The Many Faces of UM: A Little History

The definition of UM has changed. Some of the results remain stubbornly the same (and unclear).

While utilization management clearly has a role in healthcare, the jury is still out on its ability to control costs more broadly, to improve quality — and its primary objective.

The answers to these questions are important: for where healthcare has been, where it’s going, and what role UM will play for payers, providers and patients. In this three-part series, HealthLeaders will examine a brief history of UM and whether it is primarily a cost-control mechanism or an essential component of value-based care.

UM: Early definitions and goals

“Historically, one of the primary purposes of UM has been to address overutilization of services or procedures and address the potential for waste and/or abuse of healthcare dollars,” says  attorney Lindsey Fetzer, chair of multi-disciplinary Managed Care practice at Nashville-based law firm Bass, Berry & Sims. This framework bears out the early definitions of UM from the 1980s and 1990s.

The Institute of Medicine developed one of the earliest definitions of UM (1989) as " ... a set of techniques used by or on behalf of purchasers of health benefits to manage health care costs by influencing patient care decision-making through case-by-case assessments of the appropriateness of care."

CMS — then called Health Care Financing Administration (HCFA) — cited this definition in a 1991 analysis, identifying UM as a “primary cost-containment strategy.” At that time, UM’s  focus was on hospital costs and the overutilization of inpatient care, specifically unnecessary admissions and lengthy stays.

The strategy worked, to a degree. The CMS review showed improvements in all areas, noting: “Clearly, UM systems are associated with major changes in practice behavior.”

But that’s where full clarity around UM — its purpose and its benefits — ended.

UM’s early (and continued) mixed results

The 1991 study noted that UM had a limited role in reducing total cost of care. Its role in improving quality was even less known, with CMS noting: “The effect of UM on the quality of care has generated a great deal of speculation but little serious study.”

Flash forward a decade — the time frame by which CMS predicted that “decreased utilization rates will be reflected in significant reductions in the growth of health care costs” — and UM’s effectiveness in improving healthcare’s effectiveness was still unclear.

One 2002 review showed that “evaluations of UM have generated mixed findings, with some studies showing reductions in utilization and costs and others showing little effect” (Annual Review of Public Health).

Two decades later, the prognosis is similar: “What is clear is that additional research is necessary to provide a more robust answer to the question of what the impact is on utilization and quality of care based on UM and payment policies” (National Library of Medicine, 2023). 

UM’s (attempted) evolution

In 2024, and depending on the source you consult, UM definitions emphasize either cost, quality or both.

The National Library of Medicine states that UM “remains a well-recognized component of a cost management approach in the health care service delivery and payment arenas.”

The NCQA, which offers UM Accreditation, defines utilization management as a tool that “helps ensure that patients have the proper care and the required services without overusing resources” and that the “organizations making these decisions are following objective, evidence-based practices.”

Another source states that “[r]educing coverage denials is one of the key goals of utilization management.” (Today’s headlines would suggest otherwise; more on this later).

So which is it: Cost or quality? They’re not mutually exclusive. It’s just that it’s so darn hard to achieve both. A 20-year review of commercial payers’ value-based care programs in 2022 showed “mixed and modest effects” on quality, cost, or utilization — and none that impacted all three consistently.

A 10-year review by CMMI of its programs yielded a similar result: only six of 50 alternative payment models had generated savings for Medicare since 2012.

While these results apply to VBC not UM, the parallels are important because the questions they must answer are similar:

• Are payer programs lowering healthcare costs and improving quality?
• Are they addressing healthcare disparities?
• Do they partner with providers and patients to improve experience and outcomes for both?

Fetzer notes: “The tensions inherent to any UM process have always been the same: the goal is to balance healthcare utilization and manage cost while also expecting that the core of any UM framework be focused on whether the service is clinically appropriate/medically necessary.”

And not just clinically appropriate but proven to generate better outcomes.

The many faces of UM

This rolls us, in the words of T.S. Eliot, toward the overwhelming question: What is UM’s real objective? The next two articles in this HealthLeaders UM series will explore the issue from two perspectives:

• That UM is largely obstructive, little more than a payer profit-protection mechanism marked by excessive, over-automated denials — even for medically necessary care.

• That UM is vital for achieving the highest aims of value-based care.

Fetzer defines UM’s focus as “making sure the right care is delivered at the right time, in a way that optimizes outcomes, reduces risk of adverse clinical outcomes, and considers other data points like quality and compliance — adding that the importance of “also controlling Medicare (and other government and private program) spend so that services can continue to be offered to future generations.”

Parts 2 and 3 of this series will assess how the UM experiment is going.