What is utilization management?
Utilization management refers to the policies and restrictions health plans use to evaluate the necessity of medical treatments. Health plans rely on these policies to reduce unnecessary services and ensure patients receive clinically appropriate and cost-effective care.
If a health plan has imposed utilization restrictions on a certain medication, a pharmacy will be unable to dispense it at the point of sale unless those restrictions have been met. For example, a quantity limit restricts the amount of a particular medication that can be dispensed within a given time frame. This restriction is usually aligned with the directions on the drug’s label; a drug that is given twice daily might have a quantity limit of 60 tablets within 30 days.
Payers can also impose step therapy restrictions, sometimes called “fail first” requirements, to ensure that patients try a generic or less expensive drug before a more expensive one. If only one step is mandated, issuing a prescription for the higher-cost medication will not necessarily require step therapy. When a patient tries to fill the prescription, the pharmacy’s adjudication platform will automatically review past claims to determine if the patient has already tried the first-step therapy and is compliant with their plan’s coverage rules.
Prior authorization (PA) restrictions are commonly used for expensive medications, drugs that have dangerous side effects, or drugs that a payer considers to be overused. To prescribe these drugs, the provider must first complete a PA request and receive advance approval from the payer.
While PA may be appropriate for certain drugs, this restriction can act as a powerful deterrent to providers. Despite recent legislation supporting electronic PA standardization, the PA process is still complex, time-consuming and highly manual. Providers are often unsure if they are including the right documentation with the request, which contributes to denials and unnecessary care delays. As a result, the presence of a PA restriction can lead providers to prescribe a different medication altogether.
Why do payers use utilization management?
- Ensure treatments meet clinical guidelines
- Prevent unnecessary or low-value care
- Manage high-cost therapies
- Promote appropriate use of resources
- Protect plan sustainability and member affordability
What are the main types of utilization management?
- Prior Authorization (PA)
- Step Therapy (ST)
- Quantity Limits (QL)
- Medical Necessity Review
- Formulary restrictions or tiering
- New-to-Market Blocks (NTMBs)
- Site-of-care management
