Identify the type of hmo cost-containment method

Before we discuss cost-containment strategies with respect to healthcare, we need to understand what cost containment is. 

Cost containment is the business practice of maintaining expense levels to prevent unnecessary spending, or thoughtfully reducing expenses to improve profitability without risking long-term damage to the company.

Why Do Employers Need Healthcare Cost-Containment Strategies?

Healthcare costs are rising, and everyone is feeling it. 

In fact, according to the Centers for Medicare and Medicaid Services, healthcare spending is projected to increase by 5.5% annually through 2027; that’s faster than the rate of inflation. Large employers predict they will see an increase of 5-6% in healthcare costs in 2020. 

No wonder 45% of employers say that managing healthcare costs is their top priority. But how can they address the challenge of rising healthcare costs? 

There is one approach that can help employers incur a lower cost increase: implementing cost-containment strategies. These can range from modifying employer practices — such as shifting costs to employees — to harnessing technology. Some are more effective than others. 

Examples of cost-containment strategies include: 

• Offering high-deductible health plans (HDHPs)
• Shifting costs to employees
• Offering virtual care, such as telemedicine
• Offering health savings accounts (HSAs)
• Performing claims analysis
• Making changes to coinsurance

Cost-Containment Trends

Price Transparency

We can think of healthcare today as a triangular relationship:

• Employee–Employer
• Employee–Insurance Company
• Employer–Insurance Company

Each of these relationships is dependent on the other two relationships, and some consist of negotiated rates and discounts. Consequently, things become complicated quickly, with prices getting messy and mystifying. The lack of price transparency, partly the result of

insurance companies having to individually negotiate with and pay providers, creates a system that can’t manage its own costs. Patients find themselves confused, and they end up overpaying. 

Telemedicine

Telemedicine is a win-win. 

By offering employees a lower-cost, virtual visit with a doctor, telemedicine helps employees get diagnosed and treated without their having to step out the door. This means employees can get the care they need quickly and conveniently. 

Meanwhile, employers benefit because telemedicine is often an effective healthcare cost-containment strategy, as it allows employees to avoid more expensive healthcare options, such as primary care, urgent care and emergency rooms. 

However, generating real savings by limiting claims for ER and office visits requires telemedicine be highly utilized. If people aren’t using the service, then they are still going to the doctor’s office, ER or urgent care facility. In such a case, very little healthcare cost savings can be realized.

Population Health Management

Population health management programs look at demographic and claims data to identify chronic illnesses like hypertension, diabetes and heart disease. The programs can then help companies combat the high costs of treatment by suggesting case-management strategies for conditions stemming from those major health problems.

This can be an effective, if complicated, way to manage costs in the medium-to-long term. Unfortunately, case management requires a lot of work when a patient’s needs are especially complicated. Moreover, it may take years to realize savings, because it hinges on the cooperation of the individual employees who have expensive health conditions.

The Keys to Cost Containment

What elements are key to an effective cost-containment strategy? 

First, for employee-facing cost-containment strategies to work, employers need to ensure employees will actually use them. In the example above, telemedicine can be an effective cost-containment strategy — when employees use it. Telemedicine that isn’t used doesn’t have real value.

Utilization is also key to initiatives such as HDHPs, HSAs, smoking cessation and wellness programs.

Driving utilization requires a robust employee-engagement program. Changing employee behavior is tough, but if employees don’t change their behavior around accessing healthcare, employers won’t see meaningful results from cost-containment strategies.

The second key is discovering what’s working and what’s not.

Employers often struggle to measure the success of a cost-containment strategy. For example, according to the results of the First Stop Health 2019 Health Benefits Cost Containment Employer Report, while 79% of employers measure enrollment in HDHPs, only about one-third measure ROI.

Certainly, ROI is difficult to measure, but how can you know if a program is effective if you don’t measure it? It is metrics that allow you to vet existing programs and, when needed, justify making room for more effective ones.

From this review of the literature and from the authors' personal experience operating UM and managed care systems, two questions are addressed: Will payer operated UM continue? If so, what changes are likely to occur in UM programs over the next 5 to 10 years?

There are two reasons to believe that publicly and privately operated UM programs will continue. UM can make a significant contribution both to managing health care costs and to assessing the value of health services in improving health.

Although the number of scientifically rigorous studies is limited, the available literature indicates that hospital admissions and length-of-stay precertification programs, both medical and surgical, and psychiatric and substance abuse, have led to significant reductions in bed days per 1,000 employees. The data from individual studies are supported by additional evidence from national trends in hospital admissions and length of stay. Clearly, UM systems are associated with major changes in practice behavior.

As to their effect on costs at the individual plan level, a few well-controlled studies of hospital review programs report net total health care savings of 4.5 to 8 percent (Feldstein et al., 1988; Gotowka and Smith, 1991; Khandker and Manning, to be published; Smith and Gotowka, 1991; Wickizer, et al., 1989). Likewise at the system level, UM programs are associated with a significant reduction in the rate of increase in hospital costs during the 1980s (Schwartz and Mendelson, 1991).

In terms of total health care costs, hospital utilization review has had less impact. This may be in part a timing effect, because it is only in the last few years that the majority of employers have had hospital precertification. Another and more important explanation may be the substantial increases in utilization for non-reviewed services, mainly outpatient.

To deal with this problem, utilization review is now being extended to the outpatient setting, and in time should lead to significant reductions in utilization rates. With all the major medical care services under management, it is far more likely that decreased utilization rates will be reflected in significant reductions in the growth of health care costs.

This does not mean that UM will be the primary method for bringing health care cost increases down to socially acceptable levels. Rather, it is an important component of a larger managed care strategy that includes contracting with or employing a select group of providers and having appropriate financial incentives to encourage them to practice high quality efficient medicine.

Further, even with effective managed care, the control of health care costs will also require public policies to deal with the “macro” level problems of unchecked growth of health care technology, facilities, and manpower. Increases in consumer cost sharing may also be a necessary component of an overall national cost-containment policy. Within this context, UM can play a significant role in improving the efficiency of the delivery system.

Another reason that UM is likely to continue relates to the rising demand for accountability and value. With large and growing expenditures for health care, payers want to know how their money is spent and what it produces in terms of health care quality (process and outcomes).

This is in part the result of growing public awareness of how little is known about the effects of medical procedures and tests on health outcomes, and the significant and unexplained variation in practice patterns among geographic regions and individual physicians. There appears to be greater appreciation that the linkage between utilization of service and health outcomes is very complex, and that more services do not necessarily mean better health.

The point is that the need for UM goes beyond the issue of controlling costs. UM is a primary approach that public and private payers can use to determine if patients are receiving appropriate care and if the money spent on health care is providing value. With this information, payers are in a better position to make informed decisions about health plan and delivery system changes that will lead to greater value.

In summary, there are good reasons to believe that UM will continue. Indeed, UM systems of the general type used in the United States may eventually be adopted by other countries that have controlled health care costs through global budgeting but have little information on the value of the services purchased (Anderson, Sheps, and Cardiff, 1990; Hurst, 1991).

What is likely to change in the next 5 to 10 years are the form and content of UM. Most of these changes will be driven by new UM technologies and organizational relationships. Effective UM is dependent on having access to detailed clinical information on the care proposed or delivered to patients, clinical guidelines that define appropriate care, and positive long-term relationships with providers.

UM programs are severely constrained by the lack of adequate data to support informed and timely decisions on the appropriateness of care delivered to individual patients and to cohorts of patients in a practice or region. Moreover, current approaches to collecting data over the telephone are complex, physician-time intensive, and expensive. This is certain to change in the next few years as providers and payers become linked electronically. This technology is now being installed in hospitals, retail pharmacies, medical laboratories, physician offices, and other delivery settings. Once connected, providers can check patient eligibility, transmit claims, and rapidly and efficiently do many UM tasks such as hospital precertification, thereby reducing much of the administrative cost and complexity.

With electronic data transmission, patient and provider data bases can be created that span multiple health care services (e.g., medical, laboratory, pharmacy) in order to obtain a more comprehensive understanding of the appropriateness of the care delivered to individuals and groups of patients over time. With adequate data, UM systems will be able to identify those specific problem conditions and providers that need review and those that do not. By targeting reviews, it will be possible to focus on a relatively small subset of conditions and providers, thereby reducing the cost of UM.

A second development is the establishment of explicit clinical guidelines that define appropriate care. Currently, most UM companies use implicit rules (e.g., physician judgment) or simple indication lists to guide UM reviews. Brook (1991) suggests that decision-tree type guidelines are needed for about 200 common conditions that encompass most of medical practice. Support for this view is growing, and many professional groups and Federal research agencies are developing explicit clinical guidelines.

Whether there should be one basic set or multiple sets of national guidelines remains an issue. There appears to be a consensus that guidelines, although based on general medical science, have to recognize limitations in local medical resources. Moreover, the clinical logic used in guidelines must be available to the providers being reviewed. Finally, guidelines must allow for rapid decisionmaking, so as not to delay needed care and to mitigate the hassle factor.

The requirement for timely UM decisions has limited the quality of the UM process to a greater extent than the availability of guidelines. Timely reviews require either that the guidelines be relatively simple or that they be in computer systems that can negotiate complex clinical alogrithms in real-time. For many conditions, the UM process will not be very effective using simple rules, so the key is to build systems that can handle complex decision rules. With advancements in computer hardware and decision-support systems, more timely reviews are possible.

In this regard, the development of computerized medical record systems is especially promising. Electronic records will have the capacity to include clinical guidelines in the form of decision-support systems. This technology will allow timely clinical decisions and will change the focus of UM. The need for prospective case-level reviews will be reduced because provider decisions will be assisted internally. Overall provider performance can be assessed by retrospective review of selected subsets or abstracts of electronically stored clinical data that would be available to payers, reviewers, and others (Detmer, 1991).

It is imperative that managed care companies and providers establish congruency in their objectives. This is the only way that UM programs will be successful using the advanced information technology and clinical guidelines described. To date, many providers view UM as an effort to limit their professional autonomy and income. As a result, attempts to control utilization in one area of medical care are likely to be countered with increases in volume and prices in other non-regulated areas. There is evidence that this has been the case with hospital review systems (Schwartz and Mendelson, 1991).

With congruent objectives, UM can be expected to evolve from its current role as a “command and control” regulatory program to more of an educational and decision-support system for physicians. In this way, UM will be of greater value to practitioners and patients and, as a result, should gain broader support.

Congruent objectives can be developed in a number of ways including employment of physicians, as seen in staff and group model HMOs and hospitals, or in strong supplier-customer relationships. Employment of physicians is increasing, but the great majority of physicians remain self-employed. As such, the challenge facing the managed care industry and providers committed to PPOs and individual practice association (IPA)-model HMOs is to develop supplier-customer relationships that are long-term and stable.

More managed care companies appear to appreciate this perspective and are changing their relationship with network providers. This takes on different forms including: decentralizing managed care operations to local markets in order to foster personal relations with providers; selecting providers who practice high quality, efficient care which reduces the need for case-level reviews; using UM as an educational rather than as a punitive approach to improving performance; and finally, making sure that the relationship is profitable for both parties.

Further, as managed care patients become an increasing percentage of physicians' practices, providers will have a similar incentive to develop long-term relationships with those managed care companies with whom they have congruent objectives and values. If stable relationships cannot be developed between independent providers and managed care companies, it is unlikely that IPA-model HMOs will be able to compete successfully over the long run with staff and group-model HMOs.