Utilization Management (UM) is a set of strategies used by payers (eg, health insurance companies) to manage health care costs by influencing care decisions. UM tactics include: prior authorization, step therapy, specialty specific tiers, restrictive formularies and oral parity.¹ UM is implemented differently depending on the health plan. Some payers use standards from the National Committee for Quality Assurance and others use Utilization Review Accreditation Commission standards. While UM strategies can be disparate and variable, Centers for Medicare & Medicaid Services (CMS) sets the standard for UM nationwide.²

On December 30, 2015, CMS issued a final rule that established prior authorization for certain durable medical equipment, prosthetics, orthotics and supplies (e.g. wheelchairs).³

For the Calendar Year 2020 Outpatient Prospective Payment System/Ambulatory Surgical Center Final Rule, CMS established prior authorization for certain hospital outpatient services (e.g. vein ablation, blepharoplasty, etc.)⁴

UM is predicated on the idea that in a predominantly fee-for-service payment system there is a considerable amount of unnecessary and inefficient care that must be controlled to curb costs and improve the quality of care. However, without appropriate patient safeguards, UM can impede access to innovative care. UM also imposes administrative burden on medical professionals and limits physician autonomy.

Prior authorization requires patients or prescribers to secure pre-approval by providing the clinical rationale for use of the planned treatment regimen before treatment. Payers use a variety of information sources in making prior authorization decisions (FDA labeling, clinical practice guidelines, clinical literature, etc) and they do not disclose the process or basis for prior authorization determinations. Personnel who make prior authorization decisions may not be readily accessible to the provider and have limited clinical knowledge.¹

Step therapy or fail-first policy, requires patients to use the payer’s preferred drug before the payer will cover another drug that the patient and treating physician may prefer. Specialty tiers are when a drug is designated as a specialty to shift a large portion of the cost from the payer to the patient. A formulary is a list of drugs covered for beneficiaries, a restrictive formulary is a limitation on the number of drugs included within a coverage category. Oral parity occurs for chemotherapy where there are higher patient cost-sharing requirements on oral chemotherapy agents than for intravenous medications or injectables.¹

In a 2019 survey, the American Medical Association found that 67% of physicians find it difficult to determine whether a prescription or service requires prior authorization and 83% of physicians contend that prior authorization interferes with continuity of care.⁵

CMS does accept and review requests for exceptions to their UM tactics. A tiering exception can be submitted to obtain a non-preferred drug at the lower cost-sharing terms applicable to drugs in a preferred tier. A formulary exception can be requested to obtain a Part D drug that is not included on a plan sponsor's formulary, or to request to have UM waived (eg step-therapy).⁶

1. American Society of Clinical Oncology Statement on the Impact of Utilization Management Policies for Cancer Drug Therapies. J Oncol Pract. 2017;13(11):758-762. doi:10.1200/jop.2017.024273

2. Weller J. Utilization Management in Healthcare | Smartsheet. Smartsheet. https://www.smartsheet.com/content/utilization-management. Published 2020.

3. CMS Finalizes Rule Creating Prior Authorization Process for Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies Items | CMS. Cms.gov. https://www.cms.gov/newsroom/fact-sheets/cms-finalizes-rule-creating-prior-authorization-process-certain-durable-medical-equipment. Published 2015.

4. CY 2020 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule (CMS-1717-FC) | CMS. Cms.gov. https://www.cms.gov/newsroom/fact-sheets/cy-2020-medicare-hospital-outpatient-prospective-payment-system-and-ambulatory-surgical-center-0. Published 2019.

5. Physicians call on Congress to address prior authorization reform. American Medical Association. https://www.ama-assn.org/press-center/press-releases/physicians-call-congress-address-prior-authorization-reform. Published 2021.

6. Exceptions | CMS. Cms.gov. https://www.cms.gov/Medicare/Appeals-and-Grievances/MedPrescriptDrugApplGriev/Exceptions.