How US Healthcare Works, Part 9: Utilization Management

Part 5 covered the written rules for what counts as medically necessary. Utilization management (UM) is how a payer applies those rules to a particular patient. It's the reason a hospital stay can be cut short on paper, an MRI can need approval, and a claim can be denied months after the care. Payers describe UM as a way to avoid unnecessary or unsafe care and cost. Providers describe it as paperwork and delay. Both are partly right, and the numbers below show where.

1. Three times a payer can review care

Prospective review is the most visible to patients, and part 10 covers it in detail as prior authorization. This part covers how UM works in general and the concurrent and retrospective kinds.

2. Who does the review

Most UM decisions start with a nurse reviewer at the payer, or at a vendor the payer hires, who compares the patient's records with criteria such as InterQual or MCG (part 5).

• If the case meets the criteria, the nurse approves it.
• If it doesn't, the nurse can't deny it alone. A physician reviewer, a doctor working for the payer, has to decide. For Medicare Advantage, CMS requires that a denial based on medical necessity be reviewed by a physician or other professional with expertise appropriate to the service.
• Before a denial, or after it, the treating doctor can ask for a peer-to-peer conversation with the physician reviewer to argue the case.

Payers often contract out whole categories. Radiology benefit managers review advanced imaging, and similar vendors handle cardiology, musculoskeletal surgery, physical therapy, sleep studies and genetic testing. Evolent, Carelon (owned by Elevance) and EviCore (owned by Cigna) are among the largest. To a provider, this means the plan on the member's card and the company that approves the MRI can be different organizations, with different portals.

3. Concurrent review: hospital stays

When a member is admitted to hospital, especially as an emergency, there's no chance to approve the stay in advance. Instead:

1. The hospital notifies the payer of the admission, usually within a day or so.
2. The payer reviews the first day against criteria and approves a number of days.
3. As those days end, the hospital sends updated clinical notes and the payer reviews again: does the patient still need hospital-level care, or could they go home or to a lower level of care?
4. Discharge planning starts early, because the next level of care, such as a skilled nursing facility or home health, often needs its own approval.

Maria's husband's appendectomy in part 3 went this way. It was an emergency, so no prior authorization was needed. But the hospital notified the plan, and the plan reviewed the stay day by day.

4. Inpatient or observation

One of the most argued-over UM questions is whether a hospital stay counts as inpatient or observation. A patient in observation is in a hospital bed, often for a day or two, but is technically an outpatient while doctors decide whether they need admitting.

The difference matters a lot for money:

For traditional Medicare, the Two-Midnight rule sets the line: an admission is generally appropriate as inpatient when the doctor expects the patient to need hospital care spanning at least two midnights. Since 2024, CMS has required Medicare Advantage plans to follow the same rule rather than their own stricter criteria, under the rule described in part 5.

5. Post-acute care

After a hospital stay, many patients need more care: a skilled nursing facility (SNF), an inpatient rehabilitation facility (IRF), a long-term care hospital (LTCH) or home health. These are expensive, the right choice is a judgement call, and they are where UM is most contested.

KFF's analysis of HHS Inspector General data found that Medicare Advantage plans denied post-acute care requests at much higher rates than other requests. In June 2024, insurers with at least 200,000 Medicare Advantage members denied 65% of requests for long-term care hospital stays, 54% for inpatient rehabilitation and 12% for skilled nursing, against 7.7% for all prior authorization requests that year.

Some of these decisions have been made with the help of algorithms that predict how long a patient should need post-acute care. Lawsuits filed against several large insurers since 2023 allege that predictions were used to cut off care that patients' doctors said they still needed. The insurers dispute the claims. CMS has since said that a Medicare Advantage plan may use an algorithm to help make a coverage decision, but must base the decision on the individual patient's circumstances, not on the algorithm alone.

6. Retrospective review

Retrospective review happens after care, using the medical record:

• Pre-payment review: the claim is held until records are reviewed. Common for high-cost claims or providers under scrutiny.
• Post-payment review: the claim was paid, and an audit later asks for records. If the care wasn't necessary or wasn't documented, the payer recovers the payment.

Retrospective review overlaps with payment integrity, which part 15 covers. The difference is mostly about purpose: UM asks whether care was appropriate; payment integrity asks whether the bill was right.

7. What UM is meant to catch, and what it costs

There is a case for UM. Some care is unnecessary: imaging repeated without reason, procedures with little evidence, hospital days a patient doesn't need. Some care is unsafe in a particular patient. Payers argue that review prevents both and keeps premiums down.

There are costs too, and they fall on patients and providers:

• Delays. In the AMA's 2025 survey of 1,000 physicians, 95% said prior authorization delays care, and 26% said it had led to a serious adverse event for a patient.
• Paperwork. The same physicians reported completing an average of 40 prior authorizations each per week, taking 13 hours of physician and staff time.
• Denials that don't hold up. In Medicare Advantage in 2024, 80.7% of appealed prior authorization denials were overturned, though only 11.5% of denials were appealed.

The AMA is an advocacy group for physicians, so its survey reports physicians' experience. The appeal figures are from insurers' own reporting to CMS. Read together, they suggest UM blocks some unnecessary care, delays some necessary care, and wrongly denies some care that few people go on to appeal.

8. Limits

• Criteria aren't the patient. InterQual and MCG describe typical cases. Patients with several conditions often don't fit them.
• The record is a proxy. A reviewer sees documentation, not the patient, so a missing note can turn a necessary stay into an unnecessary one on paper.
• Incentives point one way. The payer runs the review and pays for the care, which is why rules on physician review, timelines and appeals exist.

Remember

Next, in part 10: prior authorization in detail, the request, the decision, the timelines, the 2024 federal rule and the electronic standards meant to make it faster.

Sources

• KFF, Medicare Advantage insurers made nearly 53 million prior authorization determinations in 2024, January 2026
• KFF, Medicare Advantage insurers deny prior authorization requests for post-acute care at substantially higher rates
• American Medical Association, 2025 AMA prior authorization physician survey
• CMS, Contract Year 2024 Medicare Advantage final rule (CMS-4201-F)
• Medicare.gov, Inpatient or outpatient hospital status