A growing number of complex, expensive medications are entering the market. At the same time, health insurance companies, also called payer, are increasingly relying on utilization management to control healthcare costs by influencing patient care decisions. Common utilization management tools include prior authorizations, step therapy, predeterminations, and preauthorizations.

Prior authorizations (PAs or prior auths) are among the most common and burdensome cost management tools, requiring providers to obtain approval before insurance companies pay for costly medications or expensive services.2 The prior authorization process delays care, burdens providers, and ultimately increases U.S. healthcare costs.1 Based on a study published in 2021, payers, manufacturers, physicians, and patients spend $93.3 billion annually on implementing, contesting, and navigating utilization management strategies.4

Understanding utilization management is crucial for all parties involved in the prior authorization process as U.S.healthcare regulations become more complex and medication costs rise. Let’s explore utilization management, its components, and its future.

What is utilization management?

Utilization management (UM) is managed care’s approach to controlling the cost of healthcare benefits by assessing each service’s medical necessity.3 The term managed care is sometimes confused with health insurance. However, managed care is a distinct business model emphasizing value-based healthcare.6 Managed care plans come in various forms, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

According to the Institute of Medicine (IOM), UM is defined as “a set of techniques used by or on behalf of purchasers of health care benefits to manage health care costs by influencing patient care decision-making through case-by-case assessments of the appropriateness of care prior to its provision.5 This article focuses on elements of UM related to patients’ access to medications. However, utilization management is a value-based approach for all medical services and care coordination, including medical procedures, behavioral health, inpatient care, and emergency services.

Medication UM tools include:

  • Step therapy requires patients to try a lower-cost drug before “stepping up” to a more expensive drug. The approval process for the more expensive treatment can take weeks or months. Managed care believes step therapy reduces costs.
  • Prior authorization requires providers to request approval before a payer will cover medication. Patients may wait for days for approval. Managed care believes prior auths improve safety and reduce the cost of care.
  • Quantity limits control over how often or the amount you can get filled at once. Patients are required to exert additional effort in obtaining their medications, leading to potential medication non-adherence. Managed care believes quantity limits reduce waste and costs.
  • Mandatory generic substitution requires patients to use generic medications when they are available. Patients who want the branded version must pay the difference. Generic substitution policies typically apply to a plan’s entire formulary, not specific drugs. According to managed care, the policy reduces costs. 

What is the difference between predetermination and prior authorization?

A common source of confusion among patients and providers is the difference between predetermination and prior authorization. While prior authorizations are required for patients to receive access to expensive medications, predeterminations are voluntary utilization management reviews of healthcare services. 

The predetermination process is unnecessary for services and drugs on the prior authorization list. Still, the predetermination process can lower the number of denials of coverage for a treatment plan. However, a predetermination does not mean that members’ benefit plans will cover the services but can help determine whether a procedure is a non-covered service.

What is the purpose of utilization management?

Regardless of the type of utilization management tool, the purpose of utilization management is to ensure members of managed care plans receive high-quality, cost-efficient care. UM also prevents the following: 

  1. denials of coverage
  2. unnecessary expenses
  3. regulatory noncompliance

Which medications require utilization management?

Medications associated with utilization management are those with the following characteristics:

  • Safety concerns, including drug interactions
  • Affordable alternatives are available
  • Off-label potential
  • Misuse or abuse potential
  • Distribution restrictions or special handling requirements
  • Benefits across multiple categories (e.g., medical and cosmetic)

Is utilization management effective?

According to the American Medical Association (AMA), appropriate medical care must follow evidence-based guidelines developed by national medical specialty societies and remain consistent across all payers and health plans. Currently, a standard national definition of medical necessity doesn’t exist among payers, creating confusion for providers and patients.

As medicine becomes more personalized, medical necessity for one patient may not align with another patient’s similar yet distinct condition. Consequently, UM will become increasingly challenging and require medical professionals from various specialties for care coordination to ensure high-quality care for every patient. Coordination of care is particularly complicated due to managed care’s utilization management tools, requiring providers and patients to waste valuable time waiting for payer decisions.

Though UM is supposed to prevent unnecessary costs and ensure current standards are based upon real-world evidence, the tools used for UM often present a barrier to an optimal level of patient care. UM tools can result in patient frustration, leading to the potential for underutilization of health care services and risks to patient’s health. Within UM, utilization reviews aim to improve standards of care by evaluating patient outcomes.

What is a utilization review?

Utilization reviews (URs) involve a team of health care professionals who help identify opportunities for improving care processes and outcomes while reducing costs. UR differs from UM, but UR can affect UM by identifying ineffective quality controls or cost-saving strategies. During a UR, a utilization review nurse generally examines health care services, treatments, or medications on behalf of the payer, determining if the care provided is appropriate and a “medical necessity.” Most hospital systems use Interqual and Milliman, an evidence-based clinical decision system, to assist with determining medical necessity. 

However, many payers have failed to establish standards of care or do not integrate current clinical guidelines into their UR process. When there is disagreement about coverage between the doctor and payer, a peer to peer review occurs. In a peer to peer review, a patient’s doctor justifies a patient’s medical service or prescription to the insurance company’s medical director. Often, these interactions occur when a payer denies a claim according to its internal policies.

There are three types of utilization reviews: 

  1. Prospective review: determines whether services or scheduled procedures are medically necessary before admission.
  2. Concurrent review: evaluates medical necessity decisions during hospitalization.
  3. Retrospective review: examines coverage after treatment. These reviews are all also called post-service utilization management reviews.

Predictive data analytics and artificial intelligence (AI) are increasingly used to streamline the process of utilization management and utilization review. AI can assist in determining the appropriateness of care or medical necessity. At the same time, only coverage requests AI cannot automatically approve are sent to UM reviewers, thus reducing the manual burden.

What is a Drug Utilization Review (DUR)?

A drug utilization review (DUR) examines the prescribing, dispensing, and use of medications by practitioners and pharmacists. The purpose of DUR is to ensure drugs are used appropriately, safely, and effectively. Standard prescribing guidelines are compared against a patient’s or a population’s prescription history. 

Similar to utilization management reviews, DURs are classified into the following three different categories: 

1. Prospective drug utilization review: enables pharmacists to resolve problems before medications are dispensed by evaluating a patient’s planned drug therapy.

2. Concurrent drug utilization review: allows pharmacists to detect potential issues and intervene in areas such as drug-drug interactions, duplicate therapies, overuse or underuse, and excessive or insufficient doses during a patient’s duration of care. 

3. Retrospective drug utilization review: aims to detect patterns in prescribing, dispensing, or administering drugs. By analyzing patterns of medication use, standards and target interventions can be developed. 

What is the future of utilization management?

Pharmacists play an essential role in utilization management and the prior authorization process. Clinical or industry pharmacists with prior authorization specialist certifications are valuable players in utilization management due to their subject matter expertise. The Academy of Managed Care Pharmacy (AMCP) conducted a multi-stakeholder forum in June 2019 to identify processes for optimizing prior auth and step therapy. The AMCP emphasized the benefits of pharmacist-initiated prior auths as part of their efforts to improve the process. The benefits of pharmacist-initiated PAs include the following:

  • Provide the payer with prescription histories to expedite the prior auth process.
  • Access to the patient’s electronic health record (EHR) to obtain diagnostic or laboratory information.
  • Access to patients during evenings and weekends.

Engaging pharmacists in the prior auth process is only one tactic identified by the ACMP to improve the utilization management process. The U.S. healthcare system will continue to increasingly employ utilization management processes, and understanding how to navigate them is vital for all healthcare providers. To learn more about utilization management and the benefits of a prior authorization specialist certification, visit the National Board of Prior Authorization Specialists


  1. AMCP Partnership Forum: Optimizing Prior Authorization for Appropriate Medication Selection. J Manag Care Spec Pharm. 2020;26(1):55-62. doi:10.18553/jmcp.2020.26.1.55.
  2. Carlisle RP, Flint ND, Hopkins ZH, Eliason MJ, Duffin KC, Secrest AM. Administrative Burden and Costs of Prior Authorizations in a Dermatology Department. JAMA Dermatol. 2020;156(10):1074-1078. doi:10.1001/jamadermatol.2020.1852.
  3. Giardino AP, Wadhwa R. Utilization Management. In: StatPearls [Internet]. StatPearls Publishing; 2022.
  4. Howell S, Yin PT, Robinson JC. Quantifying The Economic Burden Of Drug Utilization Management On Payers, Manufacturers, Physicians, And Patients. Health Aff . 2021;40(8):1206-1214. doi:10.1377/hlthaff.2021.00036.
  5. Institute of Medicine (US) Committee on Utilization Management by Third Parties, Gray BH, Field MJ. Utilization Management: Introduction and Definitions. National Academies Press (US); 1989. Accessed August 23, 2022. https://www.ncbi.nlm.nih.gov/books/NBK234995/
  6. Teisberg E, Wallace S, O’Hara S. Defining and Implementing Value-Based Health Care: A Strategic Framework. Acad Med. 2020;95(5):682-685. doi:10.1097/ACM.0000000000003122.