What Is Utilization Review and When Is It Required?

Records for review.
Records for review. (Image: Image by Flickr.com, courtesy of Juhan Sonin)

Utilization review is the process by which health insurance companies, other health providers and hospitals determine whether health care diagnosis and treatment are medically necessary for a patient or patients. Utilization review is usually done after the services are delivered. Utilization review can lead to utilization management.

Precertification Based on Utilization Management

URAC (formerly the Utilization Review Accreditation Commission) defines utilization management as "the evaluation of the medical necessity, appropriateness and efficiency of the use of health care services, procedures and facilities under the provisions of the applicable health benefits plan."

If your doctor determines you need a particular procedure done, the approval will presumably be based on the degree to which it will meet the criteria established by previous reviews and practice standards. The review done after treatment is provided is designed to determine if the criteria were met.

Health Insurance Companies Follow State Rules

Health care companies must abide by utilization review standards established by state legislatures. These standards vary from state to state, but most states include at least the following basic rules. Patient information should be limited to that needed for the review. The criteria used to determine medical necessity must be precise and uniform. The parties involved must be notified of review decisions in a timely manner. The staff doing the review must be qualified. And, an appeals process must be in place.

Hospital Reviews Usually Follow Standard Practices

Hospital utilization review (UR) has greatly increased in recent years and is used extensively as a means to hold down costs. In a study conducted by researchers from the Department of Health Services, University of Washington, estimates of the effects of utilization review on hospital utilization and medical expenditures was associated with an approximate 12-percent decrease in admissions, a 14-percent decrease in hospital routine expenditures and a 6-percent decrease in total medical expenditures. Utilization review appeared to reduce expenditures mainly by reducing admissions.

Hospitals do a variety of utilization reviews to determine such factors as how many intensive care patients can be handled by each nurse, how many patients would a new MRI machine need to justify the purchase price and how many beds would their population area support.

Workers’ Compensation

All employers are required to review treatments to injured workers to determine if they are medically necessary. These programs are used to decide whether or not to approve medical treatment recommended by a physician.

California has adopted a set of medical treatment guidelines, which lay out treatments scientifically proven to cure or relieve work-related injuries and illnesses. They also deal with how often the treatment is given and for how long. Other states have similar programs.

How Does the Utilization Review Process Work?

Kentucky has a three-stage worker compensation utilization review process that is similar to those in other states. The first stage is initiated with a case review by a licensed medical practitioner, usually a nurse. If she detects a problem, it will be referred to a physician for additional assessment. A denial of the case must include a reason for the denial. The second stage is an appeal for a second review. Stage three is a review by a specialist, assuming none had been involved to that point.


Utilization review is an important factor in the U.S. health care system and plays a significant role in determining what procedures will be paid for by insurance companies, employers or governments.

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