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Utilization Management As a Cost-Containment Strategy by Howard L

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Utilization Management As a Cost-Containment Strategy by Howard L Utilization management as a cost-containment strategy by Howard L. Bailit and Cary Sennett Utilization management (UM) is now an integral part electronic connectivity between payers and providers and of most public and private health plans. Hospital review, the use of clinical guidelines and computer-based until recently the primary focus of UM, is associated with decision-support systems, the need for prospective a reduction in bed days and rate of hospital cost case-level reviews will be reduced. With these changes, increases. These reductions appear to have had limited UM programs are likely to become more acceptable to impact on aggregate health care costs because of providers and patients. increases in unmanaged services. In the future, with Introduction The rationale for UM rests on three underlying assumptions: The great majority of Americans are now enrolled in • In a predominantly fee-for-service payment system privately or publicly funded health plans that use there is considerable unnecessary and inefficient care utilization management (UM) programs as a primary provided to patients. cost-containment strategy. This includes 90 percent of • Unnecessary care can be controlled, saving substantial privately insured employees and all Medicare and amounts of money and improving the quality of care. Medicaid participants (Sullivan and Rice, 1991). • The cost of operating UM systems is small compared Considering that few employees were enrolled in these with the savings. programs until the middle 1980s, the growth of UM has Extensive literature suggests that perhaps 10 to been phenomenal. 30 percent of diagnostic tests, procedures, and hospital Now that UM programs are established, it is an admissions are unnecessary (Chassin et al., 1987; appropriate time to assess their impact and to reflect on Greenspan et al., 1988; Siu et al., 1986; Winslow et al., their future role in the health care delivery system. There 1988a; Winslow et al., 1988b). Whether or not UM can is an extensive descriptive literature on UM (mainly for control unnecessary care and do it efficiently is addressed inpatient care), and a small but growing body of in this article. scientifically rigorous analytic work evaluating its impact Two general aspects of effectiveness are considered: on utilization, costs, and quality. This literature is briefly Medical care utilization and costs at the program and summarized here. system levels and the quality of care. (A brief description The primary concern of this article is the future of of the major UM programs and the history of UM can be UM. The two critical questions of concern are: Will found in the Technical note.) externally run public and private UM programs continue? If so, what changes are expected in UM operations over Individual program utilization and costs the next 5 to 10 years? This article focuses on the UM program sponsored publicly for Medicare, or peer review Inpatient medical and surgical review organizations (PROs), and those operated by UM companies that do not have a contractual relationship with The impact of PROs on hospital utilization is physicians and hospitals. UM programs used in health unknown, but it may be limited because only 2 to maintenance organizations (HMOs), preferred provider 3 percent of admissions are denied (Vibbert 1991b). On organizations (PPOs), and other network-based managed the other hand, the 1983 diagnosis-related-group (DRG) care plans are excluded because their effects are payment system gives hospitals the incentive to admit confounded by the other intrinsic cost-containment Medicare patients more frequently. Nonetheless, features. Medicare admissions have declined during the past 7 years. Some investigators have posited that this decline Utilization management programs can be attributed, in part, to the PRO program (Christensen, 1991; Sloan, Morrisey, and Valvona, UM as used in this article is: " ... a set of techniques 1988). used by or on behalf of purchasers of health benefits to Two studies have examined the effectiveness of private manage health care costs by influencing patient care sector, phone-based hospital admissions and length-of­ decision-making through case-by-case assessments of the stay certification programs using multivariate statistics appropriateness of care ..." (Institute of Medicine and before-and-after control group design. One study Committee on Utilization Management by Third Parties, reported reductions in medical, surgical, and psychiatric 1989). bed days per 1,000 employees of 8 percent and in total health care costs of 6 to 8 percent (Feldstein, Wickizer, and Wheeler, 1988; Wickizer, Wheeler, and Feldstein, The views expressed herein are solely those of the authors, and do not 1989; Wickizer, 1990; Wickizer, 1991). Another study of necessarily reflect the positions of AEtna Life & Casualty. medical and surgical admissions showed a reduction in Reprint requests: Cary Sennett, M.D., Ph.D., MCI, AEtna Life & bed days of 34 per 1,000 employees per quarter, or Casualty, lSI Farmington Avenue, Hartford, Connecticut 06156. 13 percent. Inpatient expenses were lowered by Health Care Financing Review/1991 Annual Supplement 87 8 percent, and total health care costs by 4.5 percent Quality (Khandker and Manning, 1992). Compared with telephone-based hospital review, The effect of UM on the quality of care has generated reductions of another 6 percent in bed days per a great deal of speculation but little serious study. A 1,000 employees and 9 percent in net costs are reported definitive series of investigations has been done on the when the need for hospital admissions and continued stay impact of Medicare's prospective payment system (PPS) is reviewed onsite (in the hospital) by nurses (Smith and on mortality and morbidity. The specific effects of PROs Gotowka, 1991). on quality were not examined separately. Most other work in this area concerns provider, patient, and Psychiatric and substance abuse employer satisfaction with UM systems. PPS and PROs started about the same time. An Because Medicare has limited mental health coverage, examination of their combined impact on quality provides PROs have little involvement in managing psychiatric and some insights on the effect of UM programs. Focusing on substance abuse utilization. For private sector, telephone­ five conditions (acute myocardial infarction, pneumonia, based UM programs, the one published multivariate study congestive heart failure, cerebrovascular accidents, and found reductions in length of stay of 20 percent, in hip fracture), a comparison of mortality and morbidity admission rates of 13 percent, and in net inpatient costs rates before and after the introduction of the (PPS of 16.6 percent (Gotowka and Smith, 1991). 1981-82 and 1985-86 respectively) showed that PPS was associated with: an improvement in the process of care Medical and surgical procedures (Rubenstein et al., 1990); an increase in the percent of patients discharged in an unstable condition (Kosecoff Until recently, PROs prospectively reviewed up to et al., 1990); and no differences in 30-day and 180-day 10 surgical procedures using explicit criteria. There is post-admission mortality rates (Kahn et al., 1990). These little information available on the impact of these data suggest that PPS and PROs have not led to a reviews, but because they have been discontinued, it is reduction in the quality of care. Little is known about the apparent that they were not considered to be effective. impact of private sector UM programs on quality. Many studies in the private sector have assessed the Another dimension of quality is provider, patient, and effects of second surgery opinion systems, and the results employer satisfaction with UM. There is considerable are mixed (Leape, 1989). The weight of the evidence provider dissatisfaction with UM programs. Most concern suggests that these programs are only marginally effective is with the "hassle factor" associated with previously in controlling costs. autonomous physicians having to justify admissions, The use of clinical protocols to prospectively assess the length of stay, and procedures to UM companies over the need for selected tests and surgical procedures is just phone, dealing with review staff who have varying levels getting started. Denial rates appear to be substantial for of training and expertise and do not know the patient, and some services, e.g., hysterectomies, 21.5 percent, trying to comply with multiple sets of proprietary clinical tonsillectomies, 27.1 percent, and minimal for others, rules (Grumet, 1989; Stevens, 1990). These problems are e.g., cardiac bypass surgery (Vibbert, 1991a). The denial exacerbated by the additional operating expenses rate across all inpatient and outpatient services averaged associated with UM (Holthaus, 1989; Mayo Clinic, 11 percent. No data are available on net program savings. 1988). On the other hand, it is clear that most physicians and Case management hospitals have acquiesced to UM and do comply with UM processes. The key provider concern now appears to The one study of case management programs reported be the need to standardize and improve UM systems and negligible short-term net savings (Henderson, Souder, and operations (Institute of Medicine Committee on Bergman, 1988). Because of the paucity of studies and Utilization Management by Third Parties, 1989). the complexities of evaluating case management programs, any conclusions would be premature. Patients and employers System level trends Information on patient
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