Utilization Review Isn’t a Nursing Function. It’s a Revenue Function.

Why understaffed UM departments are quietly costing hospitals millions, and how to make the case in dollars, not just denials. 

By Jonna Mayfield, BSN, RN, CMGT-BC

Ask most hospital leaders where utilization management (UM) sits on the org chart, and you’ll usually find it buried under nursing or care management: staffed, budgeted, and evaluated like a clinical support service. That framing misses what utilization review does for the hospital’s bottom line, and it’s costing organizations far more than most finance teams realize. 

The Gap Between Observation and Inpatient Keeps Widening

The financial distance between an observation stay and an inpatient admission has been growing for years, and 2025 data shows it is accelerating. According to the American Hospital Association’s 2025 Cost of Caring report, Medicare Advantage plans reimbursed only 49% of the actual cost of care for patients held in observation status in 2024, and observation stays for MA patients now run 36.9% longer than for traditional Medicare beneficiaries — nearly double the gap seen just five years earlier. 

On the reimbursement side, Healthcare Financial Management Association’s (HFMA) modeling puts a standard inpatient case at roughly $6,500 in expected reimbursement compared with $2,000 for the same clinical presentation discharged as observation: a $4,500 gap for identical care. Depending on the DRG family and comorbidity capture involved, that swing can run as high as $8,000 per case. Multiply that by admission volume, and the revenue exposure from misclassified or simply unreviewed cases becomes a material line item, not a rounding error. 

The Math Hospital Leaders Should Be Running 

Consider a mid-size community hospital admitting roughly 15,000 inpatients a year. If just one case a day is missed, an observation stay that met inpatient criteria but was never escalated for review — the math looks like this: 

• At the conservative end of the range ($4,500/case): over $1.6 million in avoidable lost revenue annually. 

• At the higher end ($8,000/case): approaching $2.9 million a year. 

• The average annual salary for an UR/UM RN: roughly $85,000. 

A single, UR nurse pays their entire salary by correctly converting fewer than 20 cases a year, well under two a month. Everything beyond that is protected margin. Understaffing the department to save on one salary line, while missing reviews on admissions that should have converted, isn’t a cost-saving decision. It’s a revenue-losing one, and usually a much larger one than the staffing line it was meant to protect. 

Why Hospitals Can’t Fix This with Internal Staffing Alone 

Here’s the part most hospitals get wrong: they treat this as a headcount problem. It isn’t, and that’s exactly why adding another req rarely closes the gap. 

Coverage must be constant, and internal teams can’t be. CMS’s two-midnight rule means the window to get a status determination right is narrow: concurrent, at the front end, before discharge. That window doesn’t pause for PRN gaps, call-offs, vacation coverage, or a Saturday night with one nurse covering three units. An internal UR function is only as strong as its weakest shift, and every hospital has weak shifts. 

Dyad models don’t fail from lack of effort. They fail from structural conflict. When one case manager owns both discharge planning and utilization review, there’s no version of that job where UR wins consistently – there’s always an immediate patient in a room who needs to leave today. This isn’t speculation: Organizations where case managers prioritize discharge planning over UR saw a decline in revenue, an increase in denials, and an increase in readmissions, and had to separate the roles to fix it. As one case management consultant puts it, siloing UR away from bedside case management “sets the scene to diminish a sense of urgency,” even though effective utilization management is inherently an urgent, non-negotiable process.  Deferring a chart review to “later in the shift” feels reasonable in the moment. It just also happens to be the exact decision that quietly closes a revenue opportunity for good. This isn’t a training gap or a performance issue. It’s two full-time jobs competing for the same eight hours, and one of them has a patient standing in front of it. 

Consistency is the whole point, and consistency doesn’t scale with more individual hires. Medical necessity criteria applied by five different nurses across five different shifts, at five different experience levels, doesn’t produce five consistent outcomes. It produces variance, and variance is where both denials and missed conversions live. Hiring one more nurse into that same structure adds capacity. It doesn’t add consistency. 

That’s the real reason understaffed UM departments stay understaffed even after budget approval for a new position. The problem was never just headcount. It’s a structural mismatch between what the role requires (constant, criteria-driven, defensible review, every shift, every case) and what internal staffing models are built to deliver (flexible coverage that flexes toward whichever task has a patient attached to it). 

What Actually Closes the Gap 

Closing this gap requires taking concurrent review out of the internal staffing equation entirely, not adding to it. 

That means a dedicated team whose only job is utilization review: applying the same medical necessity criteria the same way, on every admission, every shift, with no PRN gaps and no competing discharge-planning priority pulling attention away. It means a Physician Advisor available for escalation on the cases that need real clinical judgment, not just a criteria check. And it means every review happening concurrently, at the moment the order is written, because that’s the only moment this revenue can still be protected. 

This is exactly the model Brundage Group Utilization Management runs. Our RNs handle remote, concurrent utilization review as their full-time function, so every admission gets reviewed against medical necessity criteria from the moment the order is written, patients land in the appropriate status, and hospitals are reimbursed accordingly. Your case managers get to do the discharge planning work that actually depends on their institutional knowledge, the post-acute network, the payer quirks, the family dynamics, instead of splitting attention with a job that needs full-time consistency to work. 

The hospitals still trying to solve this with one more internal hire aren’t wrong that they have a gap. They’re solving it at the wrong layer.