What Is Utilization Management?

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  • Written By: Susan Abe
  • Edited By: Jessica Seminara
  • Last Modified Date: 08 November 2019
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Medical care is expensive. The US, Canada, Great Britain, Japan and other developed countries spend around 8 to 16 percent of their gross domestic product (GDP) treating their citizens. As medical care costs rose, insurance companies developed utilization management as a means to control expenses. The term was self-explanatory at the time it began: insurance companies actively managed the medical care of their policyholders. The term utilization management now refers to many types of benefit versus cost evaluations in the healthcare field, ranging from a physician's first diagnosis and plan of care to statistical evaluation of a particular treatment's efficacy over many years and thousands of patients.

At its inception, utilization management began with insurance companies requiring that patients or physicians obtain their approval before admission to a hospital. Preadmission permission, or pre-certification, led to similar policies for outpatient treatments or diagnostic testing. Inpatient hospital days also began to be denied if the patient was not considered to be ill enough. Conflicts arose between physicians and insurance companies as treatments were denied or limited by personnel untrained in medicine and later, by computerized systems that allowed medical care to be provided only according to complex algorithms. In the US, these conflicts were fought in the courts as different parties argued about the validity and legality of such systems.


Utilization management has now become the norm and includes the subcategories of pre-certification, concurrent planning, discharge planning, utilization review and case management. The Utilization Review Accreditation Committee (URAC) was developed in the US to certify organizations as accredited in the medical and ethical aspects of managed care. As insurance companies have adopted managed care and utilization management, healthcare providers have responded by developing new categories of personnel to justify patient care within the managed care restrictions. As a result, discharge planning has become a primary function of hospital social workers and case management is now a nursing specialty. Discharge planners are a specialized profession as are outpatient nurse case managers and even diagnostic coders who specify illnesses adequate for reimbursement.

The economics of healthcare and rising medical expenses necessitated some means of cost control. In the US, the solution was managed care combined with different methods of utilization management. As a result of such changes, patients are discharged from hospital much more quickly and are often less capable of self-care than in decades past. Outpatient nursing services and temporary rehabilitative care within nursing homes have developed in order to meet the continuing care needs of these patients. Another change is that prior to all of these interventions, however, policyholders are offered diagnostic screening tests at a free or discounted rate as these tests have been shown to recognize illnesses in early stages, when they are more easily treated.


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