features intended to protect consumers from UR practices that might inappropriately limit
access to medical care. Insight 5A-1 provides a brief history of the development of utilization
review in the United States.

The Utilization Review process

When determining if benefits are payable, health plans perform two basic types of reviews:
administrative and medical. An administrative review addresses nonclinical aspects of coverage
by comparing the applicable contract provision to the proposed medical care. For example, the
service in question might be specifically excluded or might not appear in the contract's list of
covered services and supplies. This type of review can be conducted by a staff member who is not
a medical professional.
A medical review, on the other hand, is one that requires an evaluation based on medical need.
For example, to determine if a therapeutic procedure meets the contract's requirement that
services be medically necessary and appropriate, a healthcare professional must review the
proposed course of treatment and determine if it is consistent with the health plan's medical
policy and utilization guidelines.

A health plans decisions regarding coverage and medical appropriateness are typically
incorporated into utilization guidelines, which indicate standard approaches to care for many
common, uncomplicated healthcare services. Utilization guidelines often take the form of
computer-based screening tools or criteria sets that are structured as a series of questions arranged
in a decision-tree format. A UR nurse proceeds through a set of questions to determine if a
proposed course of care is similar to what a healthcare professional would normally expect under
the given circumstances. Utilization guidelines also indicate when the nurse should refer a
decision to a medical director or other physician reviewer due to unique circumstances.
UR can be performed prospectively, concurrently, or retrospectively. A prospective review
evaluates a proposed plan for medical care before care is delivered, a concurrent review occurs
while the care is in progress, and a retrospective review takes place after the care has been
completed. When payment for a course of medical care is approved, the care is said to be
authorized or, in the case of prospective review, preauthorized or precertified.
Generally, health plans prefer to perform UR on a prospective basis, when feasible, so that the
various parties-the member, provider, and health plan-can reach an understanding about the
treatment for a given medical condition before it begins. To illustrate, let's consider a proposed
inpatient hospital admission. By requiring advance notice of the admission, the health plan can
consider a full range of healthcare service alternatives for the member, beginning with a
determination as to whether the hospital is the most appropriate setting. Using established
standards of care for specific medical conditions, a prospective review might lead to the
determination that the proposed care could be performed in an ambulatory surgical center or in a
physician's office. If an inpatient admission is appropriate, UR staff can use established standards
of care to determine a maximum length of stay and can begin the process of discharge planning.
In some health plans, UR is also used to identify as early as possible those members who are
likely to benefit from other medical management initiatives, such as case management or disease
management. For instance, as a result of a request for precertification of a total hip replacement, a
health plan might assign a case manager who would suggest a care plan that includes preoperative
physical therapy and postoperative rehabilitation. We discuss case management in greater detail
in the lesson Case Management.
After the hospital admission, the health plan's UR activities switch from prospective to concurrent
review, which entails: (1) gathering information about the member's progress, (2) tracking the
length of stay, and (3) continuing the discharge planning process. A UR nurse performs these
activities by working with the physician, hospital staff, the member, and the member's family;
visiting the hospital; and/or communicating by telephone or other forms of telecommunication as
needed. At some point during concurrent review, it may be determined that acute inpatient care is
no longer required. In this case, the member might be moved to a skilled nursing unit within the
hospital, transferred to a skilled nursing facility, or discharged from the hospital to receive
outpatient follow-up care.
In most cases, the UR nurse documents the clinical details of the patient's condition and care to
provide a case history, which can be used in consultations with physician reviewers or possibly in
appeals or retrospective utilization review.
Under retrospective review, decisions on the authorization of payment for services are made after
the services have been rendered. This approach limits the number of options available to plan
members because the plan cannot direct the plan member to a more appropriate setting or type of

care. An even greater problem arises when retrospective review results in the denial of payment
because the completed services fail to meet coverage requirements.
One way that health plans reduce the number of retrospective denials of payment is by
performing retrospective reviews on a large number of cases, collecting data on these cases, then
identifying and addressing questionable utilization and outcome patterns. For example, a
retrospective review of hospital admissions might reveal that certain surgeons unnecessarily
admit patients the day before scheduled surgery for preoperative care that, in many cases, could
have been provided on an outpatient basis or in the hospital on the day of the surgery. By
identifying these surgeons and discussing utilization criteria with them, the health plan can
prevent inappropriate early admissions.
The Focus of Utilization Review
Because it would be an overwhelming task to review every course of care for every member in or
out of the hospital, many health plans concentrate on healthcare services that produce the best
return on their UR investment. For example, UR programs often consider services that are

Overutilized
Utilized differently by different providers
Not well-supported by scientific evidence
Known to produce variable outcomes
New or investigational
Known to pose potential medical risks for members
Often performed for cosmetic reasons
Costly

Figure 5A-1 shows some healthcare services that health plans might identify for review using the
above criteria. Lists like the one in Figure 5A-1 continually evolve as medical procedures,
technologies, and medications are developed or gain popularity.
Ultimately, for UR to be effective, each health plan must carefully assess its own situation and
then determine which types of UR activities would be most effective. For example, a health plan
whose providers rarely propose unnecessary hospital admissions might determine that
precertifying every hospital admission is no longer necessary. This health plan might choose to
focus more of its UR resources on drug utilization review or on outpatient services such as
diagnostic tests.

A health plan might also choose to replace or supplement traditional UR methods with other
initiatives for managing the appropriateness and costs of medical care. Insight 5A-2 describes
how one health plan reduced its use of precertification. Other health plans have reported that they
also have greatly reduced the number of services for which they require precertification of
medical necessity. 4

Appropriate Treatment and Use of Healthcare Resources

Recognizing that some services are more expensive, are less effective, or pose unnecessary health
risks, health plans use appropriateness standards in utilization guidelines to help determine what
should be covered. Recall from The Role of Medical Management in a Health Plan that medically
appropriate services are diagnostic or treatment measures for which the expected health benefits
exceed the expected drawbacks and risks by a margin wide enough to justify the measures.
Utilization guidelines typically indicate standard approaches to care for many common,
uncomplicated healthcare services and often take the form of computer-based screening tools or

criteria sets that are structured as a series of questions arranged in a decision-tree format. A UR
nurse proceeds through a set of questions to determine if a proposed course of care is similar to
what a healthcare professional would normally expect under the given circumstances. Utilization
guidelines also indicate when the nurse should refer a decision to a medical director or other
physician reviewer due to unique circumstances.
In addition to evaluating the appropriateness of particular medical treatments, utilization review
evaluates the appropriateness of resources used in conjunction with those treatments. This aspect
of utilization review focuses on determining the appropriateness of the
Level of care needed to treat the condition
Clinical setting in which care is provided
Services and supplies used to treat the condition

Although health plans emphasize primary care, some conditions require referral to medical
specialists.
A specialty referral is a decision to divide a patient's care among one or more medical specialties.
Typically, a specialty referral is made by a primary care provider (PCP) or by another specialist
who determines the need for additional diagnostic or therapeutic services. Later in this lesson, we
look at different approaches that health plans use to handle specialty referrals.
When making decisions about the appropriate clinical setting, UR personnel rely upon utilization
guidelines as well as the member's unique medical needs and personal circumstances, such as the
ability of family and friends to provide support. For example, the most appropriate clinical setting
for a low-birth-weight infant might begin with a neonatal intensive care unit (NICU). As the
infant's condition improves, the setting might switch to a neonatal transitional care unit and
eventually home healthcare.
A resource some health plans use to review surgery and certain nonsurgical interventions is a site
appropriateness listing, which indicates the most appropriate settings for common procedures.
After reviewing this listing, a UR nurse might be able to point out to a surgeon that network
physicians have performed a proposed surgical procedure more than 90 percent of the time on an
outpatient basis. The surgeon might respond by providing additional information that justifies
inpatient surgery or may decide that the surgery can, in fact, be performed safely and effectively
in an outpatient setting. 5
As we have seen, health plans rely on evidence-based medicine and community standards of
practice to develop utilization guidelines that help determine the healthcare services and supplies
that are necessary and appropriate. By reviewing medical outcomes data, health plans can
determine if a particular service most often produces the best results. However, because clinical
studies have not been performed for many conditions and procedures, health plans balance
evidence-based criteria with experience-based criteria. Experience-based criteria recognize
community standards of practice and the overall experience of medical directors, UR nurses,
physician reviewers, and the provider's first-hand experience and knowledge of the patient to
identify the most effective treatment.

Developing and Maintaining Utilization Guidelines

A health plan's utilization guidelines are developed and maintained by licensed physicians and
other healthcare professionals who are employees of the health plan. Also, UR programs often
use "off-the-shelf" guidelines developed by nationally recognized vendors such as InterQual,
Value Health Systems, and Milliman & Robertson, Inc. (M & R Healthcare Management
Guidelines).
Health plans collect and analyze internal data-such as approvals and denials of payment, and
complaints related to specific services-which could indicate a need to update utilization
guidelines. In addition, as we saw in The Role of Medical Management in a Health Plan, health
plans rely on committees to track trends in medical practice. These committees consult a variety
of sources such as peer advisors, network providers, and online services that monitor and review
medical literature. Usually, when the need for evaluation is identified, a health plan medical
management committee reviews and, if necessary, updates the health plan's medical policy. Then
the departments responsible for maintaining the health plan's contract, claims administration
systems, and utilization guidelines make the applicable adjustments to reflect the company's
position.
Clinical Practice Guidelines and Utilization Guidelines
As we noted in the lesson Clinical Practice Management, clinical practice guidelines (CPGs) are
intended to aid providers in making decisions about the most appropriate course of care for
individual patients. Many health plans make available CPGs that were developed by the provider
community; other health plans distribute CPGs that they themselves have developed. Although it
is important for CPGs to be aligned with conditions for coverage in the contract, CPGs are not
benefit payment standards.
CPGs are used primarily as an educational tool for providers, but they can also help a health plan
meet utilization goals. For example, consider a health plan that has identified a particular elective
surgical procedure prone to overutilization. The health plan could send network providers the
CPGs for the medical condition being treated by the overutilized procedure, then reinforce this
information through the UR process. Some health plans have found that a combination of
education and UR can lead to more appropriate utilization of services.
Authorization Systems
To see that utilization guidelines are consistently applied, UR programs rely on authorization
systems. An authorization system can be described as a set of policies and procedures that gives
specified individuals the authority to make certain choices or decisions about benefit payments.
When we speak of authorization here, we generally refer to the authority to make a payment
decision prior to or at the time care is rendered, rather than after the fact. In the case of medical
emergencies, however, the authorization process by necessity occurs within a reasonable time
after treatment in an emergency department.
For some types of care, authorization of payment is not needed. For example, a member can
initiate a visit to a PCP without contacting the health plan first. Also, some health plans allow
PCPs to authorize payment for certain types of care, such as a specialist visit or a hospital
admission, without the need for health plan approval. In addition, as we saw earlier, some health

plans have redesigned their authorization systems so that physicians are able to approve most
types of care without health plan approval
A health plan's approach to authorization is largely determined by its philosophy concerning the
appropriate degree of health plan control of utilization. Several other factors also influence a
health plan's approach to authorizations. For example, if a health plan contracts with a large
medical group on a capitated basis, then the health plan may be comfortable delegating to the
medical group most of the responsibility for developing and implementing authorization
protocols.
Health plans develop authorization protocols to clarify responsibilities and effectively monitor
and manage utilization of healthcare. Invariably, UR nurses may issue approvals based on
medical necessity criteria, but must refer potential nonauthorization decisions to physician
reviewers; only physicians can make nonauthorization decisions based on medical necessity.
Under certain circumstances, the authority to make coverage decisions can reside with an internal
In the past, most health plan authorizations were handled through the mail or over the telephone.
Today, however, competitive pressures and consumer demand have prompted many health plans
to modify their authorization processes. In order to make access to care more convenient for
members, some health plans have

Streamlined authorization processes

Implemented special referral protocols for unique situations
Given PCPs the authority to authorize referrals and/or certain healthcare services
Designed products that permit self-referrals by members6

Streamlined Authorization Processes

Besides traditional paper authorizations, health plans now offer many more options, such as
automated telephone voice response systems, fax, computer-based software packages, and
Internet-based programs in which the provider visits the health plan's home page and enters an
identification code and password to transmit requests for authorization. Some computer-based
authorization programs contain built-in decision criteria that can be used to authorize common
procedures without the need for a UR staff person to review the request.
Unique Specialty Referral Protocols
Some health plans have determined that for certain types of medical conditions, a specialist,
rather than a general practitioner, is in a better position to coordinate care for the member. Under
these circumstances, the health plan allows the specialist to act as the PCP. For example, in the
case of a member suffering from a serious heart ailment, a cardiologist, rather than a family
physician, might coordinate care. Similarly, a health plan might determine that a certain type of
specialist, such as an OB/GYN, can also function effectively in the role of PCP. These plans
allow female members direct access to both a general practitioner and an OB/GYN. Some states
have mandated unique specialty referral protocols such as those described in this paragraph
PCP Authorization
Generally, when health plans allow PCPs to authorize coverage, they develop strategies to
improve provider communications and education to help manage utilization. A health plan that is

confident in the ability of its providers to recommend appropriate care is more likely to
implement physician authorizations and reduce or eliminate health plan review.
Self-Referrals
Increasingly, health plans are offering products that allow members to self-refer to a specialist for
any medical condition that the specialist is qualified to treat. A direct access product requires the
member to select a PCP, but the member can visit any provider in the network without a referral
from the PCP or the health plan. Similarly, an open access product allows the member to visit
any network specialist without a referral from a PCP or the health plan; however, unlike direct
access, an open access product does not require the member to select a PCP. Some health plans
have designed products that charge a higher copayment for self-referrals than for referrals
authorized by a PCP or the health plan. Several states require health plans to allow direct access
to certain types of providers, such as chiropractors, dermatologists, and podiatrists.
Nonauthorizations
There are many reasons why a health plan might not authorize payment for a particular healthcare
service. In some instances, the determination is straightforward; in others, the decision can
become quite involved. For example, a request for surgery to straighten nose cartilage might at
first glance appear to be cosmetic surgery, an excluded service in virtually all contracts. However,
the surgeon may respond to the health plan's nonauthorization decision by providing additional
information stating that the primary purpose for the surgery is to correct a condition that makes it
difficult for the member, an asthmatic, to breathe. Typically, the cosmetic surgery exclusion does
not apply when the surgery is to treat a condition that impairs a bodily function. In this situation,
the UR staff would carefully examine the proposed procedure to determine if, in fact, the surgery
is medically necessary to treat the member's respiratory condition or if the primary purpose is to
change the person's appearance.
As the preceding example illustrates, a health plan might initially determine not to authorize
payment for a procedure but later revise its decision when the provider communicates additional
information. Figure 5A-2 lists several examples of why a health plan might determine not to
authorize payment for a hospital inpatient stay.
Decisions not to authorize payment of benefits are communicated to the patient and provider
along with information about the right to appeal. Such decisions can result in several types of
liability for health plans. For example, a plan member can file a lawsuit claiming that the contract
or a marketing piece, such as a member newsletter, requires the health plan to pay benefits for the
services in question. To reduce the risk of this type of lawsuit, called breach of contract, a health
plan must develop language that accurately conveys the plan's provisions for paying benefits.
A member might also file a lawsuit claiming that the health plan exhibited negligence in the
design of its utilization review program that resulted in a decision that was not in the best interest
of the plan member. To reduce the risk of this type of lawsuit, a health plan must maintain and
follow medical policy and UR/appeals processes that are based on recognized outcomes data and
community standards of practice. A health plan must also see that all authorization decisions are
made by personnel who have appropriate training and experience. 8
Although health plans must do everything reasonably possible to limit the risk of liability that
might result from authorization decisions, they must also be careful not to allow a fear of lawsuits

to lead to defensive practice of utilization review. In other words, just as healthcare professionals
can become overly conservative in the practice of medicine to avoid malpractice lawsuits, health
plans can become overly conservative in the design and administration of their UR programs to
avoid lawsuits.
Member Appeals
Regardless of how well designed the UR program is, there are times when certain decisions lead
to disputes. To address disagreements that result from utilization review, as well as other types of
complaints, health plans develop and administer complaint resolution procedures for their
providers and members. The term complaint resolution procedures (CRPs) refers to the entire
process available to members and providers for resolving disputes with the health plan and
includes informal complaints as well as formal appeals. In Network Management in Health Plans,
we discuss CRPs available to providers; these procedures address, among other things,
complaints about the health plan's UR decisions. In the following paragraphs, we discuss CRPs
available to members.
Health plans maintain complaint resolution procedures for a number of reasons, including
statutory requirements. In addition, the CRP process

Helps build trust with members

Reduces the likelihood of errors in decision making
Reduces the likelihood of costly lawsuits
Reduces the likelihood of negative publicity
Provides information to analyze trends and improve processes

Members are encouraged to first attempt to resolve a problem by means of an informal

complaint through a telephone call or letter to the health plan. An informal complaint can pertain
to virtually anything concerning the delivery, financing, or administration of healthcare. For
instance, a member might complain about long wait times in a provider's office, the care provided
by a network physician, a bill from a provider that the member believes the health plan is
obligated to pay, a confusing explanation of benefits, or problems obtaining an identification
card.
If the informal complaint is not resolved to the member's satisfaction, the member has the right to
file a formal appeal. A formal appeal allows a member to have a dispute resolved by someone in
the health plan other than the person who made the decision or performed the service that led to
the complaint. Formal appeals follow an established process that typically allows for at least two
levels of appeal within specified timeframes. The process steps are described in the member's
certificate of coverage or are referenced in the certificate of coverage and described in a separate
document available to members upon request. As we saw in Healthcare Managment: An
Introduction, many health plans also issue to their members a philosophy of care, code of
conduct, or statement of member rights and responsibilities that often includes a statement about
the member's right to file an appeal.
States often enumerate specific appeals standards that apply to health plans. For example, some
states require that appeals of nonauthorizations be reviewed by a specialist in the same or similar
field of medicine as typically treats the condition being reviewed. At a minimum, most states
require health plans to

 Obtain state insurance and/or health department approval of appeals processes

Disclose to members their right to appeal
Maintain and make available to the state all records regarding the number and nature of

member appeals

Adhere to specific timeframes for reviewing and responding to appeals

An appeal of a decision that results from administrative review is sometimes called an

administrative appeal, and an appeal that addresses medical issues is sometimes called a medical
appeal. Some health plans distinguish between administrative and medical appeals, assigning
each type of appeal to a different process flow involving different personnel.
The Formal Appeals Process
The formal appeals process can be viewed as an extension of the authorization process, requiring
the health plan to further review its initial decision not to authorize payment of benefits. It is
important for the health plan to closely monitor the appeals process to see that it is consistently
administered and that accurate records are kept. Figure 5A-3 shows a diagram of typical
complaint resolution procedures, beginning with the initial UR decision, proceeding through
internal review (informal complaint and formal appeals), and ending with an independent external
review. It is important to note, however, that most complaints are resolved without proceeding
through the entire process.

Formal Appeal: Level One

A Level One appeal often goes to one of the health plan's medical directors, assuming that the
medical director was not the person who made the initial decision. Members may write a letter or
request a meeting in person to present their case. Members also have the right to name someone
else to represent them in their appeal, provided that they document their agreement that another
person will be acting on their behalf. Such documentation is not required if the representative
accompanies the member in person to an appeal meeting.
Health plans have a specified number of working days to respond to appeals, as stated by
company policy or applicable regulatory requirements. This timeframe typically falls between 20
and 60 days, but is accelerated for certain types of appeals, called expedited appeals, which
require a prompt decision because of the nature of the medical condition. The review period
begins when the appeal arrives at the health plan. Some states give the health plan an additional
number of days (e.g., 10) if the appeal arrives without all the information needed to make a
decision; in this case, the health plan must send notification of the delay to the member.
Typically, the health plan sends a letter communicating its decision to the member and/or
provider involved. If the Level One appeal overturns the original decision, then the health plan
informs the member that it will pay for the service in question. If the Level One appeal upholds
the original decision, then the health plan sends a letter that states the reason for the

nonauthorization, quotes the applicable contract provision that supports the nonauthorization, and
informs the member of additional rights to appeal.
It is important for the health plan to prepare clear, accurate, and consistent communications of its
decisions at all levels of the appeals process. For example, if a decision not to cover a particular
surgical procedure has been upheld on appeal because of the cosmetic surgery exclusion, all
letters upholding similar nonauthorizations should cite the same exclusion. Otherwise, a health
plan's decisions could be viewed in court as inconsistent and perhaps faulty.
Formal Appeal: Level Two
If the Level One appeal upholds the original decision not to authorize, then the member has the
right to appeal to the next level, which is often handled by an appeals committee at the local,
regional, or corporate level, depending on the health plan's organizational structure.
Typically, an appeals committee consists of representatives from various areas within the health
plan who meet regularly to consider most appeals and who also meet as needed to consider
expedited appeals. An appeals committee that handles medical reviews always includes a
physician. To avoid conflict of interest, if the committee's physician member was involved in a
decision that is being appealed, then the physician is replaced by another physician within the
organization. An appeals committee might also include a nurse, an attorney, and representatives
from areas such as customer services and health plan operations. Some appeals committees also
include health plan members.
Prior to the date of the appeals meeting, the committee members receive the files for each appeal.
An appeals file contains information such as the applicable contract provisions; correspondence
from the member, customer services, UR staff, and the provider involved; and any internal
documentation, case history notes, or information such as the health plan's medical policy or the
utilization guidelines that pertain to the care under review. During the deliberation process, the
committee might contact the member or provider for clarification or might consult with a
specialist.
Under certain circumstances a health plan may allow for an alternative level of appeal in lieu of
the Level Two appeal. For instance, a request to precertify treatment for a life-threatening
condition might go directly to the senior medical director rather than the local or regional appeals
committee.
Health plans maintain records of all appeals and track information such as turn-around time for
decisions and the percentage of decisions that overturn the initial determination. An important use
of appeals data is to identify opportunities to improve utilization, such as those listed below:
If the appeals process reveals a large number of emergency department visits for routine

care, the health plan might decide to develop or redistribute a member brochure that
explains the authorization process for emergency department visits.
If the appeals process reveals that a particular provider consistently performs or
recommends a service excluded from the benefit plan, the health plan can supply this
provider with additional training on plan provisions.
If the appeals process reveals that a UR staff member consistently fails to authorize
payment for a particular course of treatment that typically should be covered, the health
plan can give the staff member training.

Independent External Review

An independent external review is a review conducted by a third party that is not affiliated with
the health plan or with a providers' association, is free of conflict of interest, and has no financial
stake in the outcome of the authorization decision. Typically, this step in the appeals process is
made available to members after the completion of the internal appeals process. Health plans
should seek to establish an external review system that is easy for members to use, considers
appeals quickly, and produces fair decisions based on expert medical evaluation and current
medical evidence.
Accrediting agencies, Medicare, and many states have specific requirements and standards
pertaining to independent external reviews, although the standards vary. For instance, in some
states, health plans may be required to offer external reviews for all determinations of medical
necessity, while in other states, health plans may be required to offer external reviews only for
experimental or investigational procedures.
According to a study by the Kaiser Family Foundation, most cases submitted for external review
involve nonauthorizations based on questions of medical necessity and coverage limitations, and
a large number involve disputes over mental health coverage, substance abuse, oncology
treatment, and pain management. This study also reports that about half of the decisions made by
health plans have been upheld by external reviewers. 9
External appeals are often handled by independent review organizations (IROs), companies that
specialize in reviewing healthcare disputes. These companies typically offer a number of different
services to health plans. For example, they can
Offer advisory opinions or consultation services to health plans on utilization review
Mediate disputes between health plans and members and/or physicians
Render binding decisions as the final step in the formal appeals process

When considering an appeal, an IRO receives a file similar to the one described earlier in our
discussion of the appeals committee and might seek clarification or additional information as
needed from the health plan, the member, and/or the provider involved. IROs often employ multidisciplinary review teams capable of handling a broad variety of both administrative and medical
issues. The IRO provides the basis for its decision in a communication it sends to all parties
involved in the dispute.
Accrediting Agencies
Utilization review activities are influenced by regulatory authorities and, if applicable, healthcare
accrediting agencies.
Two prominent accrediting agencies in the area of utilization review are the American
Accreditation HealthCare Commission/URAC (URAC) and the National Committee for Quality
Assurance (NCQA). In general, URAC and NCQA take a similar approach to UR by requiring
health plans to
Use care criteria developed with input from actively practicing providers who are

knowledgeable in the field for which the criteria are being developed

Base criteria on sound, nationally recognized clinical evidence

 Evaluate criteria at specified intervals, updating as necessary

See that UR personnel have appropriate qualifications for the specific activities they

perform

Maintain and follow specific policies and procedures for conducting UR activities

Figure 5A-4 provides examples of the types of specific issues addressed by accrediting agencies.

Regulatory Requirements
Most states that regulate UR require the entity performing UR to establish its standards with input
from peer advisors. Some states require UR standards to be objective, clinically valid, and
compatible with established principles of healthcare, yet adaptable enough to permit variations
from the normal course of treatment when justified.
A growing number of states have enacted laws requiring health plans and UROs to disclose their
utilization guidelines. In some states, utilization guidelines must be disclosed to participating

providers on demand. In other states, the information must be provided to state regulators, and
depending on the state, the information may be made public. In still other states, if the health plan
makes a determination not to authorize payment for a particular service, the health plan must
disclose to the provider and patient the specific criteria upon which the decision was based.10
Some states require entities that perform UR to disclose the clinical education of their reviewers
and to document training programs. Most states with UR requirements stipulate that the education
of any reviewer who has the authority to decline payment for a course of treatment must have
some correlation to the condition being reviewed. Procedural issues addressed by state UR
regulations include standards for telephone accessibility, confidentiality of patient and provider
information, and time limits for authorization and nonauthorization decisions.12
In some states, entities that perform UR must (1) be accredited by a nationally recognized
organization such as URAC or NCQA and (2) comply with all applicable statutory requirements.
In other states, the UR statutes specify that national accreditation is deemed to satisfy the state's
UR requirements. In still other states, the UR statutes give regulators the authority to accept
national accreditation in lieu of compliance with the requirements specified in the statutes. 13
Health plans that operate in more than one jurisdiction must identify all applicable requirements
on a state-by-state basis and implement appropriate compliance procedures. Variations in these
requirements make implementation of UR a challenge. Health plans have also expressed concern
that the variety of regulatory requirements might force them to inconsistently apply utilization
standards that, in the absence of such laws, would be applied uniformly in all states. These
variations and inconsistencies are eliminated to the extent that health plans are permitted to use
national accreditation to satisfy state requirements.
Benefit mandates can also impact a health plan's utilization review standards. For example, the
federal government and several states mandate a minimum length of stay (LOS) for maternity
care. If the required LOS exceeds the time that the health plan's UR staff would have considered
appropriate for a particular case, the health plan must cover the additional hospital stay, even
though the health plan otherwise would have considered the additional stay not medically
necessary.
Does UR Constitute the Practice of Medicine?
A controversial legal issue surrounding utilization review is whether UR decisions constitute the
practice of medicine. This question is critical to health plans because if legislatures, regulators, or
the courts determine that a health plan's UR activities constitute the practice of medicine, then
such activities and the medical directors who perform them would be under the jurisdiction of
state medical boards. In addition, health plans and medical directors would be subject to medical
malpractice lawsuits.
Some people maintain that UR decisions are medical judgments, not benefit decisions, since
many patients cannot afford to proceed with care unless payment is authorized. In other words, no
matter how it is defined, nonauthorization often results in treatment being withheld. Others point
out that state laws typically define the practice of medicine as the direct treatment of patients or
the direct advisement of patients concerning healthcare decisions. These people note that when
health plans perform UR, they evaluate the member's medical records, not the member, and then
make a benefit payment decision, but do not offer medical care or advice. 14

To date, only two states have enacted legislation that considers UR to be the practice of medicine.
Although this issue has been the subject of state medical board positions, court decisions, and
attorney general opinions, a clear consensus has yet to emerge. For example, a North Carolina
attorney general opinion states that "denial of third party payment may have a direct impact upon
a patient's decision of whether to undergo the treatment. However, such denial does not prohibit
the patient from seeking treatment without third party benefits, and it does not prohibit the
attending physician from providing the treatment.15" On the other hand, a Louisiana attorney
general opinion states that "the act of determining medical necessity or appropriateness of
proposed medical care so as to effect the diagnosis or treatment of a patient in Louisiana is the
practice of medicine and must be made by a physician licensed to practice medicine." 16
Health plans can take some or all of the following steps to reduce the risks associated with UR
and the practice of medicine:
Monitoring the legal and regulatory environment in each state where the health plan does

business and revising UR protocols as needed

Developing UR training programs and protocols that emphasize the need to avoid giving

the appearance of making medical recommendations

Maintaining appropriate liability insurance for both the health plan and its physician

employees
Strategic Issues
In this section, we examine several key strategic issues associated with UR programs: member
and provider perspectives, information management, staffing and training, coordination with
other health plan functions, and evaluating UR results.
Members and Providers
When designing and implementing UR programs, health plans must objectively and
diplomatically address the unique perspectives of members and providers. The need to control
healthcare costs is not uppermost in the minds of members when their own or a loved one's
course of treatment is under review. In addition, members frequently object to the "bureaucratic
red tape" of UR procedures, and they complain about referral or authorization delays,
complicated rules, and network providers who are not familiar with the UR processes of the plans
they represent.
From the provider's perspective, the administrative demands of UR programs are often considered
time away from the practice of medicine. Further, some healthcare practitioners view UR efforts
as a negative judgment on their professional competence. Health plans must consider the impact
UR programs have on the way providers interact with members and on the likelihood that
providers will want to continue working with the health plan.
In developing a UR strategy, health plans should strive for a collaborative rather than an
adversarial relationship with members and providers. A health plan can foster such a relationship
through
Sensible and consistent UR procedures
A timely UR process
A convenient UR process (i.e., one that is easy for the patient and the provider to use)

 UR protocols that rely on evidence-based medicine and, when appropriate, are

customized to local practices

An unbiased process that is based on reliable data and presented in a manner that does not

judge physicians

Procedures that foster clear communication among all parties

Access to information that supports appropriate use of healthcare resources and sound

decision making

Procedures that are developed with input from providers, members, and purchasers

To specifically address the needs of members, health plans must simplify UR procedures and
design education programs that help members better understand coverage provisions. Health
plans must also focus on clearly communicating all available information about a proposed
course of treatment, as well as the reasons for decisions not to authorize benefit payments.
To work effectively with network providers, health plans must implement procedures and
education/communication programs that make it easier for providers to adhere to authorization
protocols. For example, a health plan might measure, by provider, the percentage of
precertification requests that are ultimately approved. If a provider always proposes services that
are approved, the health plan might eliminate the authorization requirement for this provider. On
the other hand, if a provider consistently proposes courses of care that are not authorized, the
health plan might arrange additional education on the plan's medical policies and/or benefit
administration policies for this provider.
Recognizing the importance of addressing the types of issues discussed above, some health plans
are merging UR programs and case management programs, which typically involve increased
communication and involvement with members and providers.
Information Management
Information technology plays an increasingly important role in utilization review. Some health
plans use electronic medical records (EMRs) and health information networks (HINs) to collect
and analyze medical outcomes data from the general population as well as their member
populations. In addition, advances in information technology enable providers to access plan
information. Providers are much more likely to comply with a health plan's utilization guidelines
when they have online access to eligibility and coverage information, authorization systems,
formulary lists, and so on.
The increasing use of eCommerce facilitates concurrent review by enabling medical directors,
nurse reviewers, and providers to communicate clinical information between provider sites and
the health plan on a real-time basis. The UR nurse can meet with the hospitalized member and the
treating physician and then enter data directly into the health plan's information system. In this
way the nurse can provide up-to-the-minute clinical information about the member's condition
and obtain immediate access to the applicable UR standards and expertise available in the health
plan's information systems.
Staffing and Training
Utilization review cannot be successful unless a health plan has qualified employees in sufficient
numbers to effectively administer the program. Many health plans have UR staff (such as nurses
and medical directors) available during regular business hours, with procedures in place for after-

hours or expedited requests. Some plans provide availability of UR staff 24 hours a day, every
day of the year. Health plans must also see that authorizations and appeals decisions are
conducted by healthcare practitioners licensed in the same or similar medical specialty as the case
they are reviewing, and that appropriately qualified physician reviewers are available as needed.
Health plans often evaluate staffing levels by looking at the ratio of UR staff to the average
number of members or the average number of reviews performed. Staffing ratios also vary
depending on factors such as the severity of the medical conditions generally treated and whether
UR is conducted on site or off site.
Health plans maintain training programs so that UR personnel can properly perform their duties.
Training addresses issues such as application of clinical protocols, procedures for appeals,
regulatory requirements, and protection of patients' rights, including confidentiality.
Coordination with Other Health Plan Functions
Utilization review is one of two functions that health plans perform to make benefit payment
decisions; the other is claims administration. As we saw earlier in this lesson, utilization review
focuses on whether a service is a covered benefit and meets the health plan's guidelines for
medical necessity and appropriateness. As described in lesson 1, claims administration is the
process of receiving, reviewing, adjudicating, and processing claims for either payment or denial
of payment.
Claims administration examines all of the provisions of the contract to determine whether
benefits should be paid. For example, does the person meet the definition of an eligible employee
or dependent? Were the services performed while the person was eligible for coverage under the
plan? Were the services properly authorized? Are the services included in the list of covered
services? If the services are covered, should they be paid as a network or out-of-network benefit?
Is there a copayment or coinsurance? Were the services medically necessary and appropriate? Do
other exclusions apply?
A health plan's claims administration and UR departments must maintain a positive working
relationship to function effectively. UR can assist claims administration in a number of ways. For
instance, the UR department might specify certain types of cases that always require medical
review prior to claims determination and other types of cases that can be processed by claims
administration personnel according to written guidelines. Also, the UR department might provide
information on prospective and concurrent reviews so that the claims administration department
can prepare for these cases and better manage the claims workload.
In most health plans, the claims administration department maintains a comprehensive database
of information needed for processing claims. The database includes information on benefit plan
provisions, coverage standards, compensation arrangements, member information, and provider
utilization. Other departments in the health plan, including the UR department, contribute to this
database and rely upon it for certain functions. For example, the UR department uses the claims
administration database to identify utilization patterns through retrospective review.
The UR department must also maintain a positive working relationship with other departments
within the health plan such as provider relations, member services, the legal department, sales and
marketing, product development, or any other areas that communicate benefit payment
determinations or provisions to members or providers.

Evaluating UR Results
One way that health plans evaluate the results of UR is by determining whether UR results in
reduced medical costs and/or greater consistency and quality of care and if so, how these benefits
compare to the costs of maintaining the UR function? In other words, does a financial cost/benefit
analysis justify the activity? Do the improved outcomes and reduced medical expenses outweigh
implementation costs and the potential for dissatisfied members and providers who resent
nonauthorizations and the inconvenience of the process?
Health plans often monitor utilization rates to determine the effectiveness of their UR programs.
Utilization rates typically measure the number of services provided per 1,000 members per year
to indicate how frequently a particular service is provided. For example, a health plan may
monitor the number of inpatient hospital days or the number of referrals to specialists per 1,000
members per year. These utilization rates are then examined and used to help determine overall
planning, budgeting, quality management, and medical expense management.17 If a health plan
notices an increase in hospital days, it may decide to precertify all or a greater number of
inpatient hospital admissions. If a health plan notices that its specialty referral rate has been
steadily increasing since contracting with a new PCP medical group, it may improve the
education programs or UR procedures it uses with this group.
In addition to utilization rates, there are a number of other indicators that health plans may
consider to evaluate the effectiveness of their UR programs, such as
Changes in the total amount of medical expenses or claim dollars paid for particular

procedures

Outcomes and other quality measures

Number of appeals
Number of complaints overturned by the formal appeals process and/or by external

review

Member and provider responses to satisfaction survey questions pertaining to the UR

process
Health plans also evaluate UR programs to adjust their medical management strategies and
activities. After studying UR results, a health plan may decide to shift its focus from inpatient to
outpatient reviews or to tighten authorization procedures for one course of treatment and loosen
procedures for another. UR results may also affect other medical management programs. For
example, a UR manager might review a summary report-showing items such as diagnosis and
type of care-and identify an increase in hospital admissions for complications of pregnancy,
which in turn might lead the health plan to institute a disease management program related to
prenatal care or a case management program targeted at high-risk pregnancies. 18
Conclusion
Although utilization review is a common component of health plan medical management
programs, individual health plans vary greatly in the extent to which they use UR and the specific
UR processes that they implement. In addition, the overall use of UR in the health plan industry
has fluctuated in recent years. Some health plans are beginning to turn UR responsibility over to
provider groups; others are experimenting with more aggressive healthcare resource evaluation
techniques. As the healthcare industry changes to meet new member, provider, purchaser, and
environmental demands, utilization review is likely to change as well.

Endnotes
1. Walter A. Zelman and Robert A. Berenson, The Health Plan Blues and How to Cure
Them (Washington, DC: Georgetown University Press, 1998), 41-42.
2. John E. Wennberg, "Variations in Medical Practice and Hospital Costs," in Quality in
Healthcare: Theory, Application, and Evolution, ed. Nancy O. Graham (Gaithersburg,
MD: Aspen Publishers, Inc., 1995), 52.
3. Scott Falk and Kip Betz, with Martha Kessler, "United HealthCare Replacing Obsolete
Preauthorization with Provider Profiling," BNA's Health Plan Reporter 5, no. 45: 1087.
4. Ibid., 1087
5. Raymond J. Fabius, M.D., A Physician Executive's Guide to Patient Management for the
'90s and Beyond (Tampa: FL: American College of Physician Executives, 1995), 2, 17.
6. Faulkner & Gray's Healthcare Information Center, "Policymakers Grapple with
Foundations of Process for Coverage Decision, Appeals," Medicine and Health
Perspectives, ed. Robert Cunningham (3 May 1999): 3.
7. Eleanor Mayfield, "Streamlining Referrals," Healthplan (May/June 1997): 17.
8. Academy for Healthcare Management, Health Plans: Governance and Regulation
(Washington, DC: Academy for Healthcare Management, 1999), 12-4-12-5.
9. Jill Wechsler, "External Appeals Please Patients at a Low Cost," Managed Healthcare
(January 1999): 8.
10. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,
1996), 3-29-3-30.
11. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,
1996), 3-22-3-23, 3-30-3-33.
12. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown and Company,
1996), 3-14-3-15.
13. Ibid., 3-14--3-15
14. Ibid., 3-17
15. Marguerite A. Massett, "Utilization Review," in Healthcare Corporate Law: Health Plan,
ed. Mark A. Hall and William S. Brewbaker III (Boston: Little, Brown & Company,
1996), 3-17.
16. LA Att'y Gen. Op. No. 98-491, 1998.
17. Marianne F. Fazen, St. Anthony's Health Plan Desk Reference, 1996-97 ed. (Reston, VA:
St. Anthony Publishing, Inc., 1996), 300.
18. Catherine M. Mullahy, The Case Manager's Handbook, (Gaithersburg, MD: Aspen
Publishers, Inc. 1995), 194.