Utilization review (UR) is a critical function in healthcare, ensuring that patients receive appropriate care while hospitals maintain compliance with payer requirements and optimize revenue. UR ensures that every patient admitted to a hospital meets medical necessity criteria, a term that defines the level of care required based on the patient’s condition and the hospital’s interventions. The distinction between inpatient and observation status is not just clinical, as the status designation directly impacts hospital reimbursement.
Every patient admission, regardless of whether the point of entry is the emergency department, an outpatient procedure, or a transfer, should undergo UR. However, achieving this level of support requires significant resources from experienced UR nurses who can review cases efficiently and accurately.
Challenges in Utilization Review
Hospitals face several challenges in maintaining effective UR programs. These include:
- Staffing: It can be difficult for hospitals to maintain adequate staffing levels for experienced UR nurses. This challenge is compounded by the need for 24/7 coverage, including weekends and nights, when gaps in staffing can lead to bottlenecks, missed reviews, and risk of lost revenue.
- Denials and Takebacks: Payers are increasingly scrutinizing claims, leading to both pre-payment denials and post-payment takebacks. For example, insurers may audit charts years after payment and retroactively deny claims, creating financial strain for hospitals that are now required to give back a portion or all of previously paid claims.
- Technology Integration: Technology tools can offer automation and decision support, but human expertise is still required for many situations to ensure payer denials are effectively prevented and mitigated.
- Fragmented Oversight: Depending on the hospital or health system, UR programs may report to different departments, such as case management, finance, coding or quality, or revenue cycle. This fragmentation can lead to inefficiencies and missed opportunities for streamlining and optimization.
Best Practices for Utilization Review
To address these challenges, healthcare leaders should implement the following best practices:
- Comprehensive Staffing: Real-time review equals revenue protection. Conduct regular assessments to determine whether current staffing levels align with patient volumes, payer requirements, and clinical denial trends. Consider global staffing models to provide cost-effective solutions as well as weekend and overnight coverage to ensure every admission is reviewed.
- Data-Driven Decision Making:Track key performance indicators (KPIs) such as observation-to-inpatient ratios and missed reviews. Observation rates above 25% or below 10% may indicate opportunities for improvement, depending on several factors (case mix index (CMI), payer mix and pressures, and ED volumes and short-stay trends.
- Proactive Denial Management: Tighten UR processes to minimize denials and takebacks. This includes ensuring accurate documentation and timely communication with payers. Ensure robust physician advisor support for concurrent second-level reviews for borderline or short-stay cases inpatient cases and prolonged observation stays.
- Leverage Technology: Technology tools offer predictive analytics and prioritization capabilities. Automation can complement human expertise by streamlining workflows and prioritizing at-risk cases to provide skilled clinicians with the time to handle more complexity. Hospitals need to evaluate how technology can reduce denials and improve revenue outcomes.
- Integration with Revenue Cycle: As UR becomes increasingly tied to financial outcomes, some hospitals are shifting oversight to revenue cycle departments or chief financial officers. This integration can improve alignment between clinical and financial goals. Centralizing UR and status management under one director or cross-functional committee can help drive efficiency and desired outcomes.
Utilization review is a dynamic and essential function in healthcare, requiring a balance of clinical expertise, technology, and strategic oversight. Attend our webinar, Make Your Case and Win: Strategies for Reducing Clinical Denials and Increasing Appeal Success, for more insights on how hospitals and health systems can optimize UR programs, reduce denials, and improve financial performance.
